How to Avoid Being Taken Down by the FCRA Class Action Litigation Wave

fcra class action

An employer presents its job candidate with the necessary disclosures and authorization to obtain the candidate’s permission to perform a pre-employment background check. The candidate, who was not ultimately chosen for the position, later comes back to claim that the disclosure was handed to them along with other extraneous information instead of as a standalone document as the FCRA requires. The employer is suddenly hit with a class action lawsuit alleging the same FCRA violation for a large group of similarly situated applicants.

Scenarios like this have spread through the courts like wildfire in recent years. In some cases, the violations are technical, inadvertent missteps in a complicated process that have led to fines and settlements in the seven-figure range.

As evidenced by recent court cases, corporations are on notice to re-evaluate their FCRA requirements and ensure their background screening processes are buttoned up.

Does the FCRA Apply to Your Business?

The Federal Trade Commission (FTC) puts it very clearly: “When you use consumer reports to make employment decisions like hiring, promotion, reassignment, and retention, the Fair Credit Reporting Act requires you to take important compliance steps.”

Furthermore, the FTC states that when you run background checks through a third-party company who is in the business of compiling background information, you are subject to the FCRA.

Is a Background Check a Consumer Report?

In short, yes. Employment background checks also are known as consumer reports. They can include information from a variety of sources, including credit reports and criminal records.

How to Comply with the FCRA

As an employer, you must take certain steps before you can get a consumer report, and before and after you take an adverse action based on that report. The FTC website details the following high-level requirements:

  1. An employer must disclose in a stand-alone document a consumer report will be used for employment purposes and the applicant or employee must agree to such through a signature on an authorization.
  2. The employer must supply a pre-adverse action notification — notifying the applicant if the information found in a report may result in a no-hire decision.
  3. The employer must also provide an adverse action notification — notifying the applicant if the information found in a report does result in a no-hire decision.

In short, you need to watch every hire carefully for procedural compliance if (1) the decision about an applicant is to take adverse action, and (2) the basis for that adverse action is the result of a consumer report supplied by a third-party consumer reporting agency (CRA).

Lessons from Recent Class Action Lawsuits

You can get a better feel for the technical nature of this threat by looking at some recent cases. Each of these cases were settled without admission of guilt.

A case settled in May 2018 cost a beverage manufacturer/distributor $1.2 million. A former employee sued on the basis that the company had failed to make proper disclosure of its intent to run background checks on applicants. Specifically, the company allegedly failed to provide a disclosure in a standalone document and get signed permission to do the checks. This is a common failure. The very first step in a hiring process exposed to FCRA is to inform the applicant about the background checks in a separate, distinct document, and get permission for the background check.

Over the winter of 2017 – 2018, a certified class received a settlement of $7.5 million. The class sued a company operating in the gig economy arguing that the company took adverse action based on background reports that the applicants did not have a chance to review and rebut. If adverse action is the decision, the applicant has rights under FCRA to see the background reports used and to provide mitigating information. If the applicant can show that he or she did not see the actual report in question, get a reasonable amount of time to refute it (usually 5 business days), or have the mitigating information considered, the employer can lose.

A credit bureau settled a lawsuit for $8 million to quell the assertion that it did not give job or housing applicants information about items in a background check, including alerts about potential terrorist or criminal activity. Plaintiffs argued that not being told why they were rejected lost them other potential jobs or housing. The FCRA drills down to very detailed kinds of information.

A careful employer will avoid the class action lawsuits from the start. An important consideration for all employers is to carefully assess the background screening company you choose to work with and the processes they have in place to help you maintain compliance. We invite you to talk to a Proforma Screening Solutions expert to learn how we help our clients maintain compliance with FCRA.

About Michael Gaul

Michael is a results-oriented marketing executive with over two decades of experience in employment screening, physical security, and business process management. Michael has deep experience in human capital risk management and a passion for educating business leaders and HR professionals on strategies that tangibly protect their interests. Michael serves on the Board of the Secure Cash and Transport Association (SCTA) and is a member of the National Association of Professional Background Screeners (NAPBS), and the American Society of Industrial Security (ASIS).
View all posts by Michael Gaul →