Direction on Background Checking Compliance
A new lawsuit filed on February 3 in the U.S. District Court, Western District of North Carolina serves as a great reminder that employers must stay compliant with the Federal background checking law, the Fair Credit Reporting Act (FCRA).
In the case of Hale vs Lowe’s, the plaintiffs allege that Lowe’s failed to follow the procedures dictated by the FCRA and provide the applicant with a copy of the report and subsequently required paperwork before they made a negative hiring decision.
While the 2021 numbers are still being tabulated, the preliminary numbers show that despite a lot fewer background checks being performed in a year of COVID, last year’s number of FCRA-related lawsuits has yet again increased as much as 3.5%.
This case serves as a warning that employers should still strive to remain compliant with Federal laws. The FCRA has certainly provided the basis for some very expensive court-ordered settlements.
To avoid the pitfalls of the FCRA, you need to remember these steps:
- Have a permissible purpose (employment)
- Obtain written consent from the applicant
- Run the check through your third party Consumer Reporting Agency, like Catapult
- Look at the results and decide if the applicant fits the needs of your company:
- If the record is clean, keep the authorization form in a secure place.
- If the report has information that is causing concern before you decide on hiring, you must share with the applicant the following:
- Mail a copy of the report, and
- A summary of the applicant’s rights under the FCRA, and
- A pre-adverse action letter, which includes the third party’s (background checking company’s) name and contact info
If your company is in North Carolina, you should also send a copy of the NC Security Freeze to the applicant. Other states may also have state-specific documents that are required. After a reasonable amount of time, which we’d recommend around 5 business days, you will need to mail the declination letter to your applicant. During this time, you should hold the position to give the applicant a chance to respond. After this “reasonable time,” you may hire the appropriate applicant and fill the position. Make sure you store the rejected applicant’s signed written consent in a secure place!
Also, don’t forget that the EEOC wants you to follow the Green Factors and Individualized Assessment during this process too. Catapult experts are happy to help ensure you’re compliant with the FCRA, and we can also help you with your background checking needs.
For more information please contact Kevin W. von der Lippe by e-mail at kevin.vonderlippe@letscatapult.org
*Capital Associated Industries Services Corporation is a wholly-owned licensed investigative agency of Catapult Employers Association, Inc., specializing in corporate pre-employment background screening. Our corporate agency license is BPN 001473P11 M.
Frequently Asked Questions
What law governs employer background checks in the U.S.?
The Fair Credit Reporting Act (FCRA) governs employer background checks conducted through third-party Consumer Reporting Agencies (CRAs). FCRA requires employers to: provide a standalone written disclosure before ordering the report, get written authorization from the applicant, provide a “pre-adverse action” notice before declining to hire, and follow the adverse action process if the background check contributes to an adverse decision.
What are the FCRA adverse action steps employers must follow?
If you intend to take adverse action based on a background report: (1) provide the candidate with a pre-adverse action notice including the CRA’s name, address, and phone number and a copy of the report and their rights; (2) wait a reasonable time (typically 5 business days) for the candidate to respond; (3) if you proceed, send the final adverse action notice. Skipping these steps is one of the most common — and costly — FCRA violations.
Do “ban the box” laws affect when employers can run background checks?
Yes. Over 35 states and 150 cities have ban-the-box laws that delay criminal history inquiries until after a conditional job offer. Some jurisdictions require individualized assessment before disqualifying an applicant based on criminal history. Employers must know the laws of every state and city where they hire.
How far back can an employer look at criminal history?
The FCRA limits most consumer reporting agencies from reporting non-conviction records and convictions more than 7 years old for positions paying under $75,000. However, some states have stricter lookback limits. For positions above the $75,000 threshold, FCRA has no lookback limit — but state law may still restrict what can be reported.
Can employers require background checks after hire?
Yes. Post-hire background checks are permissible for legitimate business purposes: security-sensitive roles, promotions to positions of greater trust, employees who will work with vulnerable populations, or in response to specific incidents. The same FCRA authorization and disclosure requirements apply for post-hire checks conducted through CRAs.
