Can your unpaid Visa bill cost you that long-sought promotion? As office manager for a small cleaning business, can you be held liable if your new hire, a delivery person, steals clients blind? The answer to both questions is yes, and they represent both sides of the coin when dealing with the Fair Credit Reporting Act, which regulates how and when a company can dig into employees’ or applicants’ backgrounds.
Whether you’re an employee, a manager or an entrepreneur with workers reporting to you, it pays to be aware of the law’s existence, as well as amendments that took effect last fall.
The changes increased the legal obligations of employers who use such consumer reports as credit checks and even criminal background investigations. The rules now mandate that employees or potential hires sign waivers before the checks can be performed and that employers notify them in writing or orally if an adverse decision — such as denial of a promotion — was based on information in the report. Such reports must be conducted by an outside credit reporting agency to qualify under the act.
If you are going to fire someone or deny them a promotion based on what your agency found, you must first give the employee a “pre-adverse action disclosure” that includes a copy of the person’s credit report as well as a summary of employee rights under the act. There are then several requirements involved in providing the individual notice of the action, including her right to dispute the accuracy of the report.
So if you’re a retail manager, for example, considering several staffers for a sensitive new assignment handling large amounts of cash and you want to check their histories, what’s legal and what’s not? If your firm already has obtained permission from its existing workers to perform the background checks during the course of employment, you don’t have to provide more notice, according to guidelines published by the Federal Trade Commission. If they haven’t signed such a document in the past, you must get the permission before performing the checks.
What about the worker whose credit history is poor but you chose someone over her mainly for another reason? You still have to provide the adverse action disclosure, the commission says.
“People sometimes don’t have an awareness that things they do in their personal financial life may be a factor in their career,” said employment attorney Jennifer M. Cerven of Schiff Hardin & Waite, a Chicago law firm. That’s a mistake, Cerven said, because even inaccurate data on a credit report can take time to correct and cause embarrassment in the interim.
Last fall’s amendments were intended to give individuals more notice of when background checks were being performed, but in practice it is up to employees themselves to avoid or at least be prepared to answer questions about their credit history, experts said.
From a manager’s perspective, all the requirements may make it seem onerous to even run background checks on many workers. But taking no action can get you in trouble too, cautions Gwen Carroll, a Chicago employment attorney who counsels companies and individuals. “Negligent hiring is a (legal) action that has gained popularity, and employers are being held to a higher standard,” she said, noting that this affects not only businesses such as day-care centers, but also any firms whose workers have the opportunity to be alone with customers. She cites a case that involved a washing-machine repair shop that sent workers into homes; one such technician broke into a customer’s house later, and the business was held liable.
So performing checks, especially in sensitive positions, is a good practice, Carroll said. If you’re a hiring manager or a business owner, however, make sure the checks are done uniformly so as not to single out a certain type of employee. On the flip side, employees should get copies of their credit histories to make sure no inaccuracies tie up a job search or a promotion unnecessarily. If your report contains some undisputed blemishes, the amendments at least will give you a chance to possibly ask your employer for a few months to clean it up, Carroll said.
“It’s the best $8 you’ll spend,” said Catherine Williams, president of the Consumer Credit Counseling Service of Greater Chicago, referring to the charge the major credit bureaus impose on consumers to get a copy of their files. If you’ve been denied credit in the last 60 days or are unemployed, you are entitled to a free report. The three major bureaus are: TransUnion Corp. (1-800-916-8800); Equifax Credit Information (1-800-685-1111); and Experian (1-800-682-7654).
