Governing Laws and Regulations
Many laws and regulations govern employment background screening reports (also referred to as consumer reports), including without limitation and to the extent applicable, the federal Fair Credit Reporting Act (the FCRA) 15 USC § 1681 et seq., as amended by the Fair and Accurate Credit Transactions Act of 2003 and by Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act; analogous state and local laws and regulations; the Gramm-Leach-Bliley Act (15 U.S.C. § 6801 et seq.); the Driver Protection Policy Act (18 U.S.C.§ 2721 et seq.); the Health Insurance Portability and Accountability Act (42 U.S.C. § 1320d); the fair information practice principles published by the United States Federal Trade Commission; the General Data Protection Regulation 2016/679 of the European Parliament and of the Council of the European Union, and the European Commission of April 27, 2016, on the protection of natural persons with regard to the processing of personal data and on the free movement of such data and applicable regulations and any applicable secondary legislation, regulations, and orders.
Employment background screening also must comply with Title VII of the Civil Rights Act of 1964, and state and local fair employment laws.
Preemption of State Laws
The FCRA regulates the scope and flow of information between users of consumer reports, furnishers of information, and CRAs. Generally, the FCRA only preempts state laws that are inconsistent with the federal law. In 1996, the FCRA was amended to specifically pre-empt state laws that deal with the content of consumer reports. Under this provision, states are prohibited from enacting laws governing the content of consumer reports after September 30, 1996. At least three states–California, Colorado and Texas–enacted their own “mini FCRA” legislation. Some legal commentators suggest that since the Texas version of the FCRA statute was passed in 1997 after the September 30, 1996 cutoff for state regulation regarding the content of consumer reports, it is pre-empted by the FCRA. This, however, remains a gray area.
Conflict of Laws
Which state law applies, if for example, a California resident applies to an Illinois company to work in a location in Mississippi? Such a situation presents what is known as a conflict of laws, and the legal issue becomes which state has the greatest interest in governing the situation. Thus far, there is no case law dealing specifically with the conflict of laws resolution in the context of the FCRA. However, the FCRA and state analog rules are similar to employment laws (i.e., anti-discrimination) and there is much case law regarding work situations. The general rule is that the law of the state where the person works will apply.
As with most laws, there are exceptions. If the Illinois company required each applicant to come to Illinois, be interviewed, have their background check done at that time, and made its hiring decision in Illinois, the law of Illinois may apply to the hiring and background check, but once employed, subsequent checks would be governed by Mississippi law. This exception would be because the actual acts of hiring and the background screening process occurred in the state of Illinois. If the individual did not pass the background check, Mississippi would never come into consideration.
Generally, the FCRA’s requirements for employers may be divided into two categories: (1) requirements that employers must follow before they procure a consumer report from a CRA, and (2) requirements that employers must follow if they intend to take “adverse action” when their decision is based in whole or in part on the information provided in a consumer report.
Certain reports prepared by a CRA that otherwise would be consumer reports are excluded from the FCRA’s definition of a consumer report, including third-party reports concerning suspected misconduct relating to employment.