Background Checks, FCRA Requirements and Multi Million Dollar Penalties

Ignorance of the requirements of the Fair Credit Reporting Act (FCRA) is no excuse and can be costly.  Just ask First Student Bus Company and its sister company First Transit.  A federal judge recently gave a preliminary approval on a $5.9 million settlement agreement to resolve lawsuits alleging FCRA violations filed on behalf of workers and job applicants of the school bus contractor. The lawsuits claimed that the bus companies obtained criminal history background checks without obtaining written authorization, and used the reports to deny applicants jobs without providing a copy of the criminal history background check prior to taking adverse action.  Two costly mistakes!  The proposed settlement agreement would provide each of the subjects terminated on the basis of an unauthorized background check with between $2,000 and $4,000.

Under the Fair Credit Reporting Act, an employer must comply with several detailed requirements before it can obtain a background report (consumer report) on an applicant or employee and if it intends to take action in whole or in part based on information in a consumer report. Specifically, an employer must: (i) have a permissible purpose for procuring a report in the first place; (ii) certify to the background screening company that it will comply with applicable law and will not use any information in violation of Equal Employment Opportunity laws or regulations; (iii) provide a written disclosure to the applicant or employee indicating that specific background checks will be conducted by a third party and obtain authorization from that applicant or employee to conduct such checks; and (iv) follow the adverse action requirements including providing a copy of the report, a Summary of Rights, and a pre-adverse action notification letting a person know he or she could dispute inaccuracies in the report. Failure to abide by these requirements can result in lofty penalties, as seen in the example above.

These cases should be the impetus for employers to immediately evaluate their current policies and procedures relating to the use of background checks for employment purposes and seek the expert guidance needed to ensure compliance with the FCRA and similar state laws.

Can one piece of paper cost you $1 million and even put you in jail? You bet it can!

Are you an employer who, since the enactment of the Immigration Reform and Control Act of 1986, failed to adhere to the strict rules of Form I-9 compliance?  If so, now is the time to establish and maintain effective I-9 policies.  Just ask Rick Vartanian, the president of Brownwood Furniture in Rancho Cucamonga, CA. who was sentenced to 10 months in prison for obstruction of justice and six months for continuing to employ illegal aliens.  In addition to the prison term, Vartanian was ordered to pay a $15,000 fine. Brownwood Furniture’s vice president also pleaded guilty to one count of continuing to employ unauthorized workers and was sentenced to one year’s probation and ordered to pay a $10,000 fine.

The Obama administration has changed the direction of its efforts from the previous administration from going after illegal workers to now targeting the employers who hire them.  According to U.S. Immigration and Customs Enforcement, Secretary of Homeland Security Janet Napolitano has directed ICE to focus it efforts on the auditing and investigation of employers who knowingly hire illegal workers. In 2010, ICE criminally charged a record-breaking 180 business owners, employers, managers and/or supervisors, up from 114 in 2009 and 135 in 2008. Additionally in 2010, ICE conducted more than 2,200 I-9 audits – up from more than 1,400 in 2009. That’s proof enough that ICE means business.

The fact is employers who knowingly hire unauthorized workers face serious consequences.  It is important to know that employers are not only responsible for the people they hire but also for the internal systems they use to manage a compliant hiring process.  Case in point – In 2010, retailer Abercrombie & Fitch Co. was fined more than $1 million, even though they never hired any unauthorized workers.  The problem for this company was that during a Form I-9 inspection of Abercrombie & Fitch’s retail stores in Michigan, numerous technology-related deficiencies were found in their electronic I-9 verification system.

There are severe legal repercussions for employers who do not maintain compliance, including costly fines and possible criminal prosecution, depending upon the infraction.

  • Monetary penalties for knowingly hiring and continuing to employ illegal workers range from $375 to $16,000 per violation, with repeat offenders receiving penalties at the higher end.
  • Penalties for substantive violations, which includes failing to produce a Form I-9, range from $110 to $1,100 per violation.

It should be noted that in determining penalty amounts, ICE considers five factors: the size of the business, good faith effort to comply, seriousness of violation, whether the violation involved unauthorized workers, and history of previous violations.

If you haven’t done so already, it’s time to minimize the risk involved in not being Form I-9 compliant. Start with an immediate review of your company’s Form I-9 process to ensure compliance while also ensuring it is in line with non-discriminatory hiring practices (another “hot button” issue that has come to the forefront in 2011).  Make sure to use E-Verify, which is an Internet-based system that allows businesses to determine the eligibility of their employees to work in the U.S.  If you are not sure how to accomplish this, work with a company that specializes in I-9/E-Verify  – it’s worth the expenditure. Once your Form I-9 process is compliant, make sure that your staff is trained and you stay on top of the ever evolving rules and regulations.  The simple fact is, employers who do not take Form I-9 compliance seriously are putting themselves and their companies at severe risk.

For information on how your company can be I-9 compliant, visit  For an overview of I-9 regulations and fines, click here to visit the ICE website.