Running a business in modern America can be a very challenging task.

There are a multitude of local, state and federal regulations that every business must adhere to—all the while, dealing with the complexities that come with operating any successful organization.

In recent months, one of the federal regulations drawing greater attention from business owners is the Fair Credit Reporting Act (FCRA), the federal law that governs how businesses and credit reporting agencies are permitted to use Americans’ personal information, particularly during employment background screening.

While the vast majority of businesses don’t ever intentionally do anything that might qualify as ‘non-compliance’ with FCRA, a recent string of high profile lawsuits have served as painful reminders that even unintentional non-compliance can result in severe legal costs.

Many of the non-compliance problems that businesses experience with FCRA are related to background checks that are performed on job applicants prior to a company deciding whether or not hire an individual. One of the reasons that many companies turn to employment screening experts—such as PeopleFacts—is to specifically avoid running into any questions regarding FCRA compliance, and the possibility of resulting costly lawsuits.

Some may assume that non-compliance with FCRA regulations is an issue most often encountered by smaller companies, who have more limited resources with which to comply to the regulations. However, a spate of high profile lawsuits illustrates that the challenge of complying with FCRA regulations can just as easily confound large companies as smaller ones.
For example, national retail food giant Whole Foods Markets was among the companies to recently face a class-action lawsuit for FCRA non-compliance. After almost 20,000 individuals threatened the company with a class-action suit related to its failure to comply with the all the provisions of the FCRA, Whole Foods decided to settle out of court for just over $800,000.

In addition, other large companies that have faced major FCRA lawsuits include well-known brands such as Chuck E. Cheese, Home Depot (each settling out of court for $1.75 million); the largest FCRA-related settlement, to date, remains that of Publix Supermarket, who settled their lawsuit for $6.8 million in October, 2014

So, as you can see, there is indeed a high price to be paid for companies that are either accused—or found to be—non-compliant with FCRA regulations.

The natural question, then, that businesses should ask themselves is what measures can and should be taken to avoid the possibility of being found non-compliant with the FCRA.

In addition to partnering with a well-established employment screening industry leader such as PeopleFacts—who have a deep understanding of the FCRA requirements– there are a number of actions that are worthy of consideration for those seeking to remain FCRA compliant.

These would include:

Ensuring Proper Disclosures: The FCRA requires that company inform job applicants of their intention to have a background check performed on the individual, and informing the applicant of all of their rights under the FCRA. Disclosures must be done in writing, must be clear and easily understood, and explain the nature of the information that will be sought during the background check. Though some employers may not be pleased with the breadth of the required disclosures, the FCRA is the law and failure to comply with it can carry severe financial consequences.

Obtain Proper Authorization: Prior to conducting a background check, a potential employer must obtain consent from the applicant to conduct the background check. Proper authorization is an absolutely critical requirement, and companies that proceed with background checks for potential employees can face very stiff non-compliant fines if they neglect this essential step in the employment screening process.

Pre-Adverse Action Notices: When a company has reached a negative decision regarding a potential hire based upon information garnered from pre-employment screening, they are required to provide the applicant with what is known as a “pre-adverse action notice.” Adverse actions can include the decision not to hire an applicant, as well as dismissing or demoting an employee based upon background check information. The purpose of the “pre-adverse action notice” is to inform the individual of the pending negative action, and provide him or her with an opportunity to dispute the findings of the background check information.

An Opportunity To Challenge The Findings: Under FCRA rules, applicants must be provided with a minimum of 5 days to challenge (or confirm) the findings of the background check report. And finally…

An Adverse Action Notification: One of the most critical elements of complying with FCRA rules is the requirement that employers provide applicants with an ‘Adverse Action’ notice. This notification should include a wide array of information that led to the ultimate decision that negatively impacted the potential employee; in addition, it is also critical that applicants receiving adverse action notices be made aware of their legal right to dispute the findings of the background check. Failure to do one—or both—of these steps could result in legal action by the applicant(s).

Businesses in modern America are, indeed, confronted with a wide array of legal and regulatory requirements that can make the difficult task of running a successful operation all the more complex; the FCRA law is only one such challenge.

However, just as any doctor will confirm that preventive care is the proverbial ‘best medicine’, so too will any legal expert confirm that full compliance to existing business laws—such as FCRA—is also the best method to prevent what could potentially mean costly litigation resulting from failure to meet all the requirements of this important employment law.