ALP: Is it permissible to hire a third party to conduct background checks on applicants and employees?

July 2005

Yes, but employers who conduct such background checks on employees or prospective employees have a number of legal obligations under the Fair Credit Reporting Act (“FCRA”). 

The FCRA requires that certain notifications be made to an individual before a credit reporting agency may communicate any oral or written information about the individual to an employer.   There are two types of reports that can be requested under the FCRA.  A “consumer report” is a report which contains information bearing on an individual’s credit worthiness, credit capacity, character, general reputation and mode of living.  An “investigative consumer report” is a report containing the same types of information, but gathered through personal interviews with friends, neighbors or associates. 

In order to obtain a “consumer report” under the FCRA, an employer must: (1) make certain certifications to the consumer reporting agency conducting the background check; (2) disclose in writing to the applicant/employee that a background check/consumer report is being obtained; and (3) obtain written authorization from the consumer.  If the employer requests an “investigative consumer report”, it must comply with all these steps and must also inform the employee of his/her right to request additional information about the nature and scope of the investigation.

If the employer decides not to hire the applicant or to discipline an existing employee based on information obtained in a report, it must: (1) send the applicant/employee a copy of the report; (2) provide a summary of rights under the FCRA; and (3) provide oral, written or electronic notice of the action taken.

It is important to note, however, that the FCRA’s requirements do not apply if the background check is conducted directly by the employer, rather than a third party.