Can an FCRA Amendment Protect You in a Background Check Lawsuit?

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In recent years, there’s been a significant evolution in the regulatory and legal environment of employment background checks.

One of these changes is that employers are seeing more lawsuits being filed against them, alleging violations of applicant and employee rights under the Fair Credit Reporting Act (FCRA).

Some of these accusations include inadequate authorization and disclosure forms and deficient notifications during the adverse action process. Recent settlements in these lawsuits have ranged between $2.5 and $3 million, making many organizations sit up and take notice.

While engaging in an audit of your background screening program and reviewing your obligations under the FCRA can be a protective measure you can take to better insulate you from the potential for this type of litigation, there is always the possibility that you could be facing a lawsuit in the future.

According to a report from Littler Mendelson, an amendment to the FCRA may provide some employers with important protections from litigation regarding violations of the Act.

The Fair and Accurate Credit Transactions Act of 2003 (FACTA), which amended the FCRA, was enacted, in part, to allow employers to conduct workplace misconduct investigations by third parties, such as investigators, without being subject to the FCRA’s onerous provisions.

Exemptions under FACTA included not only misconduct investigation reports, but also any reports used for “investigation” into “compliance with Federal, State, or local laws and regulations, the rules of a self-regulatory organization, or any preexisting written policies of the employer,” provided that the reports were not ordered for the purpose of investigating the employee’s credit worthiness, credit standing, or credit capacity.

As result, reports that meet the FACTA exemption do not require employers to necessarily follow their many obligations under the FCRA, like getting consent from the subject of the investigation or providing the individual with a written copy of the report.

One reason that the FACTA may provide some protection to employers from background check litigation is that it does not define several of its key terms. For example, there is no specific definition for what constitutes an employer “investigation” prerequisite. Likewise, the FACTA doesn’t limit the pre-existing written employment policies that would trigger an investigation, nor does it address in detail how and when a summary of the nature and substance of the resulting report be distributed.

Given the lack of specificity, there may be room for interpretation of the FACTA that could give employers some protection in litigation related to violations of the FCRA during a background check. For example, in one case, a background check was run on an individual after he has been rehired by his employer into a role that was regulated by specific rules regarding background screening.

When the investigation turned up offenses that had not been found during previous background checks, the employee was terminated. The employee sued, claiming his rights under the FCRA had been violated. The court sided with the employer, which claimed that the report was exempt under the FACTA, as the report was used to investigate the employee’s compliance with the organization’s written employment policies.

There are a handful of other court cases from the last decade that reveal the applicability of the FACTA in some litigation related to FCRA violations related to background checks. The report from Littler Mendelson details these cases, and provides employers with a revealing new possibility for better protecting themselves in similar situations.

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HireRight is a leading provider of on-demand employment background checks, drug and health screening, and electronic Form I-9 and E-Verify solutions that help employers automate, manage and control background screening and related programs.

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The HireRight Blog is provided for informational purposes only. It is not intended to be comprehensive, and is not a substitute for and should not be construed as legal advice. HireRight does not warrant any statements in the HireRight Blog. Any statutes or laws cited herein should be read in their entirety. You should direct to your own experienced legal counsel questions involving your organization’s compliance with or interpretation or application of laws or regulations and any additional legal requirements that may apply.