Is running a credit check part of your hiring procedures? Are you doing these credit checks legally? Lots of big named companies are getting sued for violations of the Fair Credit Reporting Act (FCRA), including a new lawsuit at craft giant Michaels.

What's the problem? Well, the law stipulates that you have to give candidates specific notice that you are going to run a credit check on them, and give them proper notice before taking any adverse action (usually, not hiring) them. The notice has to be clear and obvious--it can't be buried on page 3 of some terms and conditions that you have to click through before filling out the online application.

The reality is that employment law is extremely complex, which is why you need an employment lawyer on your speed dial. But the strange thing is, these companies aren't little Mom and Pop operations where the owners hire their neighbor to do the legal work for setting up their business, buying their house, and reviewing their hiring forms. These are major corporations, with employees in the tens of thousands of employees. (In fact, Dollar General who is also being sued, has over 100,000 employees.)

Were their in-house employment lawyers sleeping when they approved the hiring paperwork? Or are the lawsuits unfounded? Let's be honest--if you're going to sue it's best to go after the company with the deep pockets, and that's the big power house companies. For a class action case to be attractive to lawyers, there needs to be a big enough of a class. These retailers may go to court and the courts may determine that their methods of disclosure are sufficient. I can't say from here.

Regardless, most start-ups don't have tons of cash just begging to be used up by lawsuits. (Remember, that just fighting a lawsuit can cost $50,000-$250,00 just in legal fees). Therefore, it's best to play it on the safe side. Consider the following.

Ask, why are we running credit checks?

Yes, it makes sense for your securities firm to run credit checks on people who will be handling millions of customer dollars. It doesn't make quite as much sense for a cashier who may be handling lots of money, but has a security camera over her head anyway.

Are we doing things in the right order?

The right order is conditional job offer, then background check (including credit and criminal background checks). Doing it in this order forces to you follow the law in explaining that you are revoking the offer because of information in the background check. If you run it before, the results may illegally color your decision. You can say, "thanks but no thanks" to any applicant, but if the credit check was part of the decision, you need to own that.

Have you consulted your employment lawyer?

Again, you need one. You want one that explains, for instance, that while the EEOC keeps losing in court, they have a strong belief that credit checks discriminate against African Americans, and is that a battle you want to fight? There are times when you may want to ignore your attorney, but do so with you eyes wide open.

There's no reason to hide things from your job candidates.

You want people working for you who want to work for you. If you have to bury things in the fine print to get people to work for you, you need to change how you operate. Instead, try being honest and up front. As a bonus, people who know they'll utterly fail a background credit report, will self-select out, meaning you don't have to pay for the report. If no one wants to work for you because of how you do things, maybe that should serve as a hint that you shouldn't do things that way.

Published on: Jan 19, 2015
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