The Dangerous Waters Churned Up by the FCRA

Jennifer Gladstone

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To borrow a phrase from the movie Jaws, “just when you thought it was safe to get back in the water...,” three more big fish are on the line for possibly violating the FCRA. After a lull of a several weeks, plaintiff's bar has apparently identified new targets.

Three new class action cases have been filed in federal court. Two cases filed on Tuesday, June 9, named car rental agencies as defendants. Fuller v. Avis Budget Car Rental LLC was filed in New Jersey Federal District Court and Lee v. The Hertz Corporation, et al. was filed in the Northern Federal District of California. The third case, Coleman v. Kohl’s Department Stores, was filed on Wednesday, June 10, also in the Northern District of California.  All three cases allege the defendant companies violated the Fair Credit Reporting Act (FCRA) in several ways. Kohl’s is also alleged to have violated California consumer reporting law.

Each of the three cases includes a claim very common to FCRA litigation against employers – failure to provide a clear and conspicuous disclosure to the consumer in a document consisting solely of the disclosure. In addition:

  • Claims against Avis in Fuller include failure to follow adverse action procedures.
  • Claims against Hertz in Lee include failure to meet disclosure, authorization, and adverse action requirements of the FCRA. The background screening company used by Hertz is also named as a defendant.
  • Claims against Kohl’s include alleged violation of disclosure requirements, both under the FCRA and California consumer reporting law.

The Plaintiff in all three cases is seeking statutory, actual, and punitive damages as well as attorneys’ fees and costs. As is typical, the class size is likely to be large as these employers hire in hundreds of locations throughout the U.S.  And, with the FCRA allowing $100-$1000 in damages for each member of the class, along with punitive damages and legal expenses, the potential cost of this kind of litigation moves quickly into millions of dollars.

In order to protect the organization and ensure the best possible hires, employers must stay in the background screening waters. A life jacket of compliant documents and processes, however, should keep the sharks at bay. As evidenced by dozens of FCRA-based class action cases, key elements of the employer life jacket need to be:

  1. Disclosure. The FCRA is very specific on disclosure requirements. It must be clear, conspicuous, in a document consisting solely of the disclosure (or disclosure and authorization), and must be in writing. Employers need to keep the language simple, limit content to only the disclosure (and authorization if a combined document is used), and make the document standalone. Do not include extraneous language such as company information, at-will employment, benefits, or a waiver of liability. Whether electronic or hard copy, do not bury the disclosure in a multi-page application document. Be sure to include the terms “consumer report,” “investigative consumer report,” and “employment purposes” in the language.

Example:  “A consumer report or investigative consumer report (also known as a background report or background check) may be prepared about you for employment purposes.” Another example: “You may be the subject of a consumer report and/or investigative consumer report prepared for employment purposes. Consumer reports are also known as background reports or background checks.” Additional language needs to follow regarding the preparer of the report and possible content of the report.

  1. Authorization. The authorization must also be in writing and must be signed by the applicant or employee.  The authorization must be provided and signature obtained before the employer procures a background report from their screening provider. The FCRA does not provide specific requirements for the content of the authorization; rather it says only that a written authorization must be obtained before a consumer report is procured. As noted previously, the disclosure and authorization may be combined in a single document. 
  1. Adverse Action. If an employer is considering an adverse employment action (such as not hiring, not retaining, or not promoting), specific steps must be taken before a final employment decision is made.

Pre-Adverse Action: The employer must provide a notice informing the applicant that an adverse employment decision is being considered based, in whole or part, on information in the consumer report. Along with the notice, the employer must provide a copy of the background report and “A Summary of Your Rights” as prepared by the U.S. Consumer Financial Protection Bureau. (Additional documents may be required based on state-specific law.) The notice must also inform the candidate they may contact the background screening company that prepared the background report and dispute information contained in the report and provide a time frame for doing so.

If the candidate contacts the background screening company to dispute information, the screening company is required to reinvestigate and do so in the time frame specified by the FCRA. The screening company will inform the employer a reinvestigation is being conducted.

Adverse Action: If the candidate does not dispute content in the consumer report or if the dispute does not change information in the report, the employer may then make a final employment decision. If the final decision is adverse, a second notice must be sent to the candidate. This second notice states the actual adverse employment decision has been made. The FCRA has specific requirements regarding content of the adverse action notice, however, they are too numerous to provide here.

The call to action for employers is to conduct, with the assistance of qualified legal counsel, an end-to-end review of background screening documents and processes.

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EEOC & FCRA

Jennifer Gladstone

Posted By: Jennifer Gladstone

Jennifer Gladstone is a news anchor and journalist with more than 20 years of experience in front of the camera. She's worked in several markets, large and small, and has performed nearly every task needed in a newsroom. As EBI’s Screening News Editor, she keeps EBI’s customers and blog subscribers up to date on the latest screening news and legislative alerts affecting companies of all sizes.

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