Background Check Class Action against Employer for Violations of the Fair Credit Reporting Act Survives Challenge
In yet another class action alleging that an employer did not comply with the legal requirements of the federal Fair Credit Reporting Act (FCRA), a federal court in Maryland refused a motion to dismiss a class action that alleges that Domino’s Pizza failed to comply with the requirements of the FCRA, the federal law that regulates pre-employment background screening. In a decision filed January 25, 2012, the Court did not rule on the facts, but ruled that the plaintiffs had made a sufficient showing to deny a motion by the employer to dismiss. In addition, the court refused to strike allegations that the conduct was willful, which means that the plaintiff faces statutory damages as well as potential punitive damages.
The lawsuit contended that both plaintiffs were the subject of background checks, had started working, and later were terminated after the background check was completed. In both instances, the plaintiffs were not provided with a copy of the report or advised of any rights before the termination. In addition, both plaintiffs alleged that the background screening consent they signed included a release of liability for the background check on the form that was part of the application packet. The form was called a “Background Investigation Information and Consent” or BIIC. As a result, according to the complaint, the employer failed to meet the legal requirement for a “standalone” form since the BIIC contained extraneous information and was not separate.
FCRA section 604(b)(3)(A) requires that before taking any adverse action against a consumer, such as not hiring the consumer, or termination if the background check is completed after hiring, the employer must provide certain information to the consumer, often referred to as a notice of pre-adverse action. This includes a copy of the background report as well as a statement of rights prepared by the Federal Trade Commission (FTC), the federal agency that enforces the FCRA. The purpose is to provide a safety valve in the event the report is inaccurate or incomplete. That can happen, for example, if a consumer is the victim of identity theft and a crime is committed in his or her name, or if a court record is inaccurate. The consumer then has an opportunity to set the record straight.
The second allegation was based on FCRA sections 604(b)(2)(a)(i))(ii) which regulate disclosure of information to a consumer and the need for a written authorization, including a specific requirement that the disclosure be “in a document that consists solely of the disclosure.”
In this case, the lawsuit alleged that the disclosure contained a release of liability that purported to release the employer as well as any provider of information from any liability, claims, or causes of action related to the information obtained. The Court ruled that this could be the basis of a violation of the “standalone” document requirement by inserting unnecessary information on the release. In fact, two previous opinions letters from the staff of the FTC have indicated that such a release of liability would not be consistent with the FCRA:
- In one letter, the FTC indicated that such language would violate the FCRA because the form would not consist “solely” of the disclosure. (See the FTC Hauxwell letter at http://www.ftc.gov/os/statutes/fcra/hauxwell.shtm.)
- The second letter indicated that the FCRA required a form that is not “encumbered by any other information… (in order) to prevent consumer from being distracted by other information side-by-side with the disclosure.” (See the FTC Leathers letter at http://www.ftc.gov/os/statutes/fcra/leathers.shtm.) The Court did not address the allegation that merely having the disclosure form as part of the employment packet also violated the “standalone” rules.
Although the employer pointed out that the FTC staff letters are not legally binding, the Court did note that they were considered persuasive, and would bear upon whether the employer willfully violated the FCRA. The Court noted that:
Ultimately, both the statutory text and FTC advisory opinions indicate that an employer violates the FCRA by including a liability release in a disclosure document. Because the BIIC form contains such a release, Domino’s has not shown, as a matter of law, that the form complies with the FCRA. Its attempt to have counts two and three dismissed on this ground must, therefore, fail.
In the motion to strike, the employer sought to avoid exposure to punitive damages by arguing that its actions did not amount to a willful violation of the FCRA and the employer should not be subject to statutory damages under FCRA section 616. If an employer is merely negligent, then a plaintiff is only entitled to actual damages as well as reasonable attorney’s fees and court costs. If an employer is willful, then the damage can be up to $1,000 a person regardless of actual damages. In a class action lawsuit, the class seeks to obtain $1,000 for every person subject to the violating, which can be a large number if a large employer is involved. The class action also seeks attorney’s fees and, more importantly, punitive damages.
In the U.S. Supreme Court case of Safeco vs. Burr, 551 U.S. 47 (2007), the Court ruled that an employer can face punitive dames if it acts willfully under the FCRA by either knowingly or recklessly disregarding it statutory duty. As ESR has noted in previous blogs, the impact of that ruling was to make it easier to allege punitive damages. For more information on the Safeco case, see the ESR blog “New U. S. Supreme Court Case Decided June 4, 2007 on Willfulness Under the FCRA May Have Dramatic Impact on Employers and Screening Firms in the Future” at: http://www.esrcheck.com/newsletter/archives/June_2007.php#T1.
In this case, the Court ruled that Domino’s failed to show that its interpretation of the FCRA was “not objectively unreasonable.” At this stage of the case, the Court denied the motion to strike the punitive damages. This does not mean the Court determined that Domino engaged in any wrongful procedures, but just that the allegations would not be thrown out.
This lawsuit confirms a trend identified by ESR that litigation for FCRA violations would increase in 2012, especially class actions alleging punitive damages under the Safeco case. To learn more about this trend, read the ESR news blog “Employment Screening Lawsuits Increase as Attorneys and Consumers Become Familiar with FCRA Laws Regulating Background Checks” (Posted December 26, 2011) at: http://www.esrcheck.com/wordpress/2011/12/26/employment-screening-lawsuits-increase-as-attorneys-and-consumers-become-familiar-with-fcra-laws-regulating-background-checks/.
Other class action cases reported by ESR News include:
- “New Class Action Lawsuit against Major Financial Institution for FCRA Violations Demonstrates Importance of Legal Compliance” (Posted December 15, 2011) at: http://www.esrcheck.com/wordpress/2011/12/15/new-class-action-lawsuit-against-major-financial-institution-for-fcra-violations-demonstrates-importance-of-legal-compliance/.
- “Class Action Lawsuit Demonstrates Importance of Employers following the Fair Credit Reporting Act” (Posted September 16, 2011) at: http://www.esrcheck.com/wordpress/2011/09/16/class-action-lawsuit-demonstrates-importance-of-employers-following-the-fair-credit-reporting-act/.
- “Class Action Case Shows Importance of Background Screening Firms Following Fair Credit Reporting Act when Reporting Sexual Offender Data” (Posted August 30, 2011) at: http://www.esrcheck.com/wordpress/2011/08/30/class-action-case-shows-importance-of-background-screening-firms-following-fair-credit-reporting-act-when-reporting-sexual-offender-data/.
- “Class Action for Failure to Follow Fair Credit Reporting Act for Employment Screening Settles for $4.3 Million” (Posted March 18, 2011) at: http://www.esrcheck.com/wordpress/2011/03/18/class-action-for-failure-to-follow-fair-credit-reporting-act-for-employment-screening-settles-for-4-3-million/.
While at this point the case is only in the preliminary stages of litigation and no factual findings have been made, there are several important lessons for employers in this case:
- A disclosure form should not contain a release of liability clause. In fact, it is debatable whether such a release even on another form has value.
- An employer should consider keeping the background check form separate from any application package.
- An employer must absolutely understand and abide by the pre-adverse and post adverse action rules.
- Background screening is a mission critical task for any organization that wants to exercise due diligence and protect the public, its employees, and its assets. However, it is a highly legally regulated and employers are well advised to only work with background screening firms that are familiar with the FCRA and have legal compliance expertise. Although a background screening firm cannot give legal advice, a knowledgeable screening firm can alert employers to industry standard information to assist with compliance. Employers can also choose to work with a background screening firm that is accredited by The National Association of Professional Background Screeners (NAPBS®) Background Screening Credentialing Council (BSCC) for successfully proved compliance with the Background Screening Agency Accreditation Program (BSAAP).
The case is ‘Singleton, et. al. vs. Domino’s Pizza’ (United States District Court – Maryland) Civil Action No. DKC 11-1823.
For more information about pre-employment background checks, visit Employment Screening Resources (ESR) – ‘The Background Check AuthoritySM’ and nationwide background screening firm accredited by the National Association of Professional Background Screeners (NAPBS®) – at http://www.esrcheck.com/ or call toll free 888.999.4474.
About Employment Screening Resources (ESR):
Employment Screening Resources (ESR) – ‘The Background Check AuthoritySM’ – provides accurate and actionable information, empowering employers to make informed safe hiring decisions for the benefit for our clients, their employees, and the public. ESR literally wrote the book on background screening with “The Safe Hiring Manual” by Founder and CEO Lester Rosen. ESR is accredited by The National Association of Professional Background Screeners (NAPBS), a distinction held by less than two percent of all screening firms. 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 Employment Screening Resources (ESR), visit http://www.esrcheck.com/ or call 888.999.4474.
About ESR News:
The Employment Screening Resources (ESR) News blog – ESR News – provides employment screening information for employers, recruiters, and jobseekers on a variety of topics including credit reports, criminal records, data privacy, discrimination, E-Verify, jobs reports, legal updates, negligent hiring, workplace violence, and use of search engines and social network sites for background checks. For more information about ESR News or to send comments or questions, please email ESR News Editor Thomas Ahearn at firstname.lastname@example.org.