It is common practice for employers to secure credit reports on current and prospective employees.

While this information can be easily obtained by subscribing to a commercial credit reporting service or by hiring a company specializing in conducting employment investigations, this practice has serious legal pitfalls.

Under the Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681 et seq. (West, 2005), an employer is authorized to conduct a credit investigation to evaluate a job applicant for employment or a current employee for promotion, reassignment or retention.

In these instances, the employer is required to secure the individual's informed consent to the investigation in writing and to refrain from making an adverse employment decision based, in whole or in part, on a credit report absent full compliance with the safeguards set forth in this enactment.

The FCRA generally requires an employer to provide a copy of the report and a written description of the individual's rights under the Act before taking any adverse action against a current employee or job applicant based on information contained in the individual's credit report.

Within three days of taking adverse action, the FCRA additionally requires the employer to provide:

•Notice of the action taken;

•The name, address, and phone number of the credit bureau from which the report was obtained;

•A statement that the credit bureau did not make the decision to take the adverse action and cannot provide specific reasons why it was taken;

•Notice of the individual's right to obtain a free copy of his/her credit report within 60 days; and

•Notice of the individual's right to dispute the accuracy of the information in his/her credit report with a credit bureau.

While these provisions on their face may appear to provide meaningful protection, it is actually quite difficult to find out whether an employer has followed the letter of the law.

The employer always can claim that it based the turn down or adverse employment action on a reason that was separate and unrelated to any adverse information contained in the credit report. Even with its limitations, the FCRA has the potential of providing relief.

For example, it subjects an employer to civil liability for "knowing noncompliance" with these and other requirements. Remedies include "actual damages" (e.g., lost employment or promotional opportunities and job search costs incurred by the prospective or current employee), litigation costs and attorney's fees. In addition, willful failures to comply with the FCRA may subject an employer to an award of punitive damages and/or criminal liability.

There are several very simple steps that an employer can take to avoid litigation and potential liability.

First, the employer should advise the prospective or current employee that a credit investigation will be conducted and secure his or her express consent to the inquiry.

Second, the employer should inform the prospective or current employee of what type of a credit report will be obtained and how its results will be used.

Third, the employer should provide the affected individual with a copy of any report containing adverse information and invite his or her comments on the accuracy and completeness of this information before making a final decision on employment.

This information should be set forth in clear and concise language on a standard consent or verification form, and the prospective or current employee should be required to sign the form before any credit report is requested. In addition, the employer should refrain from saying or doing anything that might be construed as making an unauthorized use of credit information during an employment interview and/or reference check of any individual.

While these recommendations go beyond the current letter of the law, they make a great deal of sense from a public relations and human resources perspective. Since the law is still developing in this area, providing additional safeguards makes sense from the perspective of employers and employees alike.

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