Regardless of the size of a company, hiring practices should never be taken lightly. Hiring a new employee is bringing in someone into your company’s confidence, allowing them to represent your company and have access to (depending on the position) confidential and financial information. This is why employers gain information on potential employees, both from their applications, resumes, and referrals, as well as reports and background checks on any potential hire. However, when done incorrectly gaining these resources opens your company to lawsuits due to wrongful hiring practices. Make sure to read the fine print and have the proper paperwork to avoid liability during hiring.
Consumer Reports
Beyond a potential’s hire CV, application, referrals, and interviews, many employers seek additional information. This includes contacting previous employers, but also unbiased documentation that might uncover information hidden by the potential hire. These documents collectively are known as consumer reports, covering everything from their spending habits to their criminal background checks.
- Credit Reports: Most of the liability stems from these document as part of the FCRA (see below). This includes their credit histories as recorded by consumer reporting agencies.
- Criminal Background Checks: For governmental and certain sensitive fields, criminal background checks are mandatory. Even when they are not, many standard businesses ask applicants if they have committed crimes, and these documents are used to check their veracity.
- Investigative Reports: These reports cover interviews on the character, reputation, lifestyle, and other characteristics that don’t fall into the first two.
The Fair Credit Reporting Act
While knowing someone’s credit history helps all businesses, from employers to lenders, make financial choices with applicants. However, the information within these reports isn’t always accurate. Credit reports in particular commonly have errors on them: 1 in 5 American’s have an error on one of their reports, according to the Federal Trade Commission. The Fair Credit Reporting Act (FCRA) was enacted to protect consumers, and regulates the collection, dissemination, and use of all consumer reporting.
Your Obligations Under the FCRA
Employers using any consumer reports as part of the hiring process (including screening and interviews) have to follow specific procedures depending on the data. However, they all follow the same basic details:
- Get Permission: You must get written permission from the applicant for each of the requested reports (credit, criminal, investigative). These must be stand-alone forms and not part of a larger sign-once-for-all document.
- Scope of Use: You must explain your scope of use (hiring process), and dispose of the document after the hiring process ends.
- Share and Dispute: If the document’s information sways you into making an adverse decision for the applicant, you must share the document, and give them a chance to dispute the information. After all, this information may be inaccurate.
For complete information on how the FCRA interacts with hiring processes, see Federal Trade Commission’s resources for employers concerning consumer reports. If you’re interested in talked about your business’s risks and mitigating and insuring against them, contact the TJ Woods Insurance Agency. We’ll help you protect your business and your employees for everything from workers’ compensation and business owner’s policies to special liability protection tailored to your specific needs.
