Allegation of Failure to Update FCRA Compliance Forms by National Retailer Leads to 3 Million Dollar Settlement

A large national retailer has settled an employment class action lawsuit for $3 million that alleged the company violated the federal Fair Credit Reporting Act (FCRA) by failing to send proper notices to nearly 65,000 plaintiffs who were job applicants. More detailed information about the settlement reached in Pitt v. KMart Corp., Case No. 11-cv-00697 is available at: http://www.archive.org/download/gov.uscourts.vaed.272989/gov.uscourts.vaed.272989.56.0.pdf.

Although the original complaint alleged other violations of the FCRA, the settlement was based upon an allegation that the employer utilized an older version of a form known as a “statement of rights” that an employer must provide any applicant that is rejected for employment based in any way upon a background check. This is part of the “adverse action” process under the FCRA. Before an employer utilizes a background check to take an adverse action, such as not hiring someone, the employer has certain legal duties. Those duties include sending an applicant a copy of the background report as well as a statement of rights. However, the lawsuits alleged the statements of rights were not updated.

In fact, starting January 1, 2013, the forms have again changed. As first reported in August of 2012 in the ESR News blog (See: http://www.esrcheck.com/wordpress/2012/08/09/background-screening-firms-must-modify-forms-mandated-by-fair-credit-reporting-act-by-january-1-2013/),  three essential forms mandated by the FCRA used in the background screening process had to be modified by January 1, 2013, according to regulations from the Consumer Financial Protection Bureau (CFPB). The forms were changed to reflect that consumers can obtain information about their rights under the FCRA from the CFPB instead of the Federal Trade Commission (FTC).

In November 2012, the CFPB announced in the Federal Register corrections to the earlier versions of three new forms required by the FCRA in the background screening process starting January 1, 2013. The CFPB announcement is available at https://www.federalregister.gov/articles/2012/11/14/2012-27581/fair-credit-reporting-regulation-v-correction.

The new CFPB forms are available on the Employment Screening Resources (ESR) Legal Compliance Resources page at http://www.esrcheck.com/services/research.php. Each of the three notices is mandated for use in certain situations under the FCRA:

  • ‘A Summary of Your Rights Under the Fair Credit Reporting Act’ – This is a notice that a background screening firm must provide to an employer and employers in turn must provide the notice to applicants in different situations.
  • ‘NOTICE TO USERS OF CONSUMER REPORTS: OBLIGATIONS OF USERS UNDER THE FCRA’ – The FCRA also mandates that a background screening firm (known as a Consumer Reporting Agency or “CRA”) must provide each user of its services.
  • ‘NOTICE TO FURNISHERS OF INFORMATION: OBLIGATIONS OF FURNISHERS UNDER THE FCRA’ – This notice is aimed at certain furnishers of information to CRAs and must be provided in prescribed situations such as a re-investigation where the consumer disputes the report or in a situation involving identity theft.

More and more background screening firms are facing lawsuits concerning the accuracy of background check reports and the failure to meet the guidelines of the FCRA that regulates background checks and the collection, dissemination, and use of consumer information in the United States. It is anticipated that in 2013, this trend towards lawsuits will continue as the government and job applicants become more familiar with the FCRA. For background screening firms, the trend will mean that it is even more critical to review policies and procedures to ensure accuracy and legal compliance given how heavily regulated background checks are. Class action lawsuits tend to focus on either legal compliance with the FCRA or questions of accuracy. This was Trend Number 6 of the 6th Annual ‘ESR Top Ten Background Check Trends for 2013’ available at http://www.esrcheck.com/Top-Ten-Background-Check-Trends-for-2013.php.

In 2012, several FCRA-related class action lawsuits that were reported about by ESR News show the need for legal compliance by employers and background screening firms with the FCRA:

  • November 2012: A large background screening firm facing a class action lawsuit alleging inaccurate reports in violation of the FCRA failed in its attempt to have the FCRA declared unconstitutional on the basis that it violates the right to free speech under the First Amendment. A U.S. District Court for the Eastern District of Pennsylvania ruled on November 6, 2012 that the FCRA was constitutional since it regulated information disseminated for private purposes for a fee, and not to the public. The lawsuit alleged that the screening firm provided inaccurate reports by providing a prospective employer with information on past arrests that were dismissed and were older than seven years, which is prohibited by FCRA section 605 (U.S.C 1681c). That law prohibits a CRA from providing arrests records to employers that are more than seven years old. There is an exception, however, if the annual salary is expected to be $75,000 or more a year. The ruling had the effect of denying the background firm’s effort to have the case dismissed. More information about the ruling on the case, No. 10-6850, is available at http://www.paed.uscourts.gov/documents/opinions/12D1046P.pdf. See: http://www.esrcheck.com/wordpress/2012/11/13/court-holds-federal-fair-credit-reporting-act-is-constitutional-and-does-not-violate-first-amendment/.
  • April 2012: A class action complaint filed against a CRA on April 16, 2012, alleges that the Defendant reported inaccurate criminal data obtained from an “instant” criminal record search without courthouse confirmation, and also that there was allegedly no notice to the consumer who was the subject of the search. The suit also alleges that such acts were in violation of the FCRA that protects consumers from inaccurate or irrelevant information and failed to meet the standard of accuracy and fairness mandated by the FCRA. The Plaintiff claimed that the Defendant – a CRA that collects consumer information and sells “consumer reports” that are also known as background checks – failed to meet the standard of accuracy and fairness mandated by the FCRA, which requires all CRAs that report criminal conviction and other information to employers adopt and implement procedures that “assure maximum possible accuracy of the information concerning the individual about whom the report relates.” See: http://www.esrcheck.com/wordpress/2012/04/20/class-action-complaint-filed-against-consumer-reporting-agency-for-allegedly-violating-fair-credit-reporting-act-with-instant-database-searches/.
  • January 2012: Another class action alleging that an employer did not comply with the legal requirements of the FCRA, a federal court in Maryland refused a motion to dismiss a class action that alleged that a large nationwide pizza chain failed to comply with the requirements of the FCRA, the federal law that regulates pre-employment background screening. 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. In this case, the Court ruled that the pizza chain failed to show 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 the pizza chain engaged in any wrongful procedures, but just that the allegations would not be thrown out. See: http://www.esrcheck.com/wordpress/2012/01/30/background-check-class-action-against-employer-for-violations-of-the-fair-credit-reporting-act-survives-challenge/.

This more recent settlement by the large national retailer for $3 million is another example of why employers need to carefully understand and follow FCRA mandated rules requiring certain specific disclosures before using background check reports for an adverse action such as a hiring or firing decision. A professional accredited background check firm can help employers to remain in compliance with the FCRA. The FCRA is summarized in a special report, ‘Complying with the Fair Credit Reporting Act (FCRA) in Four Easy Steps©’, prepared by Employment Screening Resources (ESR). The report is available at: http://www.esrcheck.com/articles/Complying-with-the-Fair-Credit-Reporting-Act.php.

For information about FCRA compliant background checks, visit Employment Screening Resources (ESR) – ‘The Background Check Authority’ and a nationwide screening firm accredited by the National Association of Professional Background Screeners (NAPBS) – at http://www.esrcheck.com, call toll free 888.999.4474, or email clientsupport@esrcheck.com.

Sources:

http://www.archive.org/download/gov.uscourts.vaed.272989/gov.uscourts.vaed.272989.56.0.pdf

http://www.archive.org/download/gov.uscourts.vaed.272989/gov.uscourts.vaed.272989.1.0.pdf

About Employment Screening Resources (ESR):

Founded by safe hiring expert Attorney Les Rosen in 1997, Employment Screening Resources (ESR) – ‘The Background Check AuthoritySM’– provides accurate and actionable information that empowers employers to make informed hiring decisions for the benefit of their organizations, employees, and the public. CEO Rosen literally wrote the book on background checks with “The Safe Hiring Manual” and ESR is accredited by The National Association of Professional Background Screeners (NAPBS), a distinction held by a small percent of screening firms. Employers choosing ESR know they have selected an agency meeting the highest industry standards. To learn more about ESR, visit http://www.esrcheck.com or call toll free 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 tahearn@esrcheck.com. To subscribe to the ESR News Blog Feed, visit http://www.esrcheck.com/wordpress/feed/. To subscribe to the complimentary ESRcheck Report monthly newsletter, please visit http://www.esrcheck.com/Newsletter/.

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