Conducting background checks on job applicants

The story has caused many employers to review and update their hiring practices to ensure a similar situation does not occur in their own companies. While a review of hiring practices is generally a good thing, employers must take care not to go overboard. Specifically, if employers hire a consumer reporting agency to perform background checks on potential employees, they must comply with the strict requirements of the Minnesota Access to Consumer Reports Act

(MACRA) and the federal Fair Credit Reporting Act (FCRA). Because the Wisconsin Legislature has not enacted a state law similar to Minnesota’s, employers there must simply comply with the requirements of the federal law.

If an employer does not engage the services of a consumer reporting agency, it is not subject to the requirements of either law. However, the definition of a consumer reporting agency is very broad and includes all entities that regularly engage in the practice of assembling credit or other background information. Therefore, credit bureaus, detective agencies and background check services fall within the definition of a consumer reporting agency.

To avoid discrimination claims, an employer using a consumer reporting agency to conduct background checks on potential employees should do so for all applicants for a certain position, rather than pick and choose between applicants.

Using background reports

Under both Minnesota and federal laws, reports sought by employers are characterized as either consumer reports or investigative consumer reports. A consumer report is defined as the consumer reporting agency’s communication of information that bears on an individual’s credit worthiness, standing or capacity; character, general reputation, personal characteristics or mode of living. Once compiled, this information is used to establish the consumer’s eligibility for employment purposes.

An investigative consumer report is defined as a consumer report in

which information on the person’s character, reputation, characteristics and mode of living is derived from personal interviews with associates, including neighbors, friends and acquaintances.

For both consumer reports and investigative consumer reports, employers must comply with the following requirements:

• Notify the applicant in a document separate from other hiring materials that the employer intends to obtain a consumer report or investigative consumer report.

In Minnesota, the notice must contain a statement informing the applicant of his or her right to obtain additional information regarding the nature and scope of the investigation; a box the applicant may check to receive a copy of the report; and a summary of consumer rights. The Federal Trade Commission provides this summary, entitled “A Summary of Your Rights Under the Fair Credit Reporting Act,” on its Web site.

• Obtain written authorization from the applicant before requesting the

consumer report. Before the consumer reporting agency will provide a consumer report to an employer, the company must provide a written certification to the

agency of the purposes for which the information is sought and that the information will be used for no other purposes.

Adverse actions

If the employer contemplates an adverse action against the applicant — such as not hiring the applicant — as a result of information contained in the report, the employer must provide the applicant with a “pre-adverse action” notice. It must be given to the applicant before the adverse action is taken and must include a notification of the intended adverse action, a copy of the consumer report and the FCRA Summary. While applicable law does not require the employer to wait before taking the adverse action, this provision was presumably enacted

to allow the applicant an opportunity to review and challenge the information contained in the report.

If the employer actually takes an adverse action against an applicant based in whole or part on the report, the employer must provide the applicant with the following: a disclosure that the adverse action was based on the report; the credit reporting agency’s contact information; a statement that the consumer reporting agency did not make the decision and cannot explain why the action was taken; information regarding the right of the applicant to challenge the information contained in the report; and a statement regarding the applicant’s

right to obtain a copy of the report within 60 days of receiving the notice. The employer should provide the applicant with this information in writing, although verbal communication also is acceptable.

Finally, if the employer intends to seek an investigative consumer report, the employer must follow special procedures in addition to those for non-investigative reports. Before requesting an investigative consumer report, the employer must make a written disclosure to the applicant of its intent to seek the report. The disclosure also must describe the general reputation, personal characteristics and mode of living factors that will be investigated.

Furthermore, the disclosure must inform the applicant of his or her right to obtain additional information regarding the scope and nature of the investigation and must include a copy of the FCRA Summary.

If the applicant exercises the right to obtain additional information regarding the nature and scope of the investigation, the employer must respond to the request within five days of the date it receives the request or the date the employer requests the report, whichever is later. The response must contain a complete written disclosure of the nature and scope of the investigation.

When determining whether background checks are a necessary part of their hiring practices, employers should consider the burdens placed on them by state and federal law. If such checking is necessary, it is imperative that employers exercise extreme caution in conducting the checks to ensure they comply with all applicable statutory requirements.

Kimberly Maki is an associate at Fryberger, Buchanan, Smith & Frederick, P.A. She practices in the areas of employment, corporate and trademark law. You can contact her at the firm’s Duluth office at 218.722.0861.