How To Avoid The 3 Most Costly Employee Background Check Mistakes 30 Aug 2017


Learning from your own mistakes can be costly – sometimes devastating. Fortunately, you can avoid that pain by learning from the mistakes of others.

Pre-employment screening is one of those business functions that are affected by extremely precise rules and regulations…with stiff fines and possible class action exposure for violating them. Anyone who’s worked in HR for any length of time can attest that there are many such areas where you need to be extra cautious. FCRA compliance is no exception.

The Fair Credit Reporting Act (FCRA) covers not just consumer credit reporting, but also criminal history. Getting reports on someone’s poor credit or prior convictions imposes a high level of responsibility when it comes to how that information gets handled, and there are many traps for the unwary.

Most often, pre-employment screening errors for non-compliance with FRCA fall into three categories:

  • Not paying attention to detail in forms and reporting
  • Sloppy Notice & Consent processes
  • Poor handling of Adverse Actions on negative reports

The 3 Most Common & Costly FCRA Mistakes

Lesson One: Be Very Detail-oriented Where Forms Are Concerned

Everyone hates paperwork, and the temptation to minimize the number of forms you require applicants to sign by combining similar items for their consent may be well-intentioned. But in a word, DON’T. The FCRA’s notice and consent procedures are prescribed with exacting detail, down to the font size (10 pt or better).

And most importantly, consent to collect credit or criminal history reports must be requested on separate, standalone forms. Courts have also decided against employers for failure to meet the FCRA requirement that disclosure must be made in a document consisting “solely” of the disclosure.

One employer recently learned this the hard way and is on the hook for at least $1.8 million to resolve a class action lawsuit over claims it violated FCRA by using a form that sought consent for additional provisions not required by FCRA.

Lesson Two: Don’t Conduct Background Checks Without Knowledge and Consent

Last year a well known national retailer was hit with a class action suit alleging that they routinely ran background checks on current and prospective employees without their knowledge or consent.

The employment application did not ask written consent for the use of a third-party reporting agency to obtain a consumer report. Only weeks after the consumer report was obtained was the employee given a disclosure and authorization form.

The impacted class potentially includes thousands of workers, and the plaintiffs are seeking statutory damages of $100 to $1,000 for each alleged FCRA violation, plus attorney fees and punitive damages. Oops.

You can avoid trouble like this by following the FCRA-prescribed language, and by ensuring that a separate form requesting written consent to credit or criminal history screening – including any done by a qualified third party employee background check company – is incorporated in standard hiring procedures.

Lesson Three: Be Extremely Careful About Timelines and Process When Criminal Convictions or Bankruptcies are Returned on a Report

FCRA requires a specific notification process that includes allowing time for an applicant or employer to respond to and correct an erroneous report.

During the notice/correction period following a negative background report, applicants can’t suffer adverse consequences (such as being denied the job). This means that if you do get back a negative background check report, the job must be held open for a sufficiently reasonable amount of time for them to verify its accuracy, or correct any errors.

Last year, an employer’s failure to follow the process for background check disclosure, where an applicant wasn’t given opportunity to correct a false background report opened a wide door for liability exposure., A federal court found their background check process was “reckless” and “objectively unreasonable,” leaving the door open for punitive damages. An estimated 1,795 similarly-impacted class members will receive about $325 each from the company.

In another case recently settled in mediation for $3 million, a major grocery retailer faced claims made by two classes of nearly 60,000 employees and applicants for violating #1 and #3. They not only failed to provide a stand-alone disclosure of an employment-related background check but didn’t notify applicants before adverse actions were taken based on negative reports.

Class action lawsuits related to FCRA violations are growing both in number and in dollar amounts. Here is a short list of FCRA-related class action lawsuit judgments collected since 2013.

  • Transit provider: $5 million
  • National pizza chain: $2.5 million
  • Two different transportation providers: $2.75 million & $4.4 million
  • National grocery chain: $6.8 million
  • National retailer: $4 million

The above list shows how easy it is for even the largest enterprises to trip up when it comes to the sticky forms and processes required to comply with the FCRA. If even these large employers with supposedly bulletproof, legally compliant hiring procedures can slip up this easily – what about everyone else?