FCRA Background Check Compliance: Disclosure & Authorization Essentials

The Fair Credit Reporting Act (FCRA) is a federal law governing how employers obtain and use background checks (consumer reports) for employment purposes. Compliance is mandatory, and mistakes, especially in the initial steps, can lead to significant legal issues.

What is the FCRA Requirement?

Before you order a background check on an applicant or employee from a third-party provider (Consumer Reporting Agency or CRA), you MUST:

1. Disclose: Provide a written disclosure stating that a background check (consumer report) may be obtained for employment purposes.
2. Obtain Authorization: Get the individual's written permission (authorization/consent) to conduct the background check.

Why Does This Matter?

These steps are designed to protect individuals' privacy and ensure they give informed consent before their background is checked.

Decoding the Rules:

• "Clear and Conspicuous" Disclosure:
  • The disclosure must be easy to understand (simple language, no jargon).
  • It must be easily noticeable and not buried in fine print or within other documents like the job application.
• "Stand-Alone" Document Requirement:
  • The FCRA mandates the disclosure be "in a document that consists solely of the disclosure".
  • Do NOT include: Liability waivers, applicant certifications, acknowledgements, overly broad authorizations, state law notices, company policies, or any other "extraneous" information on the disclosure document.

Best Practice: Use Separate Forms

• While the FCRA technically allows the authorization to be on the same page as the disclosure, doing so is legally risky. Including any extra text beyond the bare disclosure and authorization can violate the "stand-alone" rule for the disclosure part.
• Safest Approach: Use two separate documents: one containing only the FCRA disclosure, and a second containing the authorization.

Your Responsibility as the Employer

• The legal duty to provide a compliant disclosure and obtain valid authorization rests solely with the employer.
• You cannot delegate this responsibility or liability to your background check provider (CRA). Using a CRA's template form does not guarantee compliance; you are still responsible for the form you use.

Risks of Non-Compliance

Failure to comply, especially with disclosure and authorization, is a major source of FCRA litigation, often class actions. Potential consequences include:

• Statutory damages ($100 - $1,000 per violation).
• Punitive damages (for willful/reckless violations).
• Attorneys' fees and court costs.
• Significant reputational damage.

Employers who fail to comply with the FCRA's disclosure and authorization requirements face significant legal and financial repercussions. These violations are a frequent target of litigation, often pursued as class-action lawsuits because a single non-compliant form may have been provided to numerous applicants or employees.

Over the past decade, numerous employers, both large and small, have faced legal challenges and significant financial penalties for failing to adhere to the FCRA. These headline lawsuits serve as stark reminders of the risks associated with non-compliance. Consider these examples:

• Publix Super Markets Inc. settled a class action lawsuit for nearly $6.8 million in 2015. The core issue was that their electronic job application's background check disclosure did not consist solely of the disclosure, as required by the FCRA .
• Halstead settled a class action in 2016 for $583,375. The lawsuit alleged they failed to provide a standalone disclosure form and unlawfully revoked a job offer based on an inaccurate report without proper pre-adverse action notices .

Key Takeaways & Action Items

• Review Your Forms: Immediately check your current disclosure and authorization forms for compliance, especially the "stand-alone" requirement.
• Separate is Safer: Strongly consider using separate documents for the disclosure and the authorization.
• Keep it Simple: Ensure disclosure language is clear, conspicuous, and free of any extraneous information.
• Check State/Local Laws: Be aware that many states and cities have additional background check laws requiring separate notices or specific language.
• Seek Legal Counsel: Always have your background screening forms and processes reviewed by experienced legal counsel familiar with FCRA and relevant state/local laws.

Disclaimer: This document provides a general overview for informational purposes only and does not constitute legal advice. Consult with qualified legal counsel regarding your specific compliance obligations.