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Running Credit Checks on Employment Candidates

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By Riannon A. Ziegler

March 9, 2015

Many employers perform background checks on prospective employees, including candidates’ credit history. While legal, employers must be mindful of the Fair Credit Reporting Act’s (FCRA) requirements, which stipulate that employees and candidates must be given specific, clear, and obvious notice that the employer is going to run a credit check on them, and further, must be given proper notice before taking any adverse action, such as not hiring them, if based upon information revealed in the credit check.

Recently, employers are facing attacks on two fronts: the EEOC has begun filing “disparate impact” lawsuits against employers who perform credit checks on potential applicants because the practice allegedly rejects more minority applicants than white applicants; and several national employers have settled or are currently involved in lawsuits stemming from alleged violations of the FCRA:

  • In October 2014, Dollar General Corporation paid $4.08 million dollars to settle a class action lawsuit in Virginia with a class of 200,000 job applicants who were purportedly sent outdated notices that a credit check was performed.
  • Early last year, grocery chain Publix paid $6.8 million to settle a lawsuit with a class of job applicants who alleged that Publix buried the disclosure form alongside other job application materials.
  • In December 2014, Michaels Stores was served with a class action lawsuit, alleging that Michaels “neglected to properly inform job applicants that the company regularly performed background checks on potential employees during the application process.”
  • In February 2015, Michaels Stores was served with a second class action lawsuit, alleging that her online job application with Michaels had “so much extra information it did not adequately notify her that the company would obtain her credit report.”
  • Whole Foods faced a $10 million lawsuit filed in a California federal court in February 2015, accusing the company of failing to provide applicants with a standalone disclosure form regarding the intent to obtain credit reports. Chuck E. Cheese was also hit with a similar lawsuit in March 2014, and Panera Bread faced identical allegations in a Florida federal court in July 2014.

Best Practice Tips

Other than the obvious mandate to apply the same standards to all applicants, regardless of race, national origin, color, sex, religion, disability, or age, employers must: 

  1. Provide written notice to the applicant or employee stating that you might use credit information obtained for decisions regarding his or her employment. This must be a stand-alone document separate from the employment application.
  2. Get the employee or applicant’s written permission to perform the background check.
  3. Certify to the company from which you are obtaining the report that:

a. You notified the employee or applicant and received their permission to get the credit report;

b. You complied with all FCRA requirements;

c. You will not discriminate against the applicant or employee, or in any way misuse the information obtained in violation of federal or state equal opportunity laws or regulations.

If taking adverse action based upon the information revealed, the FCRA requires: 

1.    BEFORE taking the adverse employment action, you must provide the employee with:

a. Notice that includes a copy of the consumer report relied upon;

b. A copy of “A Summary of Your Rights Under the Fair Credit Reporting Act,” which should be received from the company that provided the report.

2.     AFTER taking the adverse employment action, you must tell the applicant or employee (either orally, in writing, or electronically)

a. That he or she was rejected because of information in the report;

b. The name, address, and phone number of the company that provided the report;

c. That the company providing the report did not make the adverse decision, and cannot provide specific reasons for it; and

d. That he or she has a right to dispute the accuracy of the report, and to get an additional free report from the company within sixty (60) days.

For more information about credit checks or if you have any other employment law questions, please contact a member of our D&O and Employment Practice Group.

This has been prepared for informational purposes only. It does not contain legal advice or legal opinion and should not be relied upon for individual situations. Nothing herein creates an attorney-client relationship between the Reader and Reminger. The information in this document is subject to change and the Reader should not rely on the statements in this document without first consulting legal counsel.

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