Employers Continue to be Sued in Class Action Lawsuits Alleging FCRA Violations

There appears to be a new favorite claim among plaintiffs’ attorneys these days. Three class action lawsuits were filed against employers in the past month in various federal district courts based on allegations of failure to comply with the Fair Credit Reporting Act’s disclosure requirements. The allegation in each case is that the employer failed to provide pre-adverse-action notices to consumers before taking adverse employment actions against them.

The FCRA requires employees to make several disclosures whenever a background check is conducted for employment purposes. The timing of the disclosures is also critical for compliance.

• A disclosure that a background check will be conducted must be given to the applicant or employee prior to the check being conducted. This disclosure must be in writing and in a document that consists solely of the disclosure. It should not be part of a printed employment application form, and it should not include a release of liability. The fundamental message of the disclosure is that “we will conduct a background check on you.” Any other information should be removed from the disclosure.

• An authorization must be obtained from the applicant or employee before the background check is conducted. The fundamental message of the authorization is that “I authorize you to get a background check about me.” While the FCRA allows the disclosure and authorization to be in the same document, separating the disclosure into a different document will make defending an FCRA case much easier.

• If the background report shows any information that may disqualify the subject of the report from employment, the employer must provide the subject with a “pre-adverse-action notice.”  This is true even if the adverse information is considered an automatic bar to employment. This notice must contain a copy of the report, and a written description of the consumers’ rights under the FCRA. Generally, the notice provides consumers with contact information for the consumer reporting agency, and notice of the consumer’s right to dispute the accuracy of the report.

• Employers may not take any adverse employment action based on the report until the subject has a reasonable opportunity to review and dispute the accuracy and completeness of the report. The Federal Trade Commission has previously said that five business days is a reasonable period of time for the subject to dispute a report. That’s why no adverse employment action should be taken for at least five business days after a pre-adverse-action notice is mailed. It is important for employers to accept as policy that applicants are still under consideration for employment during this five-day waiting period. If an applicant successfully disputes an erroneous report, the employer must continue through the hiring process as normal. Many recent cases feature lower-level managers thinking that the mere fact that potentially adverse information triggered the pre-adverse-action notice meant that the employer had decided not to hire an applicant.

• If the subject does not dispute the report and the employer decides to take an adverse employment action against the subject after the five-business-day waiting period, the employer must provide an “adverse-action notice” that informs the subject of the adverse action. This notice includes the contact information for the consumer reporting agency that prepared the report, and informs the subject about certain rights under the FCRA.

The potential damages resulting from these class action lawsuits are substantial. Statutory damages of not less $100 and not more than $1,000 for each and every violation may be assessed. Additionally, employers may have to pay punitive damages, attorney fees, witness expenses, court costs, and pre-judgment and post-judgment interest.

Due to the current climate for class action lawsuits involving alleged technical FCRA violations, employers should immediately review their disclosure forms, authorizations, and policies to ensure compliance.

Case Summaries:

• In April 2014, a large insurance company was sued in a putative class action for allegedly failing to provide plaintiffs with a copy of the consumer report and a statement of rights under the FCRA before taking adverse action. (Case No. 5:14-cv-00151; E.D. Ky., April 18, 2014).
• In April 2014, another retailer was sued in a putative class action for allegedly taking adverse action against plaintiffs without providing pre-adverse action notices. (Case No. 8:14-cv-00612; C.D. Cal., April 18, 2014).
• In March 2014, a large retailer was sued in a putative class action for allegedly failing to provide plaintiffs with a pre-adverse-action notice before taking adverse action. (Case No. 3:14-cv-00208; E.D. Va., March 24, 2014).
• On February 7, 2014, a large grocery store was sued in a putative class action for allegedly using a consent form that was not legally valid. (Case No. 3:14-cv-00592; N.D. Cal., Feb. 7, 2014).
• November 2013, a motion picture company was sued in a putative class action for allegedly failing to provide pre-adverse-action and adverse-action notices, and for failing to provide applicants with a copy of their consumer reports. (Case No.  BC 526351; Superior Court of California, November 2013).
• July 23, 2013, a large trucking company was sued for allegedly failing to provide pre-adverse-action notices. The company has agreed to settle the case for $4.4 million. (Case No. 3:13-cv-00473; E.D. Va., July 2013).
• In October 2011, a large retailer was sued in a punitive class action for allegedly failing to provide a clear and conspicuous written disclosure consisting solely of the disclosure that a consumer report may be obtained for employment purposes. Plaintiffs also alleged that the defendant failed to obtain a valid authorization in writing to obtain a consumer report and that it failed to provide plaintiffs with an accurate and current summary of rights before taking adverse action. (Case No. 3:11-cv-00697; E.D. Va., October 17, 2011).

Additionally, backgroundchecks.com has previously reported on similar cases:

• On November 2, 2012, we reported on a class action case against a chain of auto-parts stores. The assertion, in this case, was that the disclosure was not a stand-alone document, but that it was part of the application form, and it included an acknowledgement and a release of liability. It also alleged the employer failed to timely provide applicants with copies of the ore-adverse-action notice. 
• On December 16, 2011, we issued a compliance update about a pizza chain and a major bank being sued in class actions. The allegation in the pizza case was that the disclosure was invalid because it included a release of liability. The allegation in the bank case was that the bank included its FCRA disclosure in a document covering all of the terms and conditions of employment, and included a release of liability, instead of having the disclosure in a separate document.
• On June 6, 2011, we reported on a transportation services company that settled a class action suit for $5.9 million. The employer allegedly failed to properly disclose that it would seek a consumer report, and obtain employee authorization before obtaining consumer reports, and for using the consumer report adversely without giving proper notice before and on taking adverse action.
• On May 24, 2011, we reported on a class action suit brought against an employer for alleged technical failures to comply with the FCRA. In this case, the employer included the disclosure that it would run a background check on its employment application form.  It also waited only four business days between sending a pre-adverse-action notice and sending the adverse-action notice.