Follow the Rules When Doing Background Checks

November 2, 2012
Legal Alert

As the economy–fingers crossed–starts to pick up again and consumers find themselves motivated to spend hard-earned dollars, window and door companies will hire more employees. If you're in that position, you’ll want to hire the “right” person. And to help find the "right person," your  company may be planning to perform background checks.

Background checks may involve obtaining “consumer reports,” which can include employment history, driving record, criminal history, and credit report. Consumer reports are regulated by the Fair Credit Reporting Act, 15 U.S.C. § 1681 and defined as information from a consumer reporting agency “bearing on a consumer’s creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living.”

The FCRA, enforced by the Federal Trade Commission, provides requirements that must be followed when consumer reports are used in an employment setting. Some states restrict the use of consumer reports for employment purposes and employers should review state laws before using consumer reports.

Prior to obtaining a consumer report, the employer must notify the applicant that it might use information in the applicant’s credit report for decisions related to employment. This notice must be in writing and in a stand-alone document (i.e. cannot be included in the application), and the applicant must provide written permission for the employer to obtain the report. If the employer wants to obtain consumer reports at any time during the applicant’s employment, that must also be made clear from the outset.

The employer must also certify to the company from which the consumer report is sought that (1) the applicant received notice and gave permission to obtain the report, (2) the employer complied with all FCRA rules, and (3) the employer will not discriminate against the applicant or misuse the information as provided by any applicable equal opportunity laws.

Once an employer obtains and reviews a consumer report, before taking any adverse action (i.e. deciding to reject the applicant) based on information contained in the consumer report, the employer must give the applicant (1) notice of potential adverse action, (2) a copy of the consumer report, and (3) a copy of A Summary of Your Rights Under the Fairg Credit Reporting Act (to be provided by the credit agency providing the report; also available at the FTC webstite. The applicant is entitled to advance notice of an adverse action to allow an opportunity to review the report for accuracy.

If an employer moves forward and rejects an applicant based on information in a consumer report, the employer must give the applicant oral, written, or electronic notice of the decision. The notice must include (1) contact information for the consumer reporting company supplying the report, (2) a statement that the company supplying the report did not make the decision to reject the applicant and cannot give specific reasons for the employer’s decision to reject the application, (3) notice of the right of the applicant to dispute the accuracy or completeness of the information in the report, and (4) notice of the applicant’s right to obtain an additional free report from the company within 60 days.

Employers who use investigative reports prepared by a consumer reporting agency have additional obligations under the FRCA. Investigative reports are reports based on personal interviews concerning a person’s character, general reputation, personal characteristics and lifestyle.
Failure to comply with any requirement of the FRCA can lead to civil suits brought by the wronged applicant, the FTC, or the state attorney general’s office. Potential penalties vary depending on who is bringing the action and whether the failure was intentional or negligent. An employer found responsible is subject to payment of a claimant’s costs and attorneys’ fees as determined by the court.

The bottom line is that while consumer reports may be helpful for companies in the fenestration industry in making employment decisions, when using them established procedures must be in place to ensure the FRCA requirements are being followed when making employment decisions relating to hiring, retention, promotion or reassignment.

This Legal Alert is presented by Paul Gary and Susan McKay, attorneys at the Gary Law Group based in Portland, Ore. The firm specializes in legal services for the window and door industry. More information is available at  Contact Gary at for further information or to receive the firm's "Risk in the Fenestration Industry” quarterly newsletter.