Background Checks in Employment
Employment background checks are a standard part of the hiring process for many organizations. They may include criminal history, credit reports, employment verification, education verification, driving records, and other information relevant to the position. The legal framework for background checks is primarily governed by the Fair Credit Reporting Act (FCRA), along with EEOC guidance and various state and local laws.
For HR professionals studying for the SHRM-CP or SHRM-SCP exam, understanding FCRA compliance is critical. The exam frequently tests the procedural steps employers must follow when using consumer reporting agencies to conduct background checks, as well as the adverse action process.
The FCRA applies whenever an employer uses a third-party consumer reporting agency (CRA) to obtain a "consumer report" for employment purposes. It does not apply to in-house investigations that do not involve a CRA, though other laws may still govern those activities.
FCRA Requirements Before the Background Check
Before obtaining a consumer report for employment purposes, the employer must comply with specific FCRA requirements:
- Written disclosure: The employer must provide the applicant or employee with a clear and conspicuous written disclosure, in a standalone document, that a consumer report may be obtained for employment purposes. This disclosure cannot be combined with other documents (such as the job application).
- Written authorization: The applicant or employee must provide written authorization before the employer can obtain the report.
- Certification to the CRA: The employer must certify to the CRA that it has complied with the FCRA's requirements, that it will not use the information in violation of federal or state equal opportunity laws, and that it will follow the adverse action procedures if applicable.
For investigative consumer reports (reports based on personal interviews, such as character references from neighbors or associates), the employer must provide additional written notice within three days of requesting the report, informing the individual of their right to request information about the nature and scope of the investigation.
These procedural requirements are heavily tested on the SHRM exam. Remember that the disclosure must be a standalone document and that authorization must be in writing.
The Adverse Action Process
If an employer decides not to hire (or to take other adverse action against) an individual based in whole or in part on information in a consumer report, the employer must follow a two-step adverse action process:
Step 1: Pre-adverse action notice
- Before taking the adverse action, the employer must provide the individual with a copy of the consumer report and a copy of the FTC's (now CFPB's) "Summary of Your Rights Under the Fair Credit Reporting Act."
- The individual must be given a reasonable period (typically 5 business days, though the FCRA does not specify an exact timeframe) to review the report and dispute any inaccuracies.
Step 2: Adverse action notice
- After the waiting period, if the employer proceeds with the adverse action, it must provide the individual with a written adverse action notice that includes the name, address, and phone number of the CRA that provided the report.
- The notice must state that the CRA did not make the adverse decision and cannot explain why it was made.
- The notice must inform the individual of their right to obtain a free copy of the report from the CRA within 60 days and their right to dispute the accuracy or completeness of the information.
The two-step adverse action process is one of the most commonly tested FCRA topics on the SHRM exam. Many employers (and exam candidates) mistakenly skip the pre-adverse action step.
EEOC Guidance and Ban-the-Box Laws
Beyond the FCRA, HR professionals must consider EEOC guidance on the use of criminal history in employment decisions. The EEOC has stated that blanket policies excluding applicants with criminal records can have a disparate impact on racial minorities and may violate Title VII. The EEOC recommends an individualized assessment that considers:
- The nature and gravity of the offense
- The time elapsed since the offense or completion of the sentence
- The nature of the job sought
Additionally, many states and cities have enacted "ban-the-box" laws that restrict when employers can inquire about criminal history during the hiring process. These laws typically delay criminal history inquiries until after an initial interview or conditional offer, giving applicants a fair chance to be evaluated on their qualifications first.
State-level FCRA equivalents may impose additional requirements, such as stricter rules on credit checks, limitations on the types of criminal records that can be considered, or expanded notice requirements.
Start Practicing Today
FCRA and background check compliance are frequently tested on the SHRM exam, which includes 134 questions over 4 hours at Prometric or OnVUE. Master the disclosure, authorization, and two-step adverse action process to answer these questions confidently.
SHRMpractice.com provides practice questions on FCRA compliance and hiring law. Take our diagnostic to assess your current knowledge, then create your account and prepare with targeted study materials.