October 10, 2018

Background Checking Job Candidates? Stay in Compliance or Risk Employment Litigation

As of September 21, 2018, employers who use third-party vendors to obtain background checks must utilize an updated version of the “Summary of Your Rights” disclosure as required by the Fair Credit Reporting Act (FCRA). With a continued stream of litigation over the FCRA, including a recent Seventh Circuit Court of Appeals decision involving the FCRA’s technical requirements, employers should take note and comply.

The New “Summary of Your Rights” Disclosure

The new disclosure includes language about an applicant’s or employee’s right to place a “security freeze” or fraud alert on his or her credit report from a consumer reporting agency. A freeze prohibits the agency from releasing information without express authorization, and is aimed at making it more difficult for identity thieves to open fraudulent accounts. Applicants and employees already had the right to institute a security freeze on their credit reports (and a new law passed in May 2018 bolstered such protections), but the updated disclosure informs them of their existing rights. The updated disclosure is available in English and Spanish on the Bureau of Consumer Financial Protection’s website.

Even Technical Failures Are Actionable, Says Seventh Circuit

A recent Seventh Circuit Court of Appeals decision (whose decisions govern Indiana, Illinois and Wisconsin employers) underscores the importance of strictly following each of the FCRA’s technical requirements. In Robertson v. Allied Sols., LLC, 902 F.3d 690, 697 (7th Cir. 2018), a woman had simply been told her job offer was rescinded because of information in her criminal background report. No further explanation was given, and she was not provided with a copy of the report and the “Summary of Your Rights” disclosure, as required by the FCRA.

This latest ruling makes clear that an applicant/employee can file suit if the employer makes an adverse decision based (at least in part) on the background report and fails to provide a copy of the report and the “Summary of Your Rights” disclosure. 

The appellate court held she could proceed in her lawsuit (brought as a class action) against her would-be employer, even though she did not claim the report contained false information or that she would have refuted the report had she received a copy. Rather, the FCRA requires, among other things, that employers provide advance written notice of the adverse action (i.e., non-hire, denial of promotion, termination, etc.), a copy of the report and the “Summary of Your Rights” disclosure. The employer must wait at least five business days before acting on the adverse decision to give the applicant/employee an opportunity to correct inaccurate information in the report or alternatively, concede to the accuracy of the report but “present her side of the story even where the facts are clear.” According to the appellate court, the FCRA’s pre-adverse action notification requirements are aimed at providing a meaningful opportunity to respond regardless of the report’s accuracy because, “providing context may be more valuable than contesting accuracy.” Once the adverse decision takes effect, the employer must also issue a post-adverse action notification.

This latest ruling makes clear that an applicant/employee can file suit if the employer makes an adverse decision based (at least in part) on the background report and fails to provide a copy of the report and the “Summary of Your Rights” disclosure. Note, the FCRA only applies when an employer utilizes a third party to obtain background information, and certain positions regulated by the U.S. Secretary of Transportation are subject to less rigorous pre-adverse action notification requirements.

Employer Takeaways

Employers should begin using the updated “Summary of Your Rights” disclosure immediately. Further, because the FCRA continues to be a hot area for litigation, including class action lawsuits, employers should take this opportunity to review their background check materials to ensure legal compliance with the latest laws. Employers can be liable for flawed background checks even if they rely on the third-party vendor to fulfill the FCRA’s technical requirements. Those requirements generally include a distinct notice and authorization prior to obtaining a report, as well as pre- and post-adverse action notifications when a negative decision is made based “in whole or in part” on information in the report.

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