Your employer can technically use any information in your credit report any way it wants, as there is no protection against losing your job on the basis of information in your credit report. However, before your employer rejects you for a job based in whole or in part on something in your credit report, the employer must give you a copy of the report before turning you down and written instructions on challenging the accuracy of the report. For more information, see question 8.
The FCRA's notice provision is supposed to give you some opportunity to work with the credit bureaus to ensure that all information in the report is accurate--which you should already be doing if you know there is a problem. Hopefully, your credit file will reflect that you were the victim of identity theft, if that is the case, and your employer will be reasonable and not use that information against you.
However, your employer does not have to give you time to get the information investigated and corrected, and cannot be held liable for taking action against you due to information in your credit report, even if the information is erroneous.
For more information, see the FTC publication: How To Dispute Credit Report Errors.