For most employers, background checks are standard practice. What’s more challenging is making sure those checks comply with the complex mix of federal, state, and local laws. From consent requirements to how criminal records can be used, the rules are detailed, and mistakes can be costly.

Non-compliance has real consequences: lawsuits, fines, and reputational harm. Even experienced HR teams slip up by relying on outdated forms, applying blanket policies, or skipping required notices.

That’s why compliance isn’t optional. It’s a core part of risk management, and staying aligned with legal standards protects both your organization and your candidates.

Step 1: Application Stage — Disclosure and Consent

Before running a background check, employers must comply with the Fair Credit Reporting Act (FCRA), Section 15 U.S.C. § 1681b(b). This provision requires that applicants be clearly informed, in writing, that a consumer report may be obtained for employment purposes, and that they provide written authorization before the check is conducted.

To stay compliant:

1. The disclosure must be clear and conspicuous and provided in a standalone document (not hidden within the job application or other forms).
2. The applicant must give written authorization, which can be on the same form as the disclosure.
3. Employers should retain the signed consent for their records.
4. If background checks will continue during employment, the authorization must either explicitly cover ongoing checks or new consent must be obtained.

Case Example: In Syed v. M-I, LLC (9th Cir. 2017), the court ruled that including a liability waiver in the disclosure violated the FCRA’s standalone requirement. This case sparked a wave of class-action lawsuits, highlighting how even small technical errors in disclosure forms can create big risks for employers.

Best Practice: Keep the disclosure simple and transparent. Avoid extra language, explain exactly what the background check covers, and make the process clear to candidates. This not only ensures compliance but also helps build trust during the hiring process.

Step 2: Running the Background Check — Scope and Relevance

Once proper consent is obtained, the employer can order the background check from a Consumer Reporting Agency (CRA). At this stage, compliance is about making sure the screening is job-related, consistent, and lawful.

The FCRA requires that employers certify to the CRA that:

1. The background check will be used only for employment purposes.
2. The employer has provided the required disclosure and obtained the applicant’s consent.
3. The results will not be used in violation of any federal or state equal opportunity laws.

In addition, the Equal Employment Opportunity Commission (EEOC) provides guidance on how criminal history and other sensitive information can be used. Employers must avoid blanket policies like “we don’t hire anyone with a criminal record,” which can have a disparate impact on protected groups under Title VII of the Civil Rights Act of 1964. Instead, employers should apply the “Green factors” from Green v. Missouri Pacific Railroad (8th Cir. 1975), considering:

1. The nature of the offense,
2. The time elapsed since the offense, and
3. The nature of the job being sought.

Best Practices:

1. Tailor the background check to the role (e.g., driving record for delivery drivers, financial history for banking roles).
2. Apply the same screening standards consistently across all candidates for similar positions.
3. Avoid collecting or considering information unrelated to the job.

Key Risk: Overly broad or inconsistent use of background checks can expose employers to both FCRA lawsuitsand EEOC discrimination claims.

Step 3: Pre-Adverse and Adverse Action Notices

When a background report reveals information that may influence a hiring decision, employers must comply with the Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681b(b)(3). This section of the law sets out a two-step process to ensure fairness and accuracy before denying employment based on a consumer report.

Pre-Adverse Action Notice

Under the FCRA, before taking any adverse action (such as rejecting an applicant or withdrawing a job offer), employers must provide the applicant with:

1. A copy of the background report, and
2. A Summary of Rights Under the FCRA (a standardized document published by the Consumer Financial Protection Bureau).

The applicant must then be given a reasonable time (typically at least 5 business days) to dispute the report with the Consumer Reporting Agency (CRA). Courts have emphasized that skipping this step is a clear FCRA violation.

Adverse Action Notice

If, after the dispute period, the employer decides not to hire the applicant, they must issue a final adverse action notice as required by FCRA Section 15 U.S.C. § 1681m. This notice must include:

1. The name, address, and phone number of the CRA that supplied the report,
2. A statement that the CRA did not make the hiring decision, and
3. Notice of the applicant’s right to dispute the accuracy or completeness of the report with the CRA.

Legal Context and Case Risk

1. FCRA Class Actions: Employers frequently face lawsuits for failing to send pre-adverse or adverse notices. Settlements often reach into the millions because each violation can apply to an entire class of applicants.
2. EEOC Enforcement: Improper use of background information can also raise discrimination concerns under Title VII of the Civil Rights Act of 1964, especially if policies disproportionately affect protected groups.

Case Example: Goodyear Tire & Rubber Co. (2019)

Goodyear faced a class-action lawsuit alleging it failed to provide job applicants with the required pre-adverse action notices before denying them employment based on background reports. The lawsuit claimed Goodyear rejected applicants without first giving them a copy of the report or a chance to dispute errors, as required under FCRA § 604(b)(3).

The case highlighted how skipping even one step in the process can create exposure for thousands of applicants at once. Goodyear settled the case for $1.6 million, showing how quickly damages add up in class actions.

Best Practices for Employers

1. Provide both notices in writing (electronic delivery is acceptable if compliant with the E-SIGN Act).
2. Allow a fair dispute period before finalizing decisions.
3. Keep records of all notices and applicant communications for compliance audits.

Key Risk: Failing to follow this two-step process is one of the most common and costly compliance mistakes employers make in background screening.

Credit Checks and Salary History Restrictions

While criminal background checks get the most attention, employers must also be cautious when using credit reports or asking about salary history. Both are regulated under the FCRA, with additional restrictions in many states and cities.

Credit Checks for Employment

The FCRA allows employers to use credit reports in hiring decisions, but only under strict conditions:

1. Written Disclosure and Consent: Just like other background checks, applicants must receive a clear, standalone disclosure and provide written authorization.
2. Relevance to the Role: Employers should only use credit checks where financial responsibility is a core job requirement (e.g., accounting, banking, or fiduciary positions). Overuse of credit checks has drawn EEOC scrutiny for potential discrimination.
3. Adverse Action Compliance: If a credit report influences a negative decision, the same pre-adverse and adverse action notice requirements apply.

Important: Several states (e.g., California, Illinois, New York) restrict or prohibit credit checks for most jobs unless there is a direct financial responsibility. Employers must always check local law before running a credit report.

Salary History Requests

While not a “background check” in the traditional sense, many employers previously asked applicants about prior salary to help set compensation. Today, this practice is heavily regulated:

1. The FCRA itself requires fairness and accuracy in any consumer report used for employment, which extends to how compensation data may be verified through third-party agencies.
2. Beyond the FCRA, more than 20 states and dozens of cities have enacted salary history bans, making it illegal to ask candidates about past pay or to use that information in hiring decisions.
3. The intent is to prevent perpetuating wage gaps based on gender or race.

Best Practice: Avoid asking about salary history altogether and focus instead on salary expectations for the role. This reduces compliance risk while supporting equitable pay practices.

Conclusion: Compliance Is Risk Management

Background screening is no longer just a best practice - it’s an essential part of hiring. But as the cases against companies like Goodyear, Whole Foods, and Publix show, even small missteps in the compliance process can turn into costly lawsuits. The Fair Credit Reporting Act (FCRA), EEOC guidance, and various state and local laws all set strict requirements for how background checks must be conducted and how adverse decisions must be handled.

For employers, the message is clear:

1. Always obtain clear disclosure and written consent before screening.
2. Limit background checks to information that is job-related and consistent with business necessity.
3. Follow the two-step adverse action process without shortcuts.
4. Keep compliance records and protect candidate data.

When done right, background screening protects organizations from negligent hiring risks while maintaining fairness and transparency for candidates. When done wrong, it exposes companies to financial liability, reputational harm, and loss of trust. Employers who stay aligned with the law not only protect their organizations but also strengthen their reputation as responsible and ethical workplaces.

Reducing Risk and Preserving Trust Through Legal Referrals

When a job applicant is denied employment because of a background report, errors are not uncommon - outdated records, identity mix-ups, or mistakes by the Consumer Reporting Agency (CRA) can all play a role. Employers, however, have little ability to correct these problems themselves. What they can do is empower applicants to protect their rights by referring them to Consumer Attorneys, PLLC. This simple step keeps the employer compliant, reduces liability risks, preserves trust with candidates, and ensures that applicants receive expert legal support to address errors directly with the CRA.

Why This Matters for Employers

1. Protects Employer Neutrality
2. Employers avoid becoming entangled in legal disputes between applicants and CRAs. A referral to Consumer Attorneys, PLLC shows fairness while keeping the employer’s role strictly within compliance boundaries.
3. Reduces Legal Exposure
4. Mishandling disputes is a common trigger for FCRA lawsuits. By guiding applicants to Consumer Attorneys, PLLC, employers demonstrate they followed the proper process and directed candidates to the right next step — minimizing liability.
5. Preserves Employer Reputation
6. Candidates denied due to errors often feel mistreated. Offering a referral shows empathy and responsibility, reinforcing the employer’s image as a fair and ethical workplace.
7. Supports Faster Resolutions
8. Consumer Attorneys, PLLC specializes in holding CRAs accountable. Legal professionals can often resolve disputes more effectively, reducing long delays and frustrations that can damage the hiring experience.

Bottom Line: Employers cannot fix CRA mistakes, but they can take the high road. Referring denied applicants to Consumer Attorneys, PLLC is a proactive way to stay compliant, avoid costly risks, and maintain trust while ensuring candidates have the resources to correct errors and move forward.