Before an employer may obtain a consumer report or cause one to be prepared on any
individual, the employer must get the individual's written authorization. The employer
must give the individual a "clear and conspicuous disclosure" of its intent to
obtain the report. The written authorization and disclosure must appear on a separate
document; it cannot be part of an employment application or another authorization form.
In addition, before a consumer reporting agency may prepare or provide a consumer
report for an employer, the employer must make the following certification to the agency:
Let's assume an employer finally receives a report and it contains information the
employer considers damaging. Based on that damaging information, the employer decides to
take an adverse action (either to discharge the employee or not to hire the applicant).
Is this employer able to carry out its intentions without further paperwork?
Unfortunately not; there are more layers of red tape for the employer to unwind before
taking any adverse action based on information contained in the report. In fact, according
to the law, the employer can't even make its decision until it completes another round of
paperwork.
HOW TO TAKE ADVERSE ACTIONS
At this point, the law takes on an Alice-in-Wonderland aspect of regulating the
decision to decide. Before choosing a course of action, the employer must advise the
individual that it might take adverse action and then it must provide the individual with
a copy of the report on which the decision might be based.
The employer must also provide a written description of that individual's rights under
the Fair Credit Reporting Act. Consumer reporting agencies are required to provide a form
outlining the rights of the individuals for distribution to applicants and employees.
The employer may wish to get written verification that it informed the individual that
it was considering taking adverse action. The act only requires that the employer inform
the individual; it does not have to be in writing. Written verification that it has done
so, however, is a wise safeguard.
This micromanagement of the decision-making process is designed to protect employees
and applicants from suffering the consequences of erroneous blots on their character. The
individual must have the opportunity to review and dispute the contents of the report. The
individual must also be given the opportunity to correct the report or submit information
to the employer contradicting any allegedly incorrect information in the report.
Employers are cautioned against filling a position or starting the termination process
until fully complying with all the requirements of the act. The employee or applicant must
receive some period of time to respond to the information in the report; we generally
advise our clients to give the individual at least three days to respond. If an employer
fills the position or takes an action without giving the individual an opportunity to
respond, the individual may have a claim under the act if a fact finder subsequently
determines that the report contained errors.
After giving the employee or applicant an opportunity to refute the information
contained in the report, if the employer decides to take adverse action against the
subject of the report, the employer must provide notice of the adverse action to the
affected individual, along with the following:
name, address, and telephone number of the consumer reporting agency that provided the
report to the employer, along with a statement that the agency was not responsible for the
adverse action and thus cannot tell the applicant or employee the specific reasons for the
action
notice of the individual's right to obtain a free copy of the report on which the
adverse action was based within 60 days of notice of the action
notice of the individual's right to dispute the accuracy or completeness of any
information in the report with the consumer reporting agency
These last two items might seem absurd and duplicative. After all, the individual has
already been provided with a copy of the consumer report and an opportunity to dispute the
information in the report. Nevertheless, the Federal Trade Commission believes that this
notice at the time of the action is required. According to the commission's reasoning, the
consumer report may have changed since the earlier consumer report was provided to the
employee. Again, the employer is advised to provide these additional notices in writing to
give it written documentation that it has complied with the law.
Once this final step is completed, the employer is empowered to take action against the
employee or to refuse to hire the applicant. The employer does not have to delay its
decision until the individual's allegations are either proved or disproved; it merely has
to follow the process outlined here, giving the individual the opportunity to contradict
any information in the report, before making its decision.
If an employer receives a report that contains information that it believes is
negative, it would be well-advised to follow the entire notice and disclosure process,
even if the employer is making the adverse decision based upon other negative information
obtained during the hiring process. A little extra paperwork will provide a shield against
a potential future claim.
INVESTIGATIVE CONSUMER REPORTS
Similar requirements were already in place for investigative consumer reports because
they involve considerably more intrusion into the individual's private life. An employer
is authorized to receive an investigative consumer report only if the employer gives the
individual notice that it is requesting such a report. Employers must do this, in writing,
within three days of requesting the report.
Employers must also notify the individual that he has the right to request information
on the nature and scope of the investigation, and that the employer will then completely
disclose the information, in writing, within five days of receiving the request.
Additionally, employers must give the individual a copy of the form outlining the
individual's rights under the Fair Credit Reporting Act.
Because an employer must obtain written authorization for the release of any consumer
report, we recommend that an employer obtain the consent of each individual before
obtaining an investigative consumer report. The notices and disclosures that employers
must make can be given to individuals at the same time that the employers obtain the
consent.
Care must be taken to obtain the results of the background investigation, before any
medical inquiries are made of the applicant. For employers with 15 or more employees, the
Americans with Disabilities Act places limitations on the nature and timing of medical
inquiries.
Put simply, medical inquiries can be made after an employer has extended the
applicant a conditional offer of employment, but before the applicant has started work.
The key to handling such inquiries, for those employers who decide to use them, is to
separate the medical inquiry stage of the employment process from all other inquiries or
reports. Keep in mind, the Equal Employment Opportunity Commission will take the position
that if the employer decides not to hire an individual after it receives medical
information on the employee, the decision must be based on the medical information.
An employer who does not properly space these inquiries could be placed in an awkward
position. The applicant could reveal the presence of a disability or potentially
stigmatizing condition such as AIDS. Shortly after that revelation, the employer could
receive a background investigation report on the applicant that reveals damaging
information, such as conviction of a violent crime. The employer is now stuck with a
difficult choice: hire a convicted violent criminal and face possible negligent hiring
claims or decide not to hire the applicant and face claims of disability discrimination.
The complicated notice requirements of the act may cause some employers to forgo the
use of background and criminal history investigations. However, employers who take this
approach will be doing themselves a disservice.
Finding a qualified employee can be a long and complicated process, but hiring an
incompetent employee can have even more disastrous consequences. Besides the obvious
disadvantage of poor work performance, employers are now being successfully sued for such
things as negligent hiring. What if the applicant has some glaring defect that would have
been revealed in the investigation process (for example, a conviction for a violent
crime)? If this individual were to injure anyone, the employer could be exposed to serious
liability over the employment of this individual and the failure to check the applicant's
background.
The employer must proceed carefully in conducting background checks, however. An
employer that violates the provisions of the Fair Credit Reporting Act could find itself
paying an award of economic damages and attorney's fees to a plaintiff. If the violation
is found to arise from the employer's willful misconduct, punitive damages could be tacked
on to the award.
Therefore, employers in today's litigious world would be well served to review their
hiring processes carefully. Considering the complexities of the law, an employer may wish
to seek the guidance of an employment lawyer or human resources professional. The employer
should make a well-reasoned decision about the inquiries it needs to make to find a
qualified employee. Once the decision is made, an employer needs to ensure that procedures
and forms are in place to comply with the myriad of laws that apply to the hiring and
disciplining of employees, including the Fair Credit Reporting Act.
John-Edward Alley and David S. Harvey, Jr. are with the
law firm Alley and Alley/Ford & Harrison LLP, where Alley is a partner.
July/August 1998 -- Florida Business Insight, 501 N. Adams St., Tallahassee,
Fla. 32302
(850)224-7173, insight@aif.com
