We routinely do background checks on our final candidates for employment. Now we’ve got a finalist that we all really like, but the background check revealed a problem credit history. The job doesn’t involve money, but we’re wondering what the credit history might reveal about this person’s character. I want to ask the candidate about it, but one of our staff says we can’t ask the candidate about this problem. We’re a little stumped. Can you tell us what kinds of things that turn up in background checks we can ask about and what kinds of things we can’t ask about? And if we turn down candidates based on background checks, do we have to tell them that? — N.C.
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We passed this potentially hot potato on to Jared Callahan, who says, “The truth of the matter is that there is no ‘rule’ when it comes to credit reports, although most labor attorneys would suggest avoiding credit reports altogether unless the position requires some sort of fiduciary responsibility.
The question to ask yourself as an employer is, ‘What is the job-related reason for running a credit report?’ If the answer is simply to find out about a person’s character, it may not be a good enough reason. Keep this alarming statistic in mind—up to 75% of all credit reports in this country contain misinformation. That means you could be making an adverse hiring decision based on false information. Also, bankruptcies show up on employment credit reports, but labor attorneys would caution you not to consider bankruptcies because of what is commonly referred to as ‘the starting over rule’—the idea is that if a bankruptcy court allows the individual to file for bankruptcy, or to start over financially, then you should not consider the bankruptcy when making a hiring decision.
The second part of your question is black and white: Federal law, under the Fair Credit Reporting Act, says that when an employer decides not to hire an applicant based, in whole or in part, on a background check, then that employer must not only notify the applicant of the intent not to hire, but also must include in a letter to the applicant a copy of the exact report the employer received. This letter is known as the pre-adverse action letter. In addition, the letter must notify the candidate that he or she has a right to contest the report if he or she feels it is incorrect.
The candidate must contest the information within a certain number of days (many law firms suggest 7 business days) before an employer may take the next and final action. If a candidate does not contest the report in the allotted time, the employer sends out a second letter—known as the adverse action letter-making the decision final. If, however, the candidate does contest the information in the allotted time, under federal law the employer is required to conduct a reinvestigation on the area the applicant is contesting. The employer has 30 days to complete this task. The reinvestigation is usually conducted by the background firm that ran the background check in the first place.
On a more positive note, the employer does not have to keep the job open during the 30-day reinvestigation. However, if the reinvestigation corroborates the candidate’s story, the employer is obligated to consider the candidate for future, similar positions.
Jared Callahan is the director of sales and marketing at Employment Screening Resources (ESR) in Novato.