By Edward Woodall

So, you have big plans for your business this year! To implement those plans, you need to hire a new employee. The right candidate for the job has to be trustworthy: she may be entering your customers’ homes, handling customer payments, or working with sensitive customer or business information. That last thing you need is an employee stealing from your customers or you – or worse.

You’ve Found the Right Candidate – What Comes Next?
You’ve interviewed several candidates and found one you really like. She seems like the right fit, but what do you really know about her from a one-page résumé and a couple of interviews? What can you do to learn more about her? Should you run a criminal background or a credit check?

Many businesses should and do use various types of background and credit checks. These can be as simple as in-house Internet searches (such as checking Facebook, Twitter, and Instagram) or as in-depth as third-party credit or consumer reporting agency reports. Equifax, TransUnion, and Experian are the most well-known credit reporting agencies and can generate reports about everything from creditworthiness to criminal records. There are also many other agencies that will provide you with a myriad of different reports.

Before you run a background or credit check, you should be aware that there are Federal and state laws that (i) affect your ability to run these types of checks on job applicants or existing employees and (ii) dictate what you can do with the information received. The Fair Credit Reporting Act (FCRA) is the most important law affecting your ability to obtain and use a background or credit check.

The Fair Credit Reporting Act
If you use a consumer reporting agency to obtain information about an employee or applicant, you must comply with the FCRA or face some serious penalties. Under the FCRA, you must:
1. Disclose your intent to obtain the report in a standalone document
2. Obtain express authorization from the applicant or employee to obtain the report
3. Provide the applicant or employee with special notice if you plan to take an adverse action based on information contained in the consumer report (such as not hiring the applicant or firing the employee)
4. Provide the applicant or employee with notice after taking the adverse action based on the information in the report

The FCRA imposes other related requirements as well. Thus, you need detailed background screening policies and processes to ensure compliance with the FCRA. The attorneys at Venn Law Group can help you determine if the FCRA applies to you, how to properly conduct background checks, and how to draft and implement a background screening policy.

Penalties for Violating the FCRA
So why should you care if a violation occurs? If you violate the FCRA, your business may be subject to damages covering any actual damages sustained by the applicant or employee, such as lost wages, and the costs of the enforcement action (including the dreaded award of “attorneys’ fees”). If the violation is found to be “willful,” the award can include other statutory and punitive damages as well – these can add up quickly.

If your business has a substantial number of employees, it may be suddenly facing a class action from a creative plaintiffs’ attorney. In recent years, there has been a large rise in the number of class actions filed alleging improperly conducted background checks of job applicants. These lawsuits have even resulted in some multi-million-dollar settlements. Many big-name companies have paid out millions in FCRA class action lawsuit settlements:

  • 7-Eleven paid out $1.9 million for failing to provide adequate notice of background checks to roughly 60,000 job applicants
  • Delta Airlines paid out $2.3 million for burying its notice of intent to obtain a background check in a disclosure form containing allegedly misleading and extraneous information
  • A Pepsi subsidiary paid out $1.2 million in a lawsuit claiming the company had violated the FRCA “by procuring background reports for employment purposes without making certain required disclosures”
  • Frito-Lay paid $2.4 million to settle an FCRA lawsuit over its allegedly improper disclosure forms for background checks

In these suits, the plaintiffs typically allege that the businesses did not properly obtain FCRA-compliant authorizations or did not provide adequate notices before taking adverse actions. What may seem like a small issue for an employer is now a large lawsuit. Given the potential liabilities, businesses looking to hire should know FCRA requirements and take steps to ensure FCRA compliant background screening policies.

How to do Background Checks the Right Way
Companies looking to perform background checks should also be aware that there is a trend toward states regulating these checks and the use of the information obtained. A number of states have fairly recently created rules limiting the use and inquiries into criminal records and imposing their own notice requirements to the applicant or new hire – and some have even “banned the box” by prohibiting employers from asking applicants about criminal records. Even a few cities have ordinances regulating what investigations a business owner may make into criminal backgrounds. These cities and states typically require that these checks may only be run on employees that will be put in a position of trust and confidence where the background check is a genuine job requirement.

The recent increase in FCRA class actions and state legislation suggests that this issue will not go away soon. Generally, you should begin to limit your background checks to those applicants or employees that will have job requirements that they handle significant money or trade secrets or will have significant access to customers’ personal assets. If your business plans to use background checks on applicants or current employees, please consult with the experienced labor and employment attorneys at Venn Law Group. Then properly run that background check on that good applicant, get great results, and put her to work!