The Background Check Steps the FCRA Requires

Background checks have become a routine part of hiring for many employers. That routine can hide real legal risk. When an employer uses an outside company to run a criminal, credit, driving or employment history check, a federal law with specific procedural requirements applies. Many class action lawsuits against employers have turned on paperwork mistakes rather than on the hiring decision itself.

The Fair Credit Reporting Act basics

The Fair Credit Reporting Act governs consumer reports prepared by background screening companies. The Federal Trade Commission's guidance for employers lays out the core steps.

First, before getting a report, the employer must tell the applicant or employee in writing that it may use the information for employment decisions. The disclosure must be in a document that consists only of the disclosure. It cannot be buried in an employment application or combined with liability waivers or other terms. Courts have treated extra language in this document as a violation.

Second, the employer must get the person's written permission to obtain the report. Third, the employer must certify to the screening company that it has complied with the law and will not misuse the information.

The two-step adverse action process

If an employer is considering not hiring someone, or taking another adverse action, based in whole or in part on information in the report, the law requires two notices.

Before taking the action, the employer must give the person a pre-adverse action notice that includes a copy of the report and a document called A Summary of Your Rights Under the Fair Credit Reporting Act. This step gives the person a chance to review the report and dispute errors, which are more common than many employers assume. Records can be mismatched, outdated or incomplete.

After allowing a reasonable period for the person to respond, if the employer proceeds, it must send an adverse action notice. That notice must include the name and contact information of the screening company, a statement that the company did not make the decision and cannot explain it, and notice of the person's right to dispute the information and get a free copy of the report.

Weighing criminal records fairly

The Equal Employment Opportunity Commission's enforcement guidance on arrest and conviction records addresses a separate concern. Blanket policies that exclude everyone with a criminal record can have a disparate impact on groups protected under Title VII of the Civil Rights Act. The guidance encourages employers to consider three factors when reviewing a record. Those are the nature and gravity of the offense, the time that has passed since the offense or completion of the sentence, and the nature of the job sought.

The guidance also encourages an individualized assessment, which gives the person a chance to explain the circumstances, show rehabilitation and provide references before a final decision. An arrest that did not lead to a conviction is generally not a reliable basis for an employment decision on its own.

Many states and cities have added their own fair chance hiring laws that restrict when employers may ask about criminal history. Multistate employers should check the rules in each location before finalizing their process.

Why fair review matters for hiring

Beyond legal compliance, careful review widens the talent pool. Millions of working-age adults have some kind of record, and many have been out of trouble for years. In Louisville, Greater Louisville Inc. lists expungement among the barriers its workforce programs help address, a topic we cover in our report on barriers to work. Employers that screen thoughtfully can reach candidates others overlook, as we noted in our analysis of workers on the sidelines.

A checklist for employers

Review your disclosure form to make sure it stands alone and contains no extra terms. Confirm that written authorization is collected before any report is ordered. Build the pre-adverse action and adverse action notices into your applicant tracking system so they cannot be skipped. Set a consistent waiting period between the two notices.

Write a criminal record review policy based on the EEOC's three factors and train everyone who makes decisions on it. Apply it consistently. Keep records of each review, including the reasons for the decision.

Background checks also overlap with other hiring obligations. Employment eligibility verification through Form I-9 is a separate requirement with its own deadlines, covered in our Form I-9 guide. Employers using automated screening tools should also review state rules on AI in hiring, described in our AI hiring law report.