Another Employer Settles Multi-Million-Dollar Class-Action Lawsuit for Improper FCRA Disclosure

In October, a major supermarket chain agreed to pay $6.8 million to settle a putative class-action lawsuit alleging that it failed to properly disclose that it would perform background checks on more than 90,000 applicants. Each class member is expected to receive approximately $75.

Plaintiffs alleged that including a liability waiver in a disclosure form violated Section 604(b)(2)(A)of the Fair Credit Reporting Act, which requires that a disclosure consist "solely" of the disclosure that a consumer report may be obtained for employment purposes. The plaintiff pointed to the court’s opinion in another class action - Singleton v. Dominos – and long-standing guidance from the Federal Trade Commission stating that including the disclosure in a job application or including a release of liability in the disclosure are FCRA violations.

Employers who fail to provide applicants with a disclosure – consisting solely of the disclosure that it may obtain a consumer report for employment purposes – before obtaining a background check report on the applicant, face a real and substantial risk of incurring multi-million-dollar legal liabilities. We have reported on similar cases previously:

• http://www.backgroundbiz.com/compliance/complianceupdate_11022012.html
• http://www.backgroundbiz.com/compliance/complianceupdate_01122012.html
• http://www.backgroundbiz.com/compliance/complianceupdate_06062011.html
• http://www.backgroundbiz.com/compliance/complianceupdate_05242011.html

As we reported, plaintiffs’ lawyers are targeting employers in class actions based on violations of the technical provisions of the Fair Credit Reporting Act. These lawsuits do not necessarily allege that the employer’s decision violated the FCRA, but that the process around the employer obtaining and using the background check did. Scores of employers now face or have already settled lawsuits alleging the employer’s failure to provide a disclosure that complies with FCRA § 604(b)(2)(A). Nearly 30 new FCRA-class-action lawsuits have been filed against employers in 2014 alone.

The liability risk is substantial. In two other cases, both involving a liability waiver in the disclosure form, plaintiffs extracted even higher per person settlements. In Singleton v. Dominos, No. 11-1823, 2012 WL 245965 (D. Md. Jan. 25, 2012) the parties settled a class of 11,000 applicants for between $200 and $250 each. In Reardon v. ClosetMaid Corp., 2013 U.S. Dist. LEXIS 169821 (W.D. Pa. Dec. 2, 2013), the settlement awarded was $400 each.

To avoid expensive class actions like this one, employers (1) should not include any extraneous language in the FCRA-required disclosure, including liability waivers; (2) should not include FCRA-required disclosures in the same document or online screen as the general employment application; and (3) should put the disclosure on to a separate piece of paper from the authorization.