An increasing number of employers are conducting background checks on applicants and employees and many are outsourcing this function. Employers that outsource their background check function will find themselves subject to the Fair Credit Reporting Act (FCRA), which contains a set of “technical” compliance requirements.

The lack of guidance by courts in the area of background checks has left employers wondering whether their “best practices” will pass muster if challenged. A recent decision from the Southern District of Ohio, Mandy Burghy v. Dayton Racquet Club, Inc. et al., 2010 U.S. Dist. LEXIS 17373 (S.D. Ohio Feb. 26, 2010), may provide some needed assistance.

By way of background, the FCRA imposes specific procedural requirements on employers that wish to obtain consumer or investigative consumer reports (“Reports”) from third-party consumer-reporting agencies regarding applicants or employees. These employers must:

1. Obtain written consent from and provide written disclosure to applicants or employees, in a “clear and conspicuous” stand-alone document, that a Report has been requested. (Informally, the Federal Trade Commission (“FTC”) has stated these requirements can be satisfied through the use of a combined consent/disclosure form focused solely on the Report being obtained);
2. Before taking any adverse action based on information contained in a Report, provide the individual with a copy of the Report and a copy of the FTC’s Summary of Rights and allow the individual reasonable period of time to dispute the accuracy of the disqualifying information (the “Pre-Adverse Action” requirement); and
3. Issue an adverse-action letter when implementing any adverse action, such as a denial of employment or denial of promotion.

In Burghy, the Court first considered whether the employer provided a “clear and conspicuous” disclosure. It found this was satisfied because the employer put the disclosure “on the front side of a one page document,” “employed reasonably sized type,” used “bullet points to call attention to the disclosures,” and the plaintiff was aware that the employer was obtaining a Report.

Practice point – Infuse clarity and brevity into disclosures and exclude ancillary information.

The Court also considered the plaintiff’s assertion that the employer violated the “Pre-Adverse Action” requirement by implementing an adverse action prior to providing a copy of the Report and the FTC Summary of Rights. Specifically, the plaintiff claimed that the employer advised her of her termination at the same time as it provided her with the Report and Summary of Rights. The Court allowed this claim to proceed, denying the employer summary judgment.

Practice point – Eliminate factual disputes by carefully structuring conversations or correspondence pertaining to a Report so that the individual understands that no final decision (adverse or otherwise) has been made and the individual retains the right to contest the accuracy of the Report for a reasonable time. To the extent there is a conversation, having a checklist handy to delineate the process may be helpful.