by Employers have new federal regulatory guidance in using newly available reports about applicants and employees obtained from third parties. The guidance is in response to the rapid growth of new tools to monitor workers. Recent technological advances have created a market for third-party technology companies offering employers new methods to track, assess, and evaluate workers. Reports obtained from these tools may be provided to employers via expanded products from familiar reporting vendors or by technology-focused vendors less familiar with the legal requirements associated with delivering worker-related reports to employers.
The regulatory guidance issued by the Consumer Financial Protection Bureau (CFPB) explains how credit reporting agencies, background screening companies, and technology vendors now offer employee background dossiers that report on a broad range of worker activity, including personal habits and attributes, driving habits, communication frequency, web browsing, and task completion. The reports may include algorithmic analysis or other scoring that assesses a worker’s risk level, performance, or time off from work. The CFPB guidance circular clarifies that background dossiers compiled by a third party about an applicant or worker are considered “consumer reports” under the Fair Credit Reporting Act (FCRA). Employers’ use of third-party background dossiers to make hiring, promotion, reassignment, or retention decisions is governed by the FCRA.
Third-party providers furnishing these reports are considered “consumer reporting agencies” regulated by the FCRA. Employers using the reports initially during the hiring process or for subsequent employment purposes are expected to comply with FCRA obligations. Employer obligations include getting written permission from the applicant or employee before obtaining the report, providing notices before and upon taking adverse actions based on the report, and prohibiting using the reports for purposes other than those permitted by the FCRA.
For more details on the new guidance, see CFPB Circular 2024-06, Background Dossiers and Algorithmic Scores for Hiring, Promotion, and Other Employment Decisions, issued October 24, 2024, available on the CFPB website:
