Best Steps For Responding to Background Checks

Consumer reports are an important aspect of the hiring process for many employers. Often referred to as “background checks,” consumer reports provide information to employers about an employee’s or prospective employee’s criminal history, character, credit history, and other factors that may influence employment decisions. Recently the U.S. Court of Appeals for the Eighth Circuit issued a ruling in Ria Schumacher v. SC Data Center, Inc. that affects the rights of employers and their employees or prospective employees. We’ve broken down how this ruling may impact you and how to best approach responses to consumer reports.

Who is impacted?

The U.S. Court of Appeals for the Eight Circuit has jurisdiction over Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota. Businesses and employees located in these states are bound by the Court’s recent interpretation of the Fair Credit Reporting Act (FCRA). This ruling especially applies to prospective employees who have not been formally hired.

This specific interpretation only restricts those over whom the Eighth Circuit has jurisdiction. The Fair Credit Reporting Act, the law the Eighth Circuit interpreted, regulates consumer reports nation-wide. Employers, consumer reporting agencies, and individuals in every state must comply with the regulations when conducting consumer reports.

What was decided?

This new ruling distinguishes between the right to dispute information on a consumer report with the reporting agency under the Fair Credit Reporting Act and the employer’s obligation to provide an opportunity to dispute during the hiring process. If a consumer report is run on a prospective employee and the results reveal information that may negatively impact hiring decisions, what can the prospective employee do to refute the report? What obligations does the business have to the prospective employee? If a consumer report is run on a current employee, does the employer’s obligation change? Here’s the breakdown:

• Employers are not required to provide an employee or a prospective employee an opportunity to directly dispute negative information in a consumer report with the employer. However, the employer must provide the employee/prospective employee a copy of the report and a reasonable opportunity to dispute the report with the consumer reporting agency. 
• After the employee/prospective employee has had a reasonable opportunity to dispute the report, and if the information remains accurate, the employer may rescind employment offers, terminate employment, or take any other adverse action.
• Employers have no further obligations to current employees than prospective employees when responding to consumer reports.

In this specific case, the recission of the employment offer was upheld because the plaintiff was arguing for the procedural right to respond to a consumer report and not the accuracy of the report. The court unanimously decided that while the company was errant in providing a protected procedural right, it did not result in real harm as the offer would have been rescinded because of the report’s viability. In other words, disputing the consumer report would not have helped the prospective employee because the report was likely accurate.

Though the information from the consumer report was likely accurate in this case, employers should always provide employees/prospective employees the reasonable opportunity to dispute the report with the reporting agency. If employers take adverse action immediately after receiving the consumer report, the employer may be held liable to the employee/prospective employee for actual harm if the report is inaccurate.

Best Steps for Responding to Consumer Reports

Keep in mind that other Circuit Courts have ruled differently on this issue, and the Eight’s Circuit’s decision was more lenient than others. Here are the best steps for responding to information in a consumer report for your employees/prospective employees:

1. Have all prospective employees give written permission prior to requesting and reviewing a consumer report. This acknowledgment should also permit on-going consumer report reviews if you plan to periodically check after employment begins.
2. Provide a clearly written disclosure of the consumer report to the prospective employee in a document separate from other hiring paperwork. Do not include this written disclosure in an employment application.
3. If a report may affect your employment decisions, provide a copy of the report to the employee/prospective employee along with a description of their rights to dispute the information under the Fair Credit Reporting Act. Make sure to indicate what information may lead to adverse action against the employee/potential employee.
4. Give the employee/prospective employee a reasonable opportunity to respond to any information provided in the report to the reporting agency.
5. Refrain from taking any adverse action based on a consumer report, such as resending an offer of employment, until the employee/potential employee has met the reasonable opportunity deadline to respond to the reporting agency.

Keeping up with current employment law requirements is a difficult task for any business. The Law Group of Northwest Arkansas can help your business through the legal complexities of being an employer. Please call (479) 316-3869 or email us office@lawgroupnwa.com if you have any questions or concerns, and we will be happy to help.