Employer Not Liable for Technical Violation of FCRA where Employer Committed Inadvertent Mistake but Consumer Suffered No Damages

In a case that underscores why it important for employers to have good screening procedures in place, a federal trial court ruled that a violation of the Fair Credit Reporting Act (FCRA) does not always mean that an employer is liable for damages, where the employer committed an inadvertent mistake that resulted in no damages to the consumer.

In the case, a consumer applied for a job, and the employer obtained a background check report from a Consumer Reporting Agency (CRA).  Although the employer had procedures in place to obtain a consent and disclosure as required by the FCRA, the background check report was allegedly requested without obtaining the proper consent first.

The background check report was returned showing a criminal history.  According to the case, the employer’s own investigation revealed that the applicant had misrepresented work experience and licensure statues.  According to the court’s decision, the employer terminated the consumer because: “After being given an opportunity to dispute the information, the Plaintiff continued to provide false information and her dishonesty disqualified her from holding a sales-manager position.” 

The lawsuit alleged that the employer failed to comply with the FCRA in two critical ways:

  • 1.  The employer failed to disclose that it may obtain a background check an failed  to obtain an authorization in writing;
  • 2. Before taking adverse action, based on negative information in the background check report, the employer failed to provide a “pre-adverse” action letter which includes a copy of the report and a description of the consumer’s rights prepared by the Federal Trade Commission (FTC).

The consumer sued under two theories:

  • First, the consumer sued for negligent noncompliance under FCRA section 617, which requires that the consumer suffer some actual damages.
  • Second, the consumer also sued for statutory damages for willful non-compliance under FCRA section 616, which can include punitive damages.  Where statuary damages are sought, a consumer does not need to show any actual damages, but that the employer or CRA acted willfully, which can include a knowing or reckless disregard of the FCRA.  Both sections allow for attorney’s fees.  An action under FCRA Section 616 can create a large exposure to an employer or CRA, since it exposes them to punitive damages and attorney’s fees. 

The court dismissed the claim of negligent non-compliance on the basis that the consumer admitted that she suffered no actual damages, which the court ruled was required to prove negligent non-compliance.

As to the willful non-compliance cause of action, the court ruled that a violation of the FCRA “by itself does not amount to will noncompliance.”  The court found that there was no evidence that could demonstrate the employer’s action were knowing or reckless.  As a result, that cause of action was also dismissed.

This case demonstrates why it is critical for employers to have legally compliant procedures and processes in place. Even though the employer apparently committed technical violations of the FCRA, the employer was able to show it was inadvertent and not willful or reckless. 

An additional aspect of the case was that the plaintiff also sued the CRA.  However, the court noted that the background check report was “accurate, complete and up-to-date.”  Furthermore, the court noted that the duty to provide pre-adverse action notice belonged to the employer and not the CRA.  (NOTE: An employer can outsource that obligation to a background screening firm, but there was no mention in the court’s decision of any such arrangement).

More information on this case may found at: http://docs.justia.com/cases/federal/district-courts/pennsylvania/pamdce/1:2009cv00770/76014/54/.

Although Employment Screening Resources (ESR) does not provide legal advice, it does assist clients in auditing its practices to help ensure legal compliance. To learn more about employment screening background checks, visit the ESR website at http://www.esrcheck.com

About Employment Screening Resources (ESR):
Employment Screening Resources (ESR) literally wrote the book on background screening with “The Safe Hiring Manual” by ESR founder and President Lester Rosen. ESR streamlines the screening process and reduces administrative overhead though its proprietary technology solutions.  ESR is one of a select few firms accredited by The National Association of Professional Background Screeners (NAPBS®). This important recognition was achieved by successfully passing a third party audit demonstrating compliance with the NAPBS Background Screening Agency Accreditation Program. By choosing an accredited screening firm like ESR, employers know they have selected an agency that meets the highest industry standards. For more information about ESR, visit http://www.ESRcheck.com.

Source: http://docs.justia.com/cases/federal/district-courts/pennsylvania/pamdce/1:2009cv00770/76014/54/