The Fair Credit Reporting Act: Misnamed But Mischievous

More and more, employers are falling victim to class action filings claiming that their background check procedures violate the Fair Credit Reporting Act (FCRA). Although the attention of in-house counsel and human resources managers has focused on "ban the box" campaigns against even asking about criminal history, employers who perform background checks may be subject to a federal law already in place. While its name might indicate that it is aimed at credit checks, the FCRA also regulates employer background checks. Indeed, the FCRA contains a number of potential traps for employers that a new wave of plaintiffs' counsel has shown eagerness to exploit. Following is an overview of the most important elements of the law.

OVERVIEW OF FCRA & KEY TERMS

The FCRA, 15 U.S.C. § 1681 et seq., regulates the procedures an employer must use when engaging a third party to conduct certain background checks on employees and/or applicants. Specifically, the FCRA applies when (1) the information sought meets the statutory definition of "consumer report" and (2) the party conducting the background check is a "consumer reporting agency."

First, it is important to know the key terms. Consumer report is broadly defined to encompass (1) any written, oral or other communication of any information by a consumer reporting agency bearing on a person's creditworthiness, character, general reputation, personal characteristics or mode of living (2) that is or may be used in whole or in part for an employment purpose (defined below). An investigative consumer report is a subset of a consumer report in which data is obtained through personal interviews.

The presence of a consumer reporting agency (CRA) is crucial. If a CRA is not present, the FCRA does not apply, even if the results of a background investigation otherwise would constitute a consumer report. A CRA is any person in the business of regularly preparing consumer reports for use by third parties using any means or facility of interstate commerce for the purpose of preparing or furnishing such reports.

The term employment purpose when used in connection with a consumer report means a report used for the purpose of evaluating a person for employment, promotion, reassignment or retention as an employee. Thus, the FCRA applies not only to applicants for employment but also to current employees.

There is a special exception to the definition of consumer report for certain employee investigations. Specifically, a...