Employee Background Checks: A look at the Fair Credit Reporting Act

Employee Background Checks: A look at the Fair Credit Reporting Act

One of C2’s government contracting clients recently called for some advice and “best practices” regarding employee background checks. Organizations often grapple with whether or not to use background checks as part of the hiring process. According to a recent survey from HireRight, 84% of employers found a lie or misrepresentation on a resume or job application – at all levels of the organization. Background checks can minimize guess work about applicants’ backgrounds and increase the efficiency, safety and accuracy surrounding applicants and employees in the workplace…but there is also a cost associated with conducting those checks. Whether the benefit outweighs the cost, is a decision each employer has to decide for itself. Let’s take a closer look at what employers need to know from an administrative perspective about background checks and the Fair Credit Reporting Act (FCRA).

      A. What Constitutes a Background Check?

 A background “investigation” or “check” is an inquiry in to an individual’s character, general reputation, personal characteristics, and/or mode of living. According to the Federal Trade Commission (FTC), a “consumer report” is any written, oral or other communication that contains any information by a Consumer Reporting Agency (CRA) bearing on a consumer’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics or mode of living. A CRA is defined as “… any person which, for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties, and which uses any means or facility of interstate commerce for the purpose of preparing or furnishing consumer reports.”  Background checks conducted by a CRA require an individual’s consent and are regulated by the FCRA, as well as by some state and local laws.

Background checks are designed to gather background information from a variety of sources and may include:

  • Criminal and civil record checks at county courthouses, state repositories, federal courts and/or international courts;
  • Driving records checks;
  • Verification of employment, education, professional licensure;
  • Reference checks; Registry checks; such as sex offender and child and elder abuse lists;
  • Office of Foreign Assets Control (OFAC) Specially Designated Nationals List (SDNL);
  • Export Denial List Search; Patriot Act Searches (terrorist watch lists);
  • Office of Inspector General (OIG) Search and other healthcare sanction lists;
  • Financial Industry Checks, including SEC filings, FINRA and Federal Reserve Sanctions;
  • Credit History (note – one’s credit score is not included in a pre-employment screening report);
  • Accessing the FBI’s criminal database system when mandated by law; or
  • psychological evaluations or assessments.

       B. The Fair Credit Reporting Act 

Employers must comply with the federal FCRA (in addition to applicable state or local laws) when using a CRA to conduct a background check on an applicant or employee. The FCRA spells out the rights, obligations and responsibilities for consumers, employers and the CRA’s, which includes required notices to the applicant or employee regarding the background check and its results.

Prior to performing a background check on an applicant, the FCRA requires the following:

  • Let the applicant or employee know the information may be used in decisions about his or her employment. This notice must be in writing and separate from the employment application, handbook, offer letter, or other type of document.
  • If you are asking a company to provide an “investigative report” – i.e., a report based on personal interviews concerning a person’s character, general reputation, personal characteristics, and lifestyle – you must also tell the applicant or employee he or she has a right to receive a description of the nature and scope of the investigation.
  • The applicant’s or employee’s authorized written consent must be obtained prior to requesting a background check. This can be part of the document used to notify the person that you (as the employer) will get a copy of the report. If employers want the ability to get background reports throughout the person’s employment, the written authorization must say so clearly and conspicuously.
  • Certify to the company from which you are getting the report that you:
  • notified the applicant and got their permission to get a background report;
  • complied with all of the FCRA requirements; and
  • will not discriminate against the applicant or employee, or otherwise misuse the information in violation of federal or state equal opportunity laws or regulations.

       C. Adverse Action and FCRA Requirements

“Adverse action” is a personnel action that is taken because of negative results obtained from a background check, and frequently encompasses such employment decisions as rescinding an offer of employment or terminating an existing employee. However, before proceeding with any “adverse action” the FCRA imposes certain requirements on employers:

  • Before taking adverse employment action, give the applicant or employee:
  • a notice that includes a copy of the consumer report relied on to make the employment decision; and
  • a copy of “A Summary of Your Rights Under the Fair Credit Reporting Act,” which you should have received from the CRA that conducted the background check and provided the report.

By giving the person the notice in advance, the person has an opportunity to review the report and explain any negative information. After you take an adverse employment action, you must tell the applicant or employee (orally, in writing, or electronically):

  • that he or she was rejected because of information in the report;
  • the name, address, and phone number of CRA that produced the report;
  • that the CRA did not make the hiring decision, and cannot give specific reasons for the hiring decision; and
  • that he or she has a right to dispute the accuracy or completeness of the report, and to get an additional free report from the CRA within sixty (60) days.

      D. Revised FCRA Form

Stemming from a law passed in May 2018, the “Summary of Your Rights Under the Fair Credit Reporting Act” form was recently updated to include information about security freezes and fraud alerts, which was in response to high-profile data breaches. Previously, this form had last been revised in 2012.  The newly revised version can be used in combination with the 2012 form “so long as a separate page that contains the additional required information is provided in the same transmittal.”

      E. Background Checks Do Have Some Drawbacks

Employers certainly enjoy the additional information background checks often provide.  However, background checks come with a few inherent drawbacks.  First, reports from CRA’s are not always 100% accurate.  Employers therefore run the risk of making employment decisions on false information.  Second, if conducting checks on current employees, employers need to be prepared for the possibility that negative (and possibly termination worthy) information could be uncovered about even their best employees.  Lastly, CRA background reports can be expensive, and often make employees uncomfortable due concerns about their privacy. Employers thinking of implementing background checks in the employment process should first consider these potential drawbacks and whether proceeding makes sense for their organization as a whole.

      F. Conclusion

Background checks can often effectively weed out candidates and employees who are prone to violence, fraud, lying about their experience, embezzlement, and theft.  However, the information received from background reports cannot be used as a basis to unlawfully discriminate, and must be utilized in a fair and consistent fashion by employers. On the whole though, and when used appropriately, background screening is one tool that helps employers craft the best workforce possible. Due to the complex legal framework surrounding them, Employers wishing to incorporate background checks are well advised to review the requirements of the FCRA and enlist the services of a professional CRA to conduct the background checks to help ensure compliance.

For more information about the Fair Credit Reporting Act, including applicable forms and notices, go to www.consumerfinance.gov/learnmore.

C2 provides strategic HR outsourcing to clients who want to develop optimal workforce strategies and solutions to allow them to be more competitive and profitable. C2 blog posts are intended for educational and informational purposes only.

Turns out my new employee has a Criminal Conviction: Now What Do I Do ?

Turns out my new employee has a Criminal Conviction: Now What Do I Do ?

Last week, I got a panicked call from my good friend, “Joe”.  He was in a quandary about what to do because he had just received word that the background check of a recently hired (and now on-the-job) employee revealed a criminal conviction five (5) years ago for check fraud.  Literally, his question to me was “now what?”  The answer, as it turns out, is not as complicated as you might think.

Even in today’s employee-friendly environment, criminal convictions by candidates and employees can still justify either refusing to hire or severing the employment relationship.  The key is that not all criminal convictions are created equal; some simply cannot form a legitimate basis to disqualify or terminate someone.  However, many types of felony convictions may disqualify someone for employment; it just depends on the type of conviction and the type of job the individual has been asked to perform for your company.  Moreover, in recent years the method and process by which you may retrieve a person’s criminal history has changed.  Gone are the days where you can include a question on an initial employment application that asks:  “have you ever been convicted of a crime,” and then automatically disqualify all the applicants that checked “yes.”  The EEOC’s cautionary guidance on the use of criminal history, along with the recent proliferation of “ban the box” legislation in over a dozen jurisdictions (with likely more to follow) have to a large extent eliminated the blanket “criminal conviction” disqualifier as part of the application process.

In response, many companies that have multi-jurisdictional operations have opted to postpone the criminal record inquiry until a later stage in the process – say until after an initial offer of employment is made.  By postponing that inquiry, companies can often avoid allegations of a discriminatory hiring process or running afoul of “ban the box” laws that have proliferated.  But there are two sides to every coin.  As Joe found out, by delaying the criminal background check until after the offer of employment, companies may not receive details of the person’s criminal history until after he has already started work.

  1. Does the Conviction Warrant Separation?

First, as I explained to Joe, make a determination as to whether the employee’s conviction merits separation.  Would terminating the employee, to use the EEOC’s phraseology, be “job related and consistent with business necessity?”  This essentially involves evaluating whether the nature of the conviction might negatively prevent the employee from performing his job duties satisfactorily.  Here, Joe’s employee was hired as a computer programmer, whose job required no check writing or other “money handling” responsibilities.  So it’s hard to imagine how writing a bad check would disqualify someone from programming a computer.  Aside from the nature of the crime, the date of the crime can also be relevant.  While federal anti-discrimination laws place no bright line test for “how old is too old” when it comes to criminal convictions, many states now have laws that make it illegal to consider convictions beyond a certain age.  They differ from state to state, so check the law in your jurisdiction when walking through this analysis.

Other considerations may play into this determination as well.  For example, if you are a federal contractor, a conviction for “check fraud” may disqualify an employee from being allowed on a federal installation, obtaining the necessary security clearance, or prohibit him from obtaining some other type of required certification.  In that case, your decision becomes easier.  If the conviction prevents the employee from obtaining the necessary access or certification to perform the job, then separation could well be your only option.  But this was not the case for Joe’s employee.  Joe determined that his employee’s conviction was not disqualifying and so he decided to retain his new employee.  But what if the conviction had been potentially disqualifying?  Then what?

  1. Complying with the Fair Credit Reporting Act

Things might have turned out differently for Joe’s employee had he been hired as managerial employee who had “money handling” or other financial responsibilities.  In that case, his 5-year-old check fraud conviction could well have been “job related” and his termination “consistent with business necessity.”   But even in this situation, had Joe terminated the employee immediately upon discovering the conviction, Joe could have put his company at risk.

Under the Fair Credit Reporting Act (“FCRA”), employees whose background checks turn up negative information have a right to notice and an opportunity to dispute the adverse findings before you up and fire them.  This intervening period is designed to give the employee an opportunity to correct or dispute the negative information.  After all, you would not want to fire an employee based upon a criminal conviction committed by somebody else with the same name!  That’s why the FCRA requires employers to provide both a pre-adverse action notice and then a subsequent adverse action notice if the employer decides to proceed with termination or rescind an offer of employment.  Fortunately, reputable background check companies have made this process less burdensome for employers by providing the appropriate forms and notices once the employer notifies them that it intends to act upon negative information contained in the background report.  Note, however, it is ultimately the employer’s responsibility to make sure the employee receives the appropriate FCRA protections; so engage the assistance of your background check company early and often when going through this process.

  1. Tips for Being Prepared

This is likely not a situation you will encounter every day; and each situation has to be evaluated individually.  But don’t do as Joe did and wait until the day it happens to “phone a friend” to try and find the answer; instead, put a plan together so that you are prepared to handle it when it does arise.  Things you should do now include:  (a) determining when in the process your are allowed to (and when in the process you want to) require a criminal background check of your applicants or new-hires, (b) explain to the person at an early stage in the application process that they will eventually have to pass a background check and disclose their criminal convictions, (c) include language in the offer letters to employees that states their employment is “at will” and that the offer of employment is expressly contingent upon their successful completion of a background check, (d) ask your background check vendor now about their procedures with respect to the FCRA, and (e) make sure you have updated job descriptions for those positions for which you will require a background screen (so that, if need be, you can accurately determine whether the person’s criminal convictions are “job related”).

 

C2 provides strategic HR outsourcing to clients who want to develop optimal workforce strategies and solutions to allow them to be more competitive and profitable. C2 blog posts are intended for educational and informational purposes only.

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  • Employee Background Checks: A look at the Fair Credit Reporting Act
    by admin on 01/09/2019 at 6:06 pm

    One of C2’s government contracting clients recently called for some advice and “best practices” regarding employee background checks. Organizations often grapple with whether or not to use background checks as part of the hiring process. According to a recent survey from […]

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Kevin McCoy

General Counsel

 

Mr. McCoy serves as C2’s General Counsel, managing the overall legal needs of the company. Mr. McCoy also works closely with the company’s HR teams who provide strategic advice to clients on a myriad of human resources related matters. Mr. McCoy came to C2 as an experienced labor and employment attorney, having served as a Partner in two different D.C. area law firms that specialize exclusively in management-side labor and employment law. Mr. McCoy likes to problem solve, and enjoys helping his clients work through the legal challenges of operating a large multi-jurisdictional HR outsourcing company.

After graduating with a degree in Philosophy from Emory & Henry College in Southern Virginia, Mr. McCoy earned his law degree from Valparaiso University School of Law. Mr. McCoy began his legal career as a judicial law clerk to judges on two different intermediate courts of appeal before settling in the D.C. region.


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Gertie Fields

Director of Payroll & Administration

 

Ms. Fields manages C2’s Payroll Services team, charged with ensuring that all client payroll processing is timely and accurate. She is responsible for all aspects of client payroll accounting and financial reporting functions, including preparation of payroll audits. She manages the processing of multi-state payrolls, new hire reporting, and transmission of ACH files, and ensures that payrolls are accurate and fully compliant.

More importantly, Ms. Fields and her team pride themselves on proactively identifying potential payroll issues for clients before they become a problem. She has been with C2 since 1998, and has directed all aspects of Payroll Services. She holds a bachelors’ degree in Business Administration with a concentration in Acquisition and Contract Management.


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Sharon Liotta

Chief Financial Officer

 

Ms. Liotta brought her 20-years of accounting management experience to C2 when she joined the company in 2000. As CFO, she directs and oversees all financial activities of the corporation including preparation of financial reports as well as summaries and forecasts for future business growth and general economic outlook. She is responsible for business and financial strategy and planning, monitoring, and management and reporting, including management and development of policies, systems, processes and personnel involved. Ms. Liotta directs the accounting staff to ensure that exceptional internal auditing and financial controls are maintained.

Ms. Liotta earned a Bachelor of Science degree in Business Administration from George Mason University with undergraduate studies at Clemson University.


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Jackie Asencio

President & CEO 

 

Ms. Asencio is President and CEO of C2 Essentials, Inc., one of the region’s leading human capital management service providers. With more than 30 years’ experience, Ms. Asencio has been a major influence in helping small to mid-size government contractors grow and compete in the federal marketplace. C2 Essentials has successfully provided clients with a competitive edge through cost-effective HR outsourcing. Ms. Asencio recognizes that federal contractors are increasingly forced to reduce their costs due to pricing pressure. C2 Essentials becomes a strategic partner to its clients to help reduce their overhead and fringe dollars, while providing a robust HR expertise that enables clients to achieve HR compliance in an increasingly complex regulatory environment. HR outsourcing solutions are focused on the client’s mission, both CONUS and OCONUS.

As a seasoned trainer and coach, Ms. Asencio works closely with business owners ensuring their human capital management strategies are aligned to their business goals. Ms. Asencio has extensive experience in full life cycle recruiting, talent management, succession planning, career development, reward and recognition strategies, performance management, regulatory compliance, compensation, benefits, risk management, and outplacement services. Prior to founding C2 Essentials, Ms. Asencio provided human capital management support to Department of Defense and various civilian agencies.

Ms. Asencio believes in giving back to the community, her philanthropic activities have included supporting Operation Homefront, Wounded Warriors, Boulder Crest Retreat, The National Veterans Institute for Procurement, and local families in need. Ms. Asencio has received the Sister Eymard Gallagher Award for Corporate Social Responsibility and was a finalist for The Dr. J.P. London Award for Promoting Ethical Behavior for the Human Resources Leadership Awards (HRLA) of Greater Washington.


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