If you had a ticking time bomb in your hands, would you ignore it because it hadn’t exploded yet? Would you think, “Well nothing bad has happened so far, so I’ll deal with it when it becomes a problem”? Of course not! Non-compliance with the Fair Credit Reporting Act (FCRA) is that ticking time bomb for staffing firms, and just because it hasn’t exploded yet, doesn’t mean you can afford to ignore it!
The FCRA regulates the collection of employment references by intermediaries in the United States. Any software, individual recruiter, and/or staffing firm that acts as a third-party between a job applicant and the final employer must comply with the FCRA.
The FCRA was first passed in 1970 and most recently updated in 2018. At its core, it’s designed to regulate and protect the privacy and accuracy of consumer information—think protecting businesses from unlawfully sharing your credit report. But if you dig deeper, you might be surprised at the scope of how a “consumer report” is defined, and the implications of the FCRA in governing how consumer reports can be used. Consider section 603:
“Consumer report” is defined as “any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer’s…character, general reputation, personal characteristics, or mode of living which is used…for the purpose of serving as a factor in establishing the consumer’s eligibility for (1) credit…or (2) employment purposes.”
And how does the law define a “consumer reporting agency”?
“The term ‘consumer reporting agency’ means any person which, for monetary fees…regularly engages…in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties.”
That’s what staffing firms do! They collect and assemble information (i.e. references) on consumers and furnish those reports to third parties (their client companies).
The law goes on to outline with great specificity the manner and timing with which any references can be collected, how to handle bad references, and what the candidate has the right to know and change.
Now, it would be easy to dismiss concerns about the FCRA by thinking, “This is scaremongering. Every company collects references and has been for years. As long as we do it professionally, we’ll be fine.” Perhaps, but consider how much the cultural landscape around consumer privacy has shifted in the last decade. In 2010, Mark Zuckerberg was named Time Magazine’s Person of the Year and tech companies were hailed as helpful revolutionaries modernizing how we work and interact. Does anyone really believe that spirit is alive today? Rather, concerns around how our data is collected, utilized, and protected (or not) is a hot-button issue that draws bipartisan ire and cuts across all demographics. The landscape has shifted, and staffing firms must be on the right side of consumer privacy compliance.
But what’s the risk if you’re not? Is a job seeker really going to comb through an arcane law to make sure your staffing firm followed all proper procedures when collecting a reference on them? Probably not, but a law firm most definitely will! They will be meticulous in searching for any missteps—failure to inform candidates of their rights under the FCRA, not filling out proper disclosures on time, or on the proper page of a report. Every single reference check that doesn’t follow the law exposes your staffing firm AND your clients to potential class action lawsuits for 5 years after the date of violation.
And it’s already happening. In the last 5 years, companies like Home Depot and Amazon have settled class action suits for violations of the FCRA. “It’s a wake-up call to employers that use staffing agencies to place employees,” said Robert Mather, CEO of an employment services firm. “Many employers…have rock solid employment screening practices as well as compliance practices … yet they completely ignore the requirements when it comes to the staffing agencies that they utilize” (Source: SHRM, news article).
This article was originally published in Terefic Blog by Emmanuel Toutain, Terefic, Founder & CEO
