When considering background screening of prospective or current board members, organizations often encounter a subtle but critical legal question: Does the Fair Credit Reporting Act’s (FCRA) “employment purpose” apply to non-employee positions like board directors?

The Regulatory vs. Judicial Divide

The ambiguity stems from a split between federal regulatory interpretation and court rulings across different jurisdictions:

  • The FTC’s Broad View
    The Federal Trade Commission (FTC) has historically taken the position that “employment purposes” under the FCRA should be interpreted liberally to fulfill the law’s remedial protections. Under this broad reading, FCRA provisions extend to individuals performing duties for an entity, even if they aren’t technically common-law employees, such as independent contractors.
  • The Judicial Approach
    Several federal district courts have explicitly rejected the FTC’s position. Courts in Iowa, Wisconsin, and Ohio applied a strict common-law definition of “employee,” holding that the FCRA’s specific “employment purpose” provisions do not extend to non-employees. Notably, federal district courts in California did not follow the Wisconsin precedent, choosing instead to align with the FTC’s broader interpretation. Because no federal court of appeals has issued a binding ruling on this matter, the application of “employment purpose” to board screening remains unsettled nationwide.

Written Consent

Organizations do not need to rely solely on the ambiguous “employment purpose” standard to screen board members. Under FCRA Section 604(a)(2), a consumer reporting agency may lawfully furnish a consumer report whenever it is done “in accordance with the written instructions of the consumer to whom it relates.”

 

Disclaimer: This communication is for general informational purposes only and does not constitute legal advice. The summary provided in this alert does not, and cannot, cover in detail what employers need to know about the amendments to the Philadelphia Fair Chance Law or how to incorporate its requirements into their hiring process. No recipient should act or refrain from acting based on any information provided here without advice from a qualified attorney licensed in the applicable jurisdiction.