Please join me next week for a discussion about what employers need to be aware of regarding pre-employment background checks to ensure you have compliant background screening policies and procedures in place. Some of the topics I will discuss include the Fair Credit Reporting Act, state law regarding restrictions on the use of credit information for employment screening purposes, the EEOC’s guidance on the use of criminal history records, and Fair Chance Hiring laws (aka Ban the Box ordinances).

The webinar is hosted by ClearStar.  Please register by clicking here.

Details: The free webinar is Wednesday, March 15, 2017 from 2:00 PM – 3:00 PM EDT.

A series of recent class action complaints against employers leads me to write about what employers can do to mitigate risk with respect to their background screening program.

I’m talking about pre-employment background checks when an employer uses the services of a third-party background screening company. Under the Fair Credit Reporting Act (FCRA) (15 U.S.C. § 1681 et seq.) employers have two critical responsibilities when using the services of a third-party background screening firm to request background checks on prospective employees.

Employers must do the following in order to comply with the FCRA when requesting a background check:

  1. Employers must provide prospective employees a clear and conspicuous disclosure regarding the fact that you will conduct a background check AND you must get the individual’s written authorization to conduct such. This is typically called the disclosure and authorization notice and it must be in a stand-alone document. The FCRA requires that when an employer requests a background check (aka a “consumer report”) for employment purposes they must provide “a clear an conspicuous disclosure” in writing “before the report is procured or caused to be procured, in a document that consists solely of the disclosure” and “the consumer has authorized in writing….” (15 U.S.C. § 1681b(b)(2)(A)(i)-(ii))
  2. Employers must follow the adverse action process, which is potentially a two-step process. The first step is typically referred to as the “pre-adverse action step” and you cannot send a final “no hire” letter until you complete this step. So, hypothetically speaking, after completing step 1 above you receive the results of a background check from your background screening vendor. The report indicates a criminal history or some other adverse item of information.  Based on this information, you may decide not to hire the individual.  Now what?  Before you take any final adverse action you must first provide the individual with a copy of the report you are reviewing and a summary of their rights as prescribed by the Consumer Financial Protection Bureau.  This allows the prospective employee to review the report and alert you if any information contained therein is inaccurate or incomplete and also to act on that incorrect or incomplete information with the background screening company. You should wait at least five business days before taking any final adverse action although realize that in some states and cities, Fair Chance laws and ordinances (aka Ban the Box laws and ordinances) may impose greater time periods. For more about Ban the Box, click here.

At a minimum, employers must follow above two steps to comply with the FCRA.  Depending on what state or city you are in there may be additional requirements, but these are the basics when doing pre-employment background checks on prospective employees.

Which brings me to the class action litigation and a sampling of the cases brought against employers for alleged non-compliance with the FCRA related to steps 1 and/or 2 described above.

  • Class action complaint filed against an airline catering and provisioning company (Case No. 2:17-cv-1298) for allegedly not following the pre-adverse action process.
  • Class action complaint filed against a major retail pharmacy chain (Case No. 5:17-cv-6019) for not providing the proper disclosure that a background check would be conducted and failure to follow the pre-adverse action process.
  • Class action complaint filed against a plasma provider (Case No. 5:17-cv-6018) for not following the pre-adverse action process.

There is a very active plaintiff’s bar filing complaints against both employers and background screening companies for alleged violations of the FCRA.  They do not discriminate based on type of employer or size of your business.  You’ve been warned.

But not all is lost as these are curable compliance issues. You start by reviewing your background screening program–your policies and procedures–with counsel versed in the FCRA and state consumer protection laws and guidance that govern background screening. You need to go step by step through the hiring process to understand where you may have deficiencies and need to shore up your compliance. For instance–if, as an employer, you utilize an adjudication matrix or screening standards to automatically classify individuals as “ineligible” for hire and automatically proceed to send a no hire letter we should talk about your background screening program and whether it complies with the requirements of the FCRA.  Or, your FCRA disclosure and authorization has a lot of “extraneous language” such as a release of liability language, we should talk.  Willful violations of the FCRA are eligible for statutory damages of $100 to $1,000/violation, plus punitive damages and attorney’s fees.

We would be happy to talk to you about your background screening program. Please contact Montserrat Miller at Arnall Golden Gregory at or 202-677-4038 for assistance.

Background checks for employment screening purposes may contain different information.  Most common would be the use of criminal history information, but there are times when an employer requests that their background screening vendor also provide credit history information for a job applicant or employee.

Employers who request credit history information be included in background investigations must, in addition to complying with the requriements of the Fair Credit Reporting Act (15 U.S.C. § 1681 et seq.), be aware of state restrictions on the use of credit information for employment screening purposes.  States like Illinois, California and Maryland (and others) restrict the use of credit by employers, as do cities such as New York City and Philadelphia.  Generally, these laws restrict the use of credit unless there is a basis for the use of credit history information tied to the position for which a job applicant has applied.

A recent case in Illinois highlights the struggles employers face in those states where there are restrictions.

In a lawsuit against Neiman Marcus, a job applicant alleged that the retailer discriminated against her when it ran a credit check for a position as a sales associate.  Mind you, the plaintiff did apparently have a credit history to report (e.g., judgments, collections) but she alleged that Neiman Marcus violated the Illinois Employee Credit Privacy Act (820 ILCS 70/1 et seq.) and that the job-based exemption they claimed did not exempt them from the requirements of the law.

Neiman Marcus argued that as a sales associate the plaintiff would have access to credit card applications which contained sensitive personal information and accordingly the credit check was acceptable as a “bona fide occupational requirement of a particular position.”  Neiman Marcus also argued that they were exempt from the Employee Credit Privacy Act due to access to cash and signatory power.  The lower court agreed Neiman Marcus acted appropriately when it ran a credit check, but the state appellate court said not so fast.  (Ohle v. The Neiman Marcus Group, Case No. 1-14-1994, Illinois Court of Appeals, First District, Second Division, Sept. 27, 2016)

Illinois law synopsis — the legislative intent behind the Employee Credit Privacy Act is that it “prohibits employers from inquiring about or using an employee’s or prospective employee’s credit history as a basis for employment.”   The law lists several industry specific exemptions for, for instance, banking and financial industry positions or law enforcement positions. And it also states that where a “bona fide occupational requirement” for a particular position exists (and the law lists specific examples) then the employer would be exempt from the law’s requirements as well.

The bottom line is that if you are in a state which restricts the use of credit for employment screening purposes and you in fact request credit history from your background screening vendor, you need to be aware of not only state restrictions but also local restrictions regarding its use.

Rhode Island has a quirky statute that arguably requires any consumer reporting agency who provides credit reports or information to state residents to register with the Department of State – Business Services Division.

I strongly encourage all background screening companies doing business in Rhode Island to work with their legal counsel to determine if they should register.  Do not be mislead by use of the term “credit bureau” in the statute.

Title 6, Chapter 6-13.1-24 requires “Any credit bureau doing business in this state shall immediately register in the office of the secretary of state….”  The definitions section (section 6-13.1-20) defines a credit bureau similar to the language in section 603(f) of the Fair Credit Reporting Act.  Which is why, arguably, any background screening company doing business in Rhode Island which includes providing credit reports or information should consider whether to register with the state.

From personal experience we know that there is at least one serial plaintiff in Rhode Island who has filed a number of claims against companies alleging they failed to register with the state.  While the statutory penalties may not seem significant, the cost of defending such a claim, which could lead to litigation or arbitration, should be considered.

Click here to view the Registration of a Credit Bureau form.

I am happy to discuss this with background screening companies considering whether to register.


The Affordable Care Act provides grants to states to implement background check programs for prospective long-term-care employees in settings such as nursing facilities, home health agencies and hospices. The grant program,  known as the National Background Check Program (NBCP), is intended to ensure that long-term-care employees undergo a minimum level of screening to protect patients.  Three types of background checks are required by the NBCP: (1) a search of State-based abuse and neglect registries and databases; (2) a check of State criminal history records, and (3) a fingerprint-based check of FBI criminal history records.  However, according to a recent Department of Health and Human Services Office of Inspector General (OIG) report, the NBCP has a long way to go before it is fully viable. (National Background Check Program for Long-Term-Care Employees: Interim Report, January 2016)

This is just as well considering that the third type of check – a fingerprint-based check by FBI records – is not, in this author’s opinion the panacea that many believe it to be. Name-based checks, when done using multiple identifiers, can be more accurate.  Moreover, information in the FBI’s database is limited and does not always contain final disposition information.  But fingerprint-based checks and the FBI are for another article.  In the meantime, what are steps that long-term-care facilities and providers can take to protect themselves, their workforce and their patients.  It is important to note that the guidance provided in this article is applicable across-the-board, to all employers in the United States who conduct background checks and not limited to long-term-care facilities and providers.

Regardless of whether a facility or organization is mandated to conduct certain background checks on employees, or is conducting such checks for due diligence purposes, it is important to understand the basics behind ensuring a legally compliant background screening program. The following bullet points will address the basics and some key elements of a complaint background screening program.

  • First, if your organization works with a third-party background screening company and they provide you with your background check reports, you are covered by the federal Fair Credit Reporting Act (15 U.S.C. § 1681 et seq.) in addition to analog state consumer protection statutes. As the “end-user” of “consumer reports” provided by a “consumer reporting agency” you have certain responsibilities under the FCRA. Failure to follow these responsibilities can lead to private litigation for violations of the FCRA and state laws, especially when we consider a very active plaintiff’s bar bringing claims against primarily end-users of consumer reports (i.e., employers) but also consumer reporting agencies (i.e., background screening companies).
  • Second, employers have an obligation to provide certain disclosures to job applicants when conducting a background check for employment purposes. A key disclosure is frequently called the “Disclosure and Authorization” notice. This notice is required by the FCRA to inform the job applicant that a background check will be conducted for employment purposes, among other things. Not providing a legally sufficient or defensible notice advising the job candidate of the fact that a background check will be conducted in a document that is “clear and conspicuous” and in a stand-alone format is the subject of significant amount of litigation around the country.
  • Third, still on the topic of the above notice and the content therein. Although the FCRA does not specify the exact content of the notice, the courts have stated that including extraneous information in it, such as a release of liability, a waiver of rights under the FCRA or language about the employment itself can cause the notice to be legally deficient.
  • Fourth, organizations must secure a job candidate’s written authorization for the background check to be conducted by a background screening vendor.
  • Fifth, whenever an organization reviews the background check report for purposes of determining employment eligibility, the FCRA requires that organization to follow certain steps if information in the report will be used “in whole or in part” to take adverse action against the subject of the report. This is called the “adverse action” process and it is a two-step process.
    • The first step is triggered when an organization reviews information in the report and makes the initial determination that the individual may be excluded from employment based on information in the report. This triggers what is known as the pre-adverse action step which requires the organization provide the job applicant with a copy of the report and a federal notice called “A Summary of Your Rights Under the Fair Credit Reporting Act.” Then, as a general rule, the organization should wait at least five (5) business days to allow the individual to review the report and challenge any inaccuracy or incomplete information in the report with both the organization and the background screening company. Sometimes, the reports do include inaccuracies and the FCRA is set up to allow individuals to address such inaccuracies through a consumer dispute process.
    • If, after a reasonable period of time (e.g., five business days) the organization determines it will not hire the individual due to information in the report, the second step is triggered. This is known as the adverse action step, and it requires that the job applicant be provided with a letter with specific content, as per the FCRA.

To be clear, above points are intended to provide a basic or general overview of what is required when conducting a background check using a background screening company and the focus is on the FCRA. Drafting or reviewing of corporate policies and procedures, as well as the forms/notices legally required is something that should be done with the assistance of legal counsel. It is also important to note that there are other factors an organization must consider as part of its background screening program.  Organizations need to be mindful of “Ban the Box” laws in their states and local jurisdictions and know whether they can “ask the question” on the job application about criminal history. Also, whenever an employer uses criminal history information to screen a candidate they must be aware of guidance by the Equal Employment Opportunity Commission on the use of criminal history information for employment purposes.  (Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII of the Civil Rights Act of 1964, Number 915.002, April 2012)  Finally, they must factor in state restrictions on the use of credit in the employment context.

To close the loop on the OIG report mentioned in the first paragraph. The OIG found that, four years into the grant program, the 25 states receiving grants reported varying levels of program implementation. In the six states that submitted sufficient data to calculate the percentage of prospective employees who were disqualified because of a background check, 3% of prospective employees were disqualified from employment. The OIG recommended that the Centers for Medicare & Medicaid Services continue to work with participating states to fully implement their programs and to improve required reporting.

Here’s a free webinar that will snap you out of your deep despair over the fact that it is now dark at 5:02 pm.

I will join Hire Image CEO, Christine Cunneen, to present a 1 hour webinar packed with actionable information and best practices to help you:
  • Minimize the risk associated with background screening of applicants and current employees;
  • Be aware of new state laws that are increasing restrictions on employers;
  • Know what you need to do in light of recent EEOC activities that could signal major changes to come in the background screening process.

This activity has been approved for 1 HR (General) recertification credit hour toward California, GPHR, HRBP, HRMP, PHR and SPHR recertification through the HR Certification Institute.

Click here to register. The webinar is November 17th at 3 pm EST.

On Wednesday the 16th, at 2 pm EST, I will conduct a free webinar  entitled, “Crucial Steps to FCRA Compliant Background Checks: Is Your Company Compliant?”  The webinar is directed toward employers who request and use background checks from private background screening companies and will walk listeners through compliance with the Fair Credit Reporting Act, EEOC guidance on the use of criminal history information in employment screening, litigation in this area, and the impact of state laws on background checks (e.g., Ban the Box measures).

ClearStar will host the webinar – thank you ClearStar.  You can register by clicking here.

Oh, and did I mention it’s free!  I hope you will join us.

This week New York City Mayor Bill de Blasio will hold on hearing on New York City’s Proposed Int. No. 261-A, which would ban the use of consumer credit history, making its use potentially an unlawful discriminatory practice. Certain exceptions apply to the general prohibition on an employer, or their agent’s, request or use for employment purposes of consumer credit history of a job applicant or employee.  The bill’s definition of “consumer credit history” limits the ban or prohibition to information found in consumer credit reports, a credit score or information provided by the individual.

Impact on Background Screening Companies

Background screening companies should pay special attention to the fact that the proposed legislation will not be limited to employers, but specifically applies the prohibition to “agents” who request consumer credit history of an applicant for employment or an employee.

Exceptions to the General Ban on the Use of Credit History

Certain exceptions to the prohibition on requesting or using credit history for employment include:

  • When an employer, or agent, is required by state or federal law or regulations or by a self-regulatory organization to use an individual’s consumer credit history for employment purposes; or
  • For persons applying for positions or employed in: law enforcement, positions of public trust, where bonding or a security clearance is required, positions involving fiduciary responsibilities and others.

There appears to be ambiguity with respect to how broad an employer can interpret the employer exception in proposed Section 8-107, subdivision 24, which states that the general prohibition on use of consumer credit history for employment purposes does not apply when “(1) an employer, or agent thereof, that is required by state or federal law or regulations or by a self-regulatory organization as defined in section 3(a)(26) of the securities exchange act of 1934, as amended to use an individual’s consumer credit history for employment;”.  This author’s view is that this exception to the general prohibition on credit history is only for those individual’s for whom such is required by state or federal or law.  Meaning it is individual specific and not meant to broadly exempt an employer if they have even one job applicant or employee for whom state or federal law requires a background check which includes credit history.

Upcoming Hearing

On May 6, the mayor (who is expected to sign the legislation) will hold a hearing on the proposed legislation.  Click here and then on “Legislation Details” for notice of the hearing.  No further information regarding the hearing has been provided.  Therefore, to be clear, New York City’s ban on the use of consumer credit history for employment screening purposes is not yet in effect.

Law Citation and Effective Date

The title of the bill is the “Stop Credit Discrimination in Employment Act”, and if signed by the mayor, the law would take effect 120 days after enactment. It would amend New York City’s Human Rights Law, sections 8-102 and 8-107 of the administrative code of the city of New York.


Representative Steve Cohen, a Democrat from Tennessee, has introduced H.R. 645 in the House of Representatives.  The legislation would amend the Fair Credit Reporting Act (FCRA) to prohibit employers from using credit reports in the hiring process as well as prohibit the use of credit reports for the purpose of making adverse employment decisions.  The only exceptions to this would be for jobs which require a security clearance, are with state or local government, or for certain individuals working in the financial industry (i.e., supervisory, managerial, professional, or executive positions).  The legislation is short sighted and employers should be concerned about it as checking a prospective employee’s credit history as part of a background check is relevant to determine the possibility of risk to the financial health of a business or its customers.  Rep. Cohen has introduced this legislation in multiple Congresses and the legislation continues to miss the mark as generally employers only use credit reports in situations where they feel that someone’s credit history is relevant to the position in question. If this legislation passes, it means employers would not be able to consider one’s credit history as part of a background check by a background screening company for lawyers, cashiers, pharmacists, NBA referees, executives in non-financial institutions, jewelers, academic financial aid offices, Human Resources employees, procurement employees and so on. 

Check out the bill and see if your representative is a co-sponsor of the bill as so far the legislation has 29 co-sponsors.  The bill, the Equal Employment for All Act is pending in the House Financial Services Committee.  You can contact your member of Congress to share your concerns about the legislation by calling the Capitol Hill switchboard at 202-224-3121 and asking to be directed to your members office.