SECURITY/EMPLOYMENT BACKGROUND CHECKS
This set of articles is reprinted with permission from the Federal Trade Commission and from the Privacy Rights Clearinghouse. 
Please check the Federal Trade Commission and the Privacy Rights Clearinghouse websites for more information.


Using Consumer Reports: What Employers Need to Know
originally published by the Federal Trade Commission, http://www.ftc.gov/bcp/conline/pubs/buspubs/credempl.htm, March 1999.

Your advertisement for cashiers nets 100 applications. You want credit reports on each applicant. You plan to eliminate those with poor credit histories. What are your obligations?

You are considering a number of your long-term employees for major promotions. Can you check their credit reports to ensure that only financially responsible individuals are considered?

A job candidate has authorized you to obtain a credit report. The applicant has a poor credit history. Although the credit history is considered a negative factor, it's the applicant's lack of relevant experience that's more important to you. You turn down the application. What procedures must you follow?

As an employer, you may use consumer reports when you hire new employees and when you evaluate employees for promotion, reassignment, and retention—as long as you comply with the Fair Credit Reporting Act (FCRA). Sections 604, 606, and 615 of the FCRA spell out your responsibilities when using consumer reports for employment purposes.

The FCRA is designed primarily to protect the privacy of consumer report information and to guarantee that the information supplied by consumer reporting agencies is as accurate as possible. Amendments to the FCRA, which went into effect September 30, 1997, significantly increase the legal obligations of employers who use consumer reports. Congress expanded employer responsibilities because of concern that inaccurate or incomplete consumer reports could cause applicants to be denied jobs or cause employees to be denied promotions unjustly. The amendments ensure (1) that individuals are aware that consumer reports may be used for employment purposes and agree to such use, and (2) that individuals are notified promptly if information in a consumer report may result in a negative employment decision.

What is a Consumer Report?
A consumer report contains information about your personal and credit characteristics, character, general reputation, and lifestyle. To be covered by the FCRA, a report must be prepared by a consumer reporting agency (CRA), a business that assembles such reports for other businesses.

Employers often do background checks on applicants and get consumer reports during their employment. Some employers only want an applicant's or employee's credit payment records; others want driving records and criminal histories. For sensitive positions, it's not unusual for employers to order investigative consumer reports — reports that include interviews with an applicant's or employee's friends, neighbors, and associates. All of these types of reports are consumer reports if they are obtained from a CRA.

Applicants are often asked to give references. Whether verifying such references is covered by the FCRA depends on who does the verification. A reference verified by the employer is not covered by the Act; a reference verified by an employment or reference checking agency (or other CRA) is covered. Section 603(o) provides special procedures for reference checking; otherwise, checking references may constitute an investigative consumer report subject to additional FCRA requirements.

Key Provisions of the FCRA Amendments
Written Notice and Authorization.

Before you can get a consumer report for employment purposes, you must notify the individual in writing — in a document consisting solely of this notice — that a report may be used. You also must get the person's written authorization before you ask a CRA for the report. (Special procedures apply to the trucking industry.)

Adverse Action Procedures.
If you rely on a consumer report for an "adverse action"—denying a job application, reassigning or terminating an employee, or denying a promotion — be aware that:

Step 1: Before you take the adverse action, you must give the individual a pre-adverse action disclosure that includes a copy of the individual's consumer report and a copy of "A Summary of Your Rights Under the Fair Credit Reporting Act" — a document prescribed by the Federal Trade Commission. The CRA that furnishes the individual's report will give you the summary of consumer rights.

Step 2: After you've taken an adverse action, you must give the individual notice — orally, in writing, or electronically — that the action has been taken in an adverse action notice. It must include:

Certifications to Consumer Reporting Agencies.
Before giving you an individual's consumer report, the CRA will require you to certify that you are in compliance with the FCRA and that you will not misuse any information in the report in violation of federal or state equal employment opportunity laws or regulations.

In 1998, Congress amended the FCRA to provide special procedures for mail, telephone, or electronic employment applications in the trucking industry. Employers do not need to make written disclosures and obtain written permission in the case of applicants who will be subject to state or federal regulation as truckers. Finally, no pre-adverse action disclosure or Section 615(a) disclosure is required. Instead, the employer must, within three days of the decision, provide an oral, written, or electronic adverse action disclosure consisting of: (1) a statement that an adverse action has been taken based on a consumer report; (2) the name, address, and telephone number of the CRA; (3) a statement that the CRA did not make the decision; and (4) a statement that the consumer may obtain a copy of the actual report from the employer if he or she provides identification.

In Practice...

You can get credit reports — one type of consumer report — if you notify each applicant in writing that a credit report may be requested and if you receive the applicant's written consent. Before you reject an applicant based on credit report information, you must make a pre-adverse action disclosure that includes a copy of the credit report and the summary of consumer rights under the FCRA. Once you've rejected an applicant, you must provide an adverse action notice if credit report information affected your decision.

You cannot get consumer reports unless the employees have been notified that reports may be obtained and have given their written permission. If the employees gave you written permission in the past, you need only make sure that the employees receive or have received a "separate document" notice that reports may be obtained during the course of their employment — no more notice or permission is required. If your employees have not received notice and given you permission, you must notify the employees and get their written permission before you get their reports.

In each case where information in the report influences your decision to deny promotion, you must provide the employee with a pre-adverse action disclosure. The employee also must receive an adverse action notice once you have selected another individual for the job.

In any case where information in a consumer report is a factor in your decision — even if the report information is not a major consideration — you must follow the procedures mandated by the FCRA. In this case, you would be required to provide the applicant a pre-adverse action disclosure before you reject his or her application. When you formally reject the applicant, you would be required to provide an adverse action notice.

Both applicants are entitled to a pre-adverse action disclosure and an adverse action notice. If any information in the credit report influences an adverse decision, the applicant is entitled to the notices — even when the information isn't negative.

Non-compliance
There are legal consequences for employers who fail to get an applicant’s permission before requesting a consumer report or who fail to provide pre-adverse action disclosures and adverse action notices to unsuccessful job applicants. The FCRA allows individuals to sue employers for damages in federal court. A person who successfully sues is entitled to recover court costs and reasonable legal fees. The law also allows individuals to seek punitive damages for deliberate violations. In addition, the Federal Trade Commission, other federal agencies, and the states may sue employers for noncompliance and obtain civil penalties.

 

Employment Background Checks: A Jobseeker's Guide
originally published by the Privacy Rights Clearinghouse, Fact Sheet 16: Employment Background Checks, December 1994, Revised November 2003.

This fact sheet should be used as an information source and not as legal advice. PRC fact sheets contain information about federal laws as well as some California-specific information. Laws in other states may vary. Overall, our fact sheets are applicable to consumers nationwide.

Whether you are hired or promoted for a job may depend on the information revealed in a background check. Job applicants and existing employees as well as volunteers may be asked to submit to background checks. For some jobs, screening is required by federal or state law. The current emphasis on security and safety has dramatically increased the number of employment background checks conducted.

In short, employers are being cautious. At the same time, applicants and employees fear that employers can dig into the past in ways that have nothing to do with the job.

This guide explains the why and how of background checks. It also tells you what can be covered in a background report, your rights under the Fair Credit Reporting Act, and what you can do to prepare. For more information, go to the References section at the end of this guide.

Part 1. Why Does an Employer Conduct a Background Check?
Part 2. What Is Included in a Background Check?
Part 3. What Cannot be in a Background Check Report?
Part 4: Who Conducts a Background Check?
Part 5. The Fair Credit Reporting Act and Background Checks
Part 6. Background Checks and Your Credit Report
Part 7. Investigative Consumer Reports – What Will Your Neighbors Say?
Part 8. How to Prepare for a Background Check
Part 9. References

Part 1. Why Does an Employer Conduct a Background Check?

Employers check potential and current workers for several reasons. The things an employer wants to know about you can vary with the kinds of jobs you might seek. Here are a few of the reasons for employment screening.

I don't have anything to hide. Why should I worry?

While some people are not concerned about background investigations, others are uncomfortable with the idea of an investigator poking around in their personal history. In-depth background checks could unearth information that is irrelevant, taken out of context, or just plain wrong. A further concern is that the report might include information that is illegal to use for hiring purposes or which comes from questionable sources.

 

Part 2. What Is Included in a Background Check?

Background reports can range from a verification of an applicant's Social Security number to a detailed account of the potential employee's history and acquaintances. Here are some of the pieces of information that might be included in a background check. Note that many of these sources are public records created by government agencies.

Driving records

Vehicle registration

Credit records

Criminal records

Social Security no.

Education records

Court records

Workers' compensation

Bankruptcy

Character references

Neighbor interviews

Medical records

Property ownership

Military records

State licensing records

Drug test records

Past employers

Personal references

Incarceration records

Sex offender lists

Part 3. What Cannot Be in a Background Check Report?

The federal Fair Credit Reporting Act (FCRA) sets national standards for employment screening. However, the law only applies to background checks performed by an outside company, called a "consumer reporting agency" under the FCRA. The law does not apply in situations where the employer conducts background checks inhouse.

Your state may have stronger laws, such as California’s Investigative Consumer Reporting Agencies Act (Civil Code §1786) and the California Consumer Credit Reporting Agency Act (Civil Code §1785). In addition, many state labor codes and state fair employment guidelines limit the content of an employment background check. (For more on the FCRA, see Part 5.)

Under the FCRA, a background check report is called a "consumer report." This is the same "official" name given to your credit report, and the same limits on disclosure apply. The FCRA says the following cannot be reported:

The most recent change to the FCRA made criminal convictions reportable indefinitely. California still follows the seven-year rule (CA Civil Code 1786.18) as do some other states. To find the limit for reporting criminal convictions in your state, contact your state employment agency or office of consumer affairs. Other laws that should be considered:

In California, an exception exists for the health care industry where any employer who has an interest in hiring a person with access to patients can ask about sex related arrests. And, when an employee may have access to medications, an employer can ask about drug related arrests.

Employers need to use caution in checking criminal records. Information offered to the public by web-based information brokers is not always accurate or up to date. This violates both federal and California law when reported as such. Also, in California, an employer may not inquire about a marijuana conviction that is more than two years old.

In California, employers may access workers’ compensation records after making an offer of employment. To gain access, employers must register with the WCAB and confirm that the records are being accessed for legitimate purposes. Although the agency may not reveal medical information and the employer may not rescind an offer due to a workers’ compensation claim (California Labor Code 132a), employers sometimes discover that applicants have not revealed previous employers where they had filed claims. In such situations, employers often terminate the new hire because it appears they falsified the application.

Although these laws should prevent an employer from considering certain information, there is no realistic way for the applicant to determine whether such information will be revealed in a background check. This is particularly true for investigations conducted online where the information obtained from web-based information brokers might not be verified for accuracy or completeness.

For example, if you were arrested but never convicted, a data search could reveal the arrest, but the investigator who compiled the information might not delve further into the public records to determine that you were acquitted or the charges were dropped. Reputable employment screening companies always verify negative information obtained from data base searches against the actual public records filed at the courthouse.

Aren't some of my personal records confidential?

The following types of information may be useful for an employer to make a hiring decision. However, under the federal Fair Credit Reporting Act, the employer is required to get your permission before obtaining the records. (See PRC Fact Sheet 11, "From Cradle to Grave: Government Records and Your Privacy,"www.privacyrights.org/consumer-guides/cradle-grave-government-records-and-your-privacy)

There are other questions such as age, marital status, and certain psychological tests that employers cannot use when interviewing. These issues are beyond the scope of this fact sheet. If you have further questions, contact the resources at the end of this fact sheet. The federal Equal Employment Opportunity Commission and the fair employment agencies in the states handle these issues.

What can my former employer say about me?

Often a potential employer will contact an applicant's past employers. A former boss can say anything [truthful] about your performance. However, most employers have a policy to only confirm dates of employment, final salary, and other limited information. California law prohibits employers from intentionally interfering with former employees' attempts to find jobs by giving out false or misleading references. (California Labor Code §1050)

Under California law and the laws of many other states, employees have a right to review their own personnel files and make copies of documents they have signed. If you are a state or federal employee, your personnel file is protected under the California Information Practices Act or the federal Privacy Act of 1974 and can only be disclosed under limited circumstances. (California Civil Code §56.20; California Labor Code §§432, 1198.5; 5 USC §552a)

Jobs such as truck driver positions fall under regulations of the federal Department of Transportation. Employers are required to accurately respond to an inquiry from a prospective employer about whether you took a drug test, refused a drug test, or tested positive in a drug test with the former or current employer. (49 CFR §40.25, 49 CFR §382.413. Federal Motor Carrier Safety Administration Regulations)

 

Part 4. Who Conducts Background Checks?

There are many companies that specialize in employment screening. It is outside the purpose of this fact sheet to identify background checking companies by name. The most important thing to keep in mind is that companies conducting background checks fall into several broad categories. This can range from individuals commonly known as "private investigators," to companies that do nothing but employment screening, and to online data brokers.

Corporations that employ large numbers of people may have an established relationship with a third-party background checking company or may even use an affiliated company for their employment screening. Other background checking companies may work on a less formal basis with employers. There are about 10 major companies that conduct employment screening and thousands others nationwide, including private investigators.

With the information age upon us, it is easy for employers to gather background information themselves. Much of it is computerized, allowing employers to log on to public records and commercial databases directly through dial-up networks or via the Internet. Finding one of these online companies is as easy as using an Internet search engine to find web sites that specialize in "background checks." Employers should beware of companies advertising on the Internet that they can "find everything about anyone." They are not necessarily going to be in strict compliance with federal and state laws, especially the provisions that require accuracy of background check reports.

 

Part 5. Fair Credit Reporting Act and Background Checks

The federal Fair Credit Reporting Act (15 USC §1681 et seq.) does not require employers to conduct employment background checks. But the law sets a national standard that employers must follow in employment screening. State laws may give an employee more rights than the FCRA.

Do I have a right to know when a background check is requested?

Yes. Amendments to the FCRA, in effect September 30, 1997, increase the disclosure and consent requirements of employers who use "consumer reports." Such reports might consist only of a credit check. (See Part 6) More extensive reports might include criminal histories, driving records, and interviews with neighbors, friends and associates.

To be covered by the FCRA, the Federal Trade Commission (FTC) says that a report must be prepared by an outside company -- a "consumer reporting agency" or business that "for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in ... assembling ... information on consumers for the purpose of furnishing consumer reports to third parties." (FCRA §603f)

Under the FCRA, the employer must obtain the applicant’s written authorization before the background check is conducted. The authorization must be on a document separate from all other documents such as an employment application. In California, at the time an employer obtains permission for a background check, the applicant or employee should also be told that he or she may request a copy of the report. The FCRA, in contrast, says the subject is entitled to a copy of the report if a pre-adverse notice is given.

Under federal law, if the employer uses information from the consumer report for an "adverse action" – that is, denying the job applicant, terminating the employee, rescinding a job offer, or denying a promotion – it must take the following steps, which are explained further in the Federal Trade Commission’s web site, www.ftc.gov/bcp/conline/pubs/buspubs/credempl.htm

Modified disclosure and adverse action procedures under the FCRA (§604(b)(3)(B)) apply to positions subject to U.S. Department of Transportation (DOT) regulations such as truck drivers. The DOT has independent authority to set qualifications for workers in transportation industries.  (49 USC §31502)

Does the FCRA fall short?

The federal law has two significant loopholes. First, if the employer does not use a third-party screening company but, rather conducts the background check itself, it is not subject to the notice and consent provisions of the FCRA. Second, the employer might tell the rejected applicant that its adverse decision was not based on the contents of the background investigation, but, rather that the job pool was so exceptional that it made its hiring decision based on the fact that there were individuals more qualified than the applicant.

In both of these situations, the applicant would not have the ability to obtain a copy of the background check to find out what negative information it contained. We have learned of situations where the individual remained unemployed for years, not knowing that wrongful criminal records which resulted from identity theft were the reason for the individual’s failure to find employment. (Read "Identity Theft: The Growing Problem of Wrongful Criminal Records," www.privacyrights.org/ar/wcr.htm.)

Recent amendments to California’s "investigative consumer reporting" law have closed those loopholes. California law now requires that individuals who are subject to employment screening are able to obtain a copy of the background check whether or not an adverse action has been taken. And applicants have the same rights to notice and consent whether the employer hires an outside company to conduct the investigation or does the background check itself. (California Civil Code §1786). And now in California when an individual requests a copy of their report from the consumer reporting agency, the agency must explain their rights in a document written in both English and Spanish.

 

Part 6. Investigative Consumer Reports: What Will Your Neighbors Say?

Can an employer ask my friends and neighbors about me?

Yes. Under the FCRA, a background check that includes interviews with "neighbors, friends, or associates" about your "character, general reputation, personal characteristics, or mode of living" is called an "investigative consumer report." (The term "investigative consumer report" has a different meaning under California Law. See www.leginfo.ca.gov, Civil Code §1786.)

When information about you is gathered from interviews, the FCRA requires a separate disclosure. You are also entitled to know the "nature and scope" of an investigative consumer report, but you have to ask. For more on how the FTC staff interprets the term "investigative consumer report" and other keys topics under the FCRA, visit the FTC web site www.ftc.gov/os/statutes/fcra/index.htm

 

Part 7. Background Checks and Your Credit Report

An employment background check often includes a copy of your credit report. The three major credit reporting agencies (Experian, TransUnion, and Equifax) provide a modified version of the credit report called an "employment report." An "employment report" includes information about your credit-payment history and other credit habits from which current or potential employers might draw conclusions about you.

An employment report provides everything a standard credit report would provide. However it doesn’t include your credit score or date of birth. Nor does it place an "inquiry" on your credit file that may be seen by a company looking to issue you credit. Having too many credit inquiries tends to lower your credit score.

My job doesn’t require handling money. Why does the employer do a credit check?

Often employers use your credit history to gauge your level of responsibility. Whether a valid assumption or not, some employers believe if you are not reliable in paying your bills, then you will not be a reliable employee. Unfortunately, a bad credit report can work against you in your search for employment. For more on how a credit record can affect your job search, see the FTC’s fact sheet on this topic, www.ftc.gov/bcp/conline/pubs/alerts/ngcrdtalrt.htm

In addition to your payment history, a credit report typically includes information about your former addresses and previous employers. Employers can use this as one way to verify the accuracy of information you provide on an application or resume.

I never use credit. Can an employer hold that against me?

Yes. The employer might be looking for someone who has an established record of paying bills on time. The FCRA says only that certain things like negative information more than seven years old cannot be considered. The absence of a credit history can also be considered. But if this bit of information means you don’t get the job, the employer has to give you an adverse notice decision. For more on an employer’s responsibility under the FCRA, see www.ftc.gov/bcp/conline/pubs/buspubs/credempl.htm

 

Part 8. What Can I Do to Prepare?

When you know you are going to be on the job market, take the following steps to reduce the chances that you and/or the potential employer will be "surprised" by information found in the background check process:

Reporting agencies often report felony convictions when the consumer truly believes the crime was reduced to a misdemeanor, or that it was reported as a misdemeanor conviction when the consumer thought the charge was reduced to an infraction. Court records are not always updated correctly. For example, a signature that was needed to reduce the charges might not have been obtained or recorded by the court. Don’t rely on what your attorney may have told you. If you think the conviction was expunged or dismissed, get a certified copy of your report from the court.

Many employers ask on their application if you were ever convicted of a crime. Or they might word the question to ask whether you have ever been convicted of a felony or misdemeanor. Typically, the application says you do not have to divulge a case that was expunged or dismissed, or that was a minor traffic violation.

Don’t be confused. A DUI (driving under the influence) or DWI (driving while intoxicated) conviction is not considered a minor traffic infraction. Applicants with a DUI or DWI who have not checked "yes" on a job application may be denied employment for falsifying the form -- even when the incident occurred only once or happened many years before. The employer perceives this as dishonesty, even though the applicant might only have been confused by the question.

Notice of a background check has to be on a separate form. The only other information this form can include is your authorization and information that identifies you. Neither the notice of a background check nor any other form should ask questions like "race," "sex," "full date of birth," or "maiden name." Such questions violate the federal Equal Employment Opportunity laws. And, you should not be asked to sign any document that waives your right to sue a screening company or the employer for violations of the law.

Part 9. References

Laws on Background Checks

Laws on Workplace Discrimination

 

Contacting Government Agencies

U.S. Equal Employment Opportunity Commission (EEOC)

1801 L Street, N.W.
Washington, D.C. 20507
Phone: (202) 663-4900
TTY: (202) 663-4494
Web: www.eeoc.gov

EEOC Field Offices
To be automatically connected with the nearest EEOC field office, call:
Phone: (800) 669-4000
TTY: (800) 669-6820

Federal Trade Commission (FTC)
Consumer Response Center, CRC-240
Washington, D.C. 20580
Phone: (877) FTC-HELP (877-382-4357)
TTY: (866) 653-4261
Web: www.ftc.gov

FTC Publications

California Department of Fair Employment and Housing
The Department of Fair Employment and Housing does not currently accept complaints through the Internet or by mail. For information on how to file an employment-related complaint, call one of the numbers below.

(800) 884-1684 (Within California)
(916) 227-0551 (Outside California)
Web site: www.dfeh.ca.gov

Fair Employment Agencies in the 50 States
The following web sites list fair employment agencies in the 50 states:

Articles of Interest

·         “Criminal Records and Getting Back into the Workforce: Six Critical Steps for Ex-offenders Trying to Get Back into the Workforce,” by Les Rosen, Esq. -- September, 2003
www.privacyrights.org/ar/rosencrim.htm