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As an employer, what can I do to avoid an FCRA class action lawsuit?

Hiring decision based on background check

To start, employers should immediately review their policies and procedures for conducting background checks used for obtaining investigative consumer reports to ensure compliance with the FCRA.

Normally, in order to abide by the FCRA, any employer getting an employment screening report through a third party background check company on its employees or job applicants should follow the steps below by providing the employee with the following:

  • Disclosure: Make a clear and accurate written disclosure to the employee/applicant of your intent to obtain a background check.
  • Authorization: You must get written authorization from an applicant that permits you to perform a background check on him/her. This form must be dated prior to the start of the background check. The FCRA does allow disclosure and authorization to be on the same form. However, many companies are choosing not to take any risks and therefore, provide their applicants with separate documents for each of these requirements.
  • Pre-Adverse Action: Although it may sound redundant to the Adverse Action notice, this letter basically alerts them that if negative information is found, you plan to follow proper FCRA procedure with an adverse action letter.
  • Adverse Action: This notification is going to disclose the final decision to deny employment based “in whole or in part” on the results of the background check. This letter should include a copy of the background check, an updated 2013 “A Summary of Your Rights Under the Fair Credit Reporting Act,” employers should immediately begin using that form when applicable. Failure to provide the correct form could result in statutory violations (if willful) and subject an employer to a class action lawsuit and the contact information of the consumer reporting agency (CRA) whom prepared the background check in order to give them an opportunity to dispute the findings.

Worthy of mention: Some states, including, for example, California, also have their own additional disclosure and authorization requirements for conducting background checks on applicants and employees as well as restrictions for which a credit report can be run.

FCRA class action lawsuits have become a very profitable niche for class action labor attorneys. In a nutshell, companies have found themselves in breach of the Fair Credit Reporting Act (FCRA) for not establishing and following proper procedures when conducting employment background checks using a third party vendor.

Think this cannot happen in your company, think again!

  • July 2014: Home Depot Inc. faces a potential class-action lawsuit for allegedly running credit reports and background checks without notifying employees and job applicants. Nowhere in the terms and disclosures provided by Home Depot’s online application does it use the term consumer report or indicate to an applicant that Home Depot may search for personal information from consumer report agencies. The Home Depot Background Check Class Action Lawsuit is Henderson v. The Home Depot Inc., Case No. 1:14-cv-02123, in the U.S. District Court for the Northern District of Georgia is still pending.
  • May 2014: A final settlement was approved in a complaint against K-Mart that alleged K-Mart willfully violated the FCRA prior to obtaining consumer reports and prior to taking adverse actions against the complainants. K-Mart agreed to pay a $3 million to settle the claim.
  • May 2014: Saye v. CSK Auto, Inc. d/b/a O’Reilly Auto Parts, et al., Case No. 2:14-cv-3470, plaintiffs filed a class action against subsidiaries of O’Reilly Automotive, Inc. Allegation were made that the background check disclosures contained additional information and were in violation of the FCRA. Furthermore, adverse employment decisions were made without allowing the affected applicants the opportunity to see the background check report and dispute the results.
  • April 2014: In Camacho v. ESA Management, LLC, Case No. 14CV1089 CAB BGS, plaintiffs filed a class action against the operator of Extend Stay America hotels alleging it violated FCRA by including additional statements and information on the background check disclosure.
  • April 2014: Swift Transportation Co agreed to settle claims on a class-wide basis for $4.4 million to settle the claims of over 10,000 applicants who claimed that Swift failed to comply with pre-adverse notification requirements.(Ellis v. Swift Transportation Co. of Arizona LLC, Case No. 3:13-cv-00473)
  • February 2014: In Gezahegne v. Whole Foods Market California, Inc., Case No. 4:14-CV-00592, plaintiffs alleged that Whole Foods failed to obtain the necessary authorization to obtain consumer reports from thousands of applicants. With statutory damages in the amount of up to $1,000 for each individual for whom Whole Foods obtained a consumer report without a valid authorization, not to mention punitive damages, and attorneys’ fees and costs the damages are estimated to be in the millions.
  • October 2013: A final settlement was approved In Singleton v. Domino’s Pizza, LLC., No. DKC 11-1823, 2012 WL 245965 (D. Md. Jan. 25, 2012) in which Domino’s agreed to pay $2.5 million to settle claims that Domino’s took adverse actions against applicants without following the required pre-adverse procedure which mandates providing applicants with required notices prior to adverse action being taken.