Credit checks for crime investigations don't require consent

Q: I suspect that one of my employees may be embezzling, but I don't know which one. I would like to find out if any of them have big debts, judgments or criminal records. Can I run credit checks on all of them without their consent? What about criminal and bankruptcy history checks? What about periodic credit checks as a preventive measure? If I need their advance consent, how do I get it?

A: No federal or state law requires employers to get employees' advance consent to check their credit in connection with a suspected case of embezzlement or a violation of any other law, regulation or written company policy. Nor do you need employee consent to check public court records of any kind.

The law governing employee credit checks was clarified three years ago, when Congress passed an exemption for so-called "misconduct investigations." Before that time, the Federal Trade Commission, the federal agency that regulates uses of credit reports and similar information, took the position that employers had to obtain an employee's advance written consent for all credit checks under all circumstances.

Although you don't need advance consent in misconduct investigations, the law requires you to provide any fired employee with a "summary of the investigation report," according to FTC regulations.

The "misconduct investigation" is the only exception. You will need consent before you check employees' credit routinely as a preventive matter and before you check any applicant's credit. For recurring checks, you don't need recurring signatures.

The same requirements apply to reports about bankruptcies, judgments and even criminal histories, if you get the information from a service that searches or compiles consumer records.

Before you can get a consumer report for routine employment purposes, you must notify the individual in writing in a document consisting solely of the notice. You also must get the person's written authorization before you ask the reporting company for the report. You can find a sample of such a form at www.pestronk.com/creditconsent.html.

After that, if you are going to fire (or decline to hire or promote) someone based in whole or in part on the information in the report, you must first give the individual a pre-adverse action disclosure that includes a copy of the report and a copy of "A Summary of Your Rights Under the Fair Credit Reporting Act," an FTC document which you can find at http://www.ftc.gov/bcp/conline/pubs/credit/fcrasummary.pdf.

After you have taken the adverse action, you must give the individual a further notice covering:

The state of California has more stringent requirements for employers, so you need to check with a local attorney before you use a credit report to fire anybody in that state.

Mark Pestronk is a Washington-based lawyer specializing in travel law.