Does the Fair Credit Reporting Act (FCRA) Apply to New Workplace Technologies?

New workplace technologies used for tracking and analyzing employees are likely subject to the Fair Credit Reporting Act (FCRA), requiring employers to implement specific compliance steps such as obtaining consent and providing pre-adverse action notices.

The growing use of artificial intelligence (AI), surveillance tools, and performance analytics in the workplace is drawing increased regulatory scrutiny. In a recent circular, the U.S. Consumer Financial Protection Bureau (CFPB) clarified that many of these modern tools fall under the definition of a consumer report as outlined in the FCRA. This means employers using technology to make hiring, promotion, or termination decisions must adhere to the same legal standards traditionally applied to credit and background checks.

What types of new technologies are considered consumer reports?

According to the CFPB, a wide range of technologies can qualify as consumer reports if they are used for employment decisions. These are often referred to as “background dossiers” and are used to assess or predict worker behavior. Key examples include:

• AI-driven productivity scoring systems that analyze keystrokes, application usage, or time-on-task.
• Software or apps installed on personal devices that monitor conduct, location, or communication patterns.
• Tools that analyze social media presence or predict a worker's propensity to unionize.

The critical factor is the use of the information. If the data from these tools is used by a third party or the employer to make decisions about a person's employment, the FCRA's protections are triggered. This is similar to how a traditional background check from a consumer reporting agency is regulated.

What are the core FCRA compliance steps for employers?

Failure to comply with the FCRA can lead to significant legal and financial penalties. Based on the CFPB's guidance, employers must integrate these technologies into their existing FCRA compliance framework. The essential steps include:

1. Disclosure and Authorization: You must clearly inform job applicants or employees that a consumer report will be obtained for employment purposes and obtain their written authorization before procuring the report.
2. Pre-Adverse Action Notice: Before taking an adverse action (such as not hiring, demoting, or terminating) based in whole or in part on the information in the report, you must provide the individual with a pre-adverse action notice. This notice includes a copy of the consumer report and a summary of their rights under the FCRA.
3. Dispute Process: After the pre-adverse action notice, you must allow a reasonable period for the individual to review the information and dispute any inaccuracies.

The following table summarizes the key compliance obligations:

How can employers ensure their hiring process remains compliant?

To mitigate risk, employers should conduct a thorough audit of all technologies used in the employment lifecycle. Based on our assessment experience, a proactive approach is essential. This involves:

• Vendor Vetting: Carefully review contracts with technology vendors. Determine if the vendor is acting as a consumer reporting agency (CRA) under the FCRA. If so, ensure they can and will comply with the law's requirements for accuracy and dispute resolution.
• Policy Updates: Update your employee handbooks and hiring manuals to reflect the use of these new technologies and the associated FCRA rights.
• Manager Training: Train hiring managers and HR personnel on the updated FCRA obligations to ensure consistent and lawful application.

The CFPB's action underscores that longstanding consumer protections apply to new technologies. As Director Rohit Chopra stated, workers are entitled to basic protections against unchecked surveillance and opaque reporting. By integrating these compliance steps, employers can leverage modern tools while respecting employee rights and minimizing legal exposure.