Be Mindful of the FCRA

In Hall v. Vitran Express Inc., a freight company settled a lawsuit for millions of dollars after allegedly failing to comply with the federal Fair Credit Reporting Act, or FCRA, when checking into applicants’ pasts.

In Deerings West Nursing Center v. Scott, a nursing home paid $235,000 after being found liable for negligent hiring. The hired employee, an unlicensed nurse’s aide with 56 prior criminal convictions, assaulted an 80-year-old visitor.

With the risks of negligent hiring, discrimination or FCRA noncompliance seemingly at odds with one another, it can feel like employers are stuck between a rock and a hard place when trying to check references. But organizations can take steps to protect themselves and ensure that reference checks suit their hiring goals.

A number of laws affect the reference checking process. If an employer contracts with a third-party background checking service, the FCRA will come into play.

But while most organizations may be familiar with the process of requesting and reviewing traditional consumer reports under the FCRA, reference checks done by a third-party organization may constitute investigative consumer reports.

Investigative consumer reports are based on personal interviews concerning a person’s character, reputation, personal characteristics and lifestyle.

The Federal Trade Commission, which enforces the employment provisions of the FCRA, has stated that verifying factual information that a job applicant has offered during the application process — such as the date that an applicant graduated from college — would not constitute an investigative consumer report, even if a background checking agency verifies the information by telephone or personal contact with the college.

If the background checking agency asks individuals at the college questions that go beyond verifying facts — such as whether the job applicant was a good student or took drugs — the information gathering involves an interview and would constitute an investigative consumer report.

Investigative consumer reports mean additional obligations under the FCRA: written notice that the employer may request or has requested an investigative consumer report, and a statement that the applicant or employee has a right to request additional disclosures and a summary of the scope and substance of the report.

Further, employers that conduct reference checks on their own are not without risk. Organizations must be compliant with state and federal anti-discrimination laws.

Questions asked of references should be job related and consistent with business necessity for the position involved.

Employees conducting reference checks should be trained on proper topics for discussion, which to avoid and how to handle it when an applicant’s former supervisor volunteers potentially discriminatory information.

“If you wouldn’t want to have the conversation with the applicant, you don’t want to have it with the former employer or supervisor,” said Jennifer Sandberg, partner at Fisher & Phillips LLP. “As the potential employer, you have to recognize, that’s not information I want, and that’s not what I’m going to use to make my employment decision.”

In this type of situation, Sandberg recommends that employers politely but firmly point out that such information is not pertinent to the discussion, and that the organization does not want to know about an applicant’s medical condition, family life, etc.

Making this type of statement can aid an employer if the company does have to defend itself against a discrimination claim.

The risks of running afoul of the FCRA or discrimination laws may tempt some employers to avoid reference checking entirely. But this also can open an organization up to negligent hiring risks.

Negligent hiring is an employer’s failure to use reasonable care in the employee selection process, resulting in harm to others.

In negligent hiring lawsuits, courts may hold an employer liable for an employee’s tortious actions if the employer did not meet a certain standard of care in selecting the employee, including failing to conduct a background check or not conducting the background check thoroughly.

Courts hold employers responsible for what they know and what they should have known about their employees.

“It’s too costly to not do it right,” said Phil Brandt, CEO and president of AAIM Employers’ Association, a professional organization of more than 1,600 employers throughout the Midwest.

Rebecca L. Bentz is an associate editor at J. J. Keller & Associates Inc. She can be reached at