Employment Verification Laws You Should Be Aware Of

No tenant screen is complete without employment verification—an applicant’s employment history can reveal whether they have a steady income and are generally responsible.

But multiple laws regarding employment verification limit how you can gather and use this information in leasing decisions. Not complying with these regulations can lead to lawsuits and fines. 

Make sure you’re aware of all applicable laws regarding employment verification—and best practices for following them. 

Read on to learn more about the ins and outs of employment verification laws and how to stay compliant.

Why Employment Verification Compliance Matters 

Complying with employment verification regulations isn’t just good practice—it’s the law. Failing to follow these rules can have serious consequences, like fines and discrimination lawsuits. Even if a tenant complaint never becomes a formal problem, handling accusations takes time, energy, and financial resources. 

With employment verification scams on the rise, it’s more important than ever to vet every prospective renter. But balancing thorough screenings with tenants’ rights can be challenging—create and follow a standard, impartial process that obeys tenant screening laws. 

Transparency, consistency, and objectivity are key. Keep detailed records during each tenant screen to create trust with applicants and regulators. If questions arise, provide proof that you’ve stayed on the right side of the law every step of the way. It’ll reduce liability.

Key Employment Verification Laws to Know

Employment verification requires collecting sensitive information to establish proof of income. Due to its sensitive nature, multiple consumer protection laws apply to employment verification. 

Several of these laws, like the Fair Credit Reporting Act, are at the federal level. But other state, local, and international governments may have their own laws regarding employment verification. 

Pro tip: Use a third-party screening service with a proven record of complying with consumer protection laws to get rid of the guesswork.

Fair Credit Reporting Act (FCRA)

The Fair Credit Reporting Act outlines how certain companies can collect, use, and share consumer information, including employment history. 

The FCRA puts limits on consumer reporting agencies, such as credit bureaus and tenant screening services. These agencies can only share reports for specific purposes. And if a consumer disputes the information in the report, the agency must investigate and update the data (if necessary).

The FCRA also applies any time a bank, employer, or landlord wants to view a consumer’s report. For property managers, this means:

• You must get written consent before performing employment verification. This rule applies to any consumer report such as credit or background checks.

• If you reject someone because of the data in a consumer report, you must inform the applicant. They then have the right to request a written copy of the report, free of charge. 

Equal Credit Opportunity Act (ECOA) 

The Equal Credit Opportunity Act bans companies from discriminating in credit or lending. Under the ECOA, financial institutions can’t set different lending rates or terms based on protected characteristics such as national origin, sex, religion, race, or gender. 

For example, under the ECOA, a bank can’t set higher interest rates for or deny credit to individuals from a certain country. 

So, in a lending decision, like whether to rent to a certain applicant, setting additional scrutiny on employment verification for some groups or not others, or deciding to charge a higher rent could be discriminatory under the ECOA. 

State-Specific Laws

Each state likely has its own housing and civil rights laws that cover employment verification. These laws might put limits on how and when to complete employment verification and how to use the information in renting. 

By prohibiting housing discrimination, many of these laws are similar to federal laws like the Fair Housing Act:

• California’s Fair Employment and Housing Act
• California’s Unruh Civil Rights Act
• New York State’s Human Rights Law
• Colorado Anti-Discrimination Act
• Virginia Fair Housing Law

Because each state’s specific provisions are unique, you need to research your state’s laws regarding employment verification. Professional organizations like the National Apartment Association’s local chapters and state bar associations have more resources. 

Data Protection and Security Regulations

Whenever you handle sensitive consumer data—including employment information—you need to comply with multiple data protection and privacy laws. Each law gives consumers protections around who gathers, uses, and shares their personal data. 

For example, the European Union’s General Data Protection Regulation (GDPR) outlines how businesses can use EU citizens’ data, including:

• Creating limits on how long businesses can store personal data
• Setting data security standards
• Giving consumers the right to request that an organization delete all their data

Multiple states in the US have followed suit with their own data protection regulations. These include the California Consumer Privacy Act (CCPA), the Colorado Privacy Act, the Virginia Consumer Data Protection Act, and the Washington Privacy Act. 

How to Stay Compliant in Your Employment Verification Process

The number of regulations and laws regarding employment verification may seem overwhelming, but staying compliant doesn’t have to be difficult.

Follow these four steps to protect applicants’ rights while reducing your legal risks.  

Step 1: Obtain Clear Consent 

Ask the potential renter for written authorization to verify their employment. This permission should include authorizing credit and background checks and contacting employer references. Explicitly list employment verification in any background and credit check consent forms. 

Before a prospective resident starts an application, walk them through your tenant screening process. Let them know how you’ll verify their information and how you’ll use it to make a decision. Clear, written guidelines help explain the process while creating transparency and trust. 

Step 2: Use Reliable Verification Methods

Following the law is easier with the right tools, like third-party tenant screening services. Their automated checks often include employment verification, and they’ll likely have their own standard security and compliance policies, so you don’t have to create your own.

Automated verification is typically quick and compliant, but before you submit an application to a third-party tool, do a brief manual check to catch any red flags. Review employment verification documents such as pay stubs, bank statements, W2s, and letters from employers for signs of fraud, like: 

• Blurry text
• Misaligned decimal points 
• Typos or grammatical errors 
• Mismatching numbers or data across documents 

If you suspect fraud, don’t jump to conclusions. Ask the applicant for additional information—they may have a reasonable explanation. Document every interaction and collect evidence before making an accusation or filing a report. 

Step 3: Keep Records Secure

Data security isn’t just a buzzword—it is a must-have to comply with laws regarding employment verification and consumer privacy. Additionally, lax data security can lead to cyberattacks and data breaches, with added fines and penalties. 

Use an encrypted platform for digital records. Install security measures so only the right people can access sensitive data. Set up secure access methods like multi-factor authentication.

If you’re working with paper copies, keep them under lock and key. For both digital and physical records, make sure you can destroy them to follow the FCRA’s disposal rule. 

Step 4: Regularly Review Your Screening Process 

Creating a compliant screening process is the first step. Follow through by training team members on screening guidelines and rules, and regularly review completed applications to check for potential compliance gaps.

Not sure if your process checks all the compliance boxes? Consider consulting a lawyer to do an end-to-end review of your forms and processes. An information security firm can also stress-test your tools and data security measures. 

Even if you’ve done all your homework, you’re not done yet. Federal, state, and local laws can and will change with new regulations and guidance. Stay up-to-date through your state bar association. You can also use a legal site like Nolo, which has state-specific resources for landlords. 

Common Pitfalls to Avoid

With so much at stake, following laws regarding employment verification is crucial. It’s all too easy to accidentally step outside legal bounds, so take extra care to avoid these common pitfalls: 

Verifying employment without applicant consent. Get written permission to run credit and background checks and to contact any references—including employers.

Relying on unverifiable documents. Don’t accept documents like unsigned checks or letters. Have a standard list of acceptable documents, like pay stubs and bank statements. Include examples of unacceptable documents, too, like outdated or incomplete records.

Failing to investigate corrections from applicants. Applicants might disagree with the results of employment data in a background or credit check. Tenants have the right to dispute the information in the report, and you’re required to provide a copy of the report, plus the name of the company that provided it.

Ignoring state-specific regulations. Each state may have its own additional laws regarding employment verification. Even if they’re not federal laws, not following state-level regulations can still pose legal risks.

Asking illegal questions. Some questions are off-limits when contacting a tenant’s employer. Asking these questions can potentially violate fair housing laws. 

How Third-Party Employment Verification Services Ensure Compliance

A robust third-party employment verification service is essential. Handling and verifying sensitive information on your own means taking on substantial risk. 

Instead, rely on an external verification tool to perform automated and compliant verifications quickly. Look for tools that support key security features:

• An external security standard, like SOC 2
• Data security best practices, such as multi-factor authentication 
• Data storage on secure platforms
• An applicant-agnostic approach to avoid potential discrimination issues

These services often have teams dedicated to compliance and security. Look to a tested and trusted verification partner who can do the heavy compliance lifting for you.

Follow Laws Regarding Employment Verification to Increase Trust and Reduce Risk

Compliance with laws regarding employment verification provides multiple benefits. By following a compliant tenant screening process, you build trust with regulatory agencies and tenants alike, all while decreasing legal risks. 

Rather than building your screening process on your own—and accepting the risks—a trusted third-party service can help you avoid common compliance pitfalls. 

Now is the perfect time to review your tenant screening process to make sure that it complies with all applicable laws and best practices.