The new wave of class action lawsuits are based largely on technical violations of the Fair Credit Reporting Act (FCRA). The FCRA, by its name alone, appears unlikely to apply to most employment contexts, but think again. The FCRA applies to any business that uses a consumer report for employment purposes. Consumer reports may include information related to criminal background checks, drug tests, driving records, employment history, credit checks, and more, when conducted by a third party. For example, if a company obtains a consumer report about a job applicant or uses a consumer report to terminate an employee, then the FCRA is implicated. If these situations strike a chord, then now is the time to reexamine your compliance with the FCRA; if not, be forewarned that violations of the FCRA have led to class action settlements that have cost employers millions of dollars.

The majority of recent lawsuits have alleged deficiencies in an employer's pre-employment FCRA notice and disclosure forms. These deficiencies have ranged from combining the forms with the employment application to including unnecessary information, like a waiver, in the disclosure form. Other claims have included a failure to provide job applicants or current employees with a copy of the consumer report or to use the term “consumer report” in the company's notice.

Noncompliance With the FCRA Could Mean Big Employer Payouts

These technical errors often result in no actual damages to the plaintiffs. However, they could spell out a financial disaster for an employer. FCRA litigation includes damages of $100 to $1,000 dollars for each individual violation and, in a class action setting, those dollar amounts can add up to multi-million dollar settlements. For example, recent class action settlements include a major transportation company that settled for $7.5 million, a major bank that settled for $12 million and a grocery chain that settled for $6.8 million.

Moreover, big settlements have spurred even more ligation. Currently, a major chain restaurant's applicants consolidated two separate class actions against the chain and a consumer reporting agency over background checks that allegedly violate the FCRA. Further, a major coffee shop company is facing a claim that it allegedly violated the FCRA by failing to give a job applicant the opportunity to contest the findings of an inaccurate background check that was used to deny the applicants' employment. Finally, a class action was filed against Brooklyn Events Center, LLC, alleging that it failed to provide rejected applicants with statement of rights, copy of consumer reports, and reasonable time to respond. These new cases are just a handful of the hundreds of cases across the country.

So, What Do We Do? The Keys to Success for FCRA Compliance and Prevention

A company can ensure compliance with the FCRA by keeping in mind that the FCRA requires employers to give applicants and employee's specific notice and disclosures at three particular time periods. Those time periods are: before an employer obtains a consumer report; before the employer takes adverse action based upon the contents of a consumer report; and after the employer takes adverse action based upon the contents of a consumer report.

First, before an employer obtains a consumer report, the employer must give written notification to the applicant or employee that the employer may obtain a consumer report for employment purposes, and the employer must get written authorization to obtain the report. Significantly, the notice or disclosure must be clear and conspicuous and contained in a document that consists solely of it. This is known as the “stand-alone document” requirement and has been a central focus of some of the FCRA class action litigation.

Next, an employer cannot take an adverse employment action based upon the contents of a consumer report without first providing notice to the individual. Specifically, the employer must provide a copy of the consumer report with a written description of the individual's rights under the FCRA. The employer must then wait a reasonable amount of time (generally five business days) before taking the adverse action in order to allow the individual to challenge the accuracy of the report.

Finally, if an employer carries out the adverse employment action, then the employer must provide to the applicant or employee a final notice of the adverse action. This notice must provide the name, address and phone number of the consumer reporting agency, inform the individual that they have the right to obtain a free copy of the report from the consumer reporting agency within 60 days, and that they may dispute the accuracy or completeness of any information in the consumer report. The notice must also provide a statement that the agency did not make the adverse decision and cannot provide specific reasons for it.

To help prevent FCRA violations, some employers have implemented an on-line integration system that includes applicant tracking software and disclosure and authorizations with e-signatures. Employers should also be aware that they may be subject to further state and local requirements relating to an employer's use of consumer reports and should comply with those additional obligations.

Overall, Make Changes Now!

Multi-million dollar lawsuits being filed over what appears to be issues of overly technical compliance with the FCRA is vexing, especially when many claimants are not harmed by the conduct. To avoid becoming part of the FCRA litigation wave, employers should review their current policies and procedures in order to ensure compliance with the FCRA.

Lanette Suarez is an associate in the Fort Lauderdale office of Fisher Phillips. She represents clients in all areas of labor and employment law including employment discrimination and retaliation claims, wage and hour disputes, and employment policies and procedures.