Background checks are one of the primary ways for employers to secure information about potential hires. The purpose of background checks is to determine if an applicant may not be qualified for a position due to any misdemeanor, violation, criminal conviction or poor credit history. Furthermore, comprehensive background checks assure that applicants cannot hide a history of drug abuse or submit a CV with false information regarding education or work experience.

Before a company conducts background checks on its candidates or employees, they must deal with a host of legal challenges since there are many complicated federal laws which apply to the practice of background investigations.

The Fair Credit Reporting Act (FCRA) regulates how background checks and credit reports run. In contrast to its name, the FCRA covers much more than individuals’ credit information. It also applies to reference checks and inquiries about previous job performance. The FCRA is a federal law seeking to ensure the privacy, accuracy and fairness of information on file with consumer reporting agencies.

The FCRA requires companies to give candidates proper written disclosure in a separate stand-alone document ahead of time that the company requires a background check which might contain information about the person’s “character, general reputation, personal characteristics and mode of living.” This disclosure must notify anyone applying for a job that based on the information received from of the background check, employment decisions may be made. Companies must also clearly state in what they will be screening for in the background check and what for what purpose they intend to use the information gleaned. If the company plans on running continuous background checks on its employees, that needs to be disclosed too. According to FCRA law, the company must have the applicants written consent to all of this before they can run the background checks. Furthermore, to give a candidate the right to dispute any information found in a report, the FCRA requires employers to provide a copy of the report to an applicant before the company takes any action based on its contents.

A note of caution to employers: now is a good time to review your company’s use of credit reports and background checks to make sure that all of the FCRA requirements are being met. For if not, beware that there are exorbitant fines and fees facing violators. There has been an increasing number of high-dollar settlements and class actions facing employers for failure to comply with FCRA’s strict technical requirements regarding the use of consumer reports. This has cost large corporations millions if dollars in class action litigations and settlement agreements. So take heed and proceed with caution and with confidence that are 100% FCRA compliant.

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