In conjunction with a more competitive job market, employers have increasingly relied on pre-employment background checks to distinguish candidates.  Occasionally companies obtain background information, such as criminal history records and financial reports, on their own without outside assistance.  More often, however, employers use an external vendors to conduct the background check and provide the information to the company.
Employers should be aware that when using an outside vendor to obtain background information they must comply with the provisions of the federal Fair Credit Reporting Act (“FCRA”).  This law provides job applicants, and also employees, with certain rights regarding background checks.  It also places certain obligations on an employer when seeking this information.
For example, prior to conducting the background check, the employer must provide the applicant with written notice disclosing the intent to seek this background information.  The employer must also obtain the individual’s written authorization to conduct the background check.  This form must be provided to the job candidate as a document separate from the job application form.  See 15 U.S.C. § 1681b.  The vendor conducting the background search, also known as a consumer reporting agency, may supply such forms to the employer for its use.  In turn, employers should be careful not to assume that these forms comply with the requirements of the FCRA, but should instead have the forms reviewed by legal counsel to ensure their compliance.
If upon obtaining the background check information the employer decides to not offer the applicant a position, the FCRA mandates a certain two-step procedure.  First, the employer must provide the individual written notice of its intent to withdraw the job offer based at least in part on information obtained in the background check and provide the individual an opportunity to obtain a copy of the background check report.  Second, after a period of time which may allow the individual an opportunity to correct any errors in the report or otherwise explain the information, the employer can then actually withdraw the offer.
In addition to the federal FCRA, many states have similar laws.  Minnesota has such a law, which contains requirements in addition to those found in the federal FCRA.  See Minn. Stat. § 13C.02.  Employers using external vendors to conduct background checks should make sure that their actions are compliant with these state laws as well.
Takeaway:  Employers using outside vendors to conduct background checks on applicants or employees should take care to make sure their actions are compliant with both the federal FCRA and any similarly applicable state law.