Class Action Lawsuit Challenges Legality of Retail Theft Databases in California for Background Checks

The use of a “Retail Theft Contributory Database” in California is being challenged in a class action lawsuit filed in federal Court in San Francisco on January 31, 2013.  The lawsuit alleges that this type of database violates both federal and state laws by providing information to retailers about detentions for suspicion of theft or fraud but did not result in a conviction. The lawsuit seeks damages of up to $1,000 for every California consumer that was the subject of a negative report within the last two years where there was not a conviction, as well as legal fees and other damages.

According to the Complaint filed in Court, the background screening firm that is subject of the class action lawsuit sold memberships to retail merchants that required each merchant to contribute suspected theft or shoplifting records of employees or customers to a database shared by all members, essentially creating a retail employment blacklist.

The suit alleges that loss prevention officers “utilize their statutory and common law right to detain store employees or customers for investigation when they are suspected of having committed acts of theft, fraud or shoplifting.”  Many retail merchants in California choose not to notify police when they detain a person for alleged acts of theft.  Instead, many employers “use the detentions to, among other things, demand written ‘admission statements’ from employees and customers which admit to the crimes for which they are being accused.”

The difficulty, according to the Complaint, is that: “…individuals detained for shoplifting may provide written admission statements out of duress, coercion, or mistaken beliefs about the effects of providing written admission statements.  These factors are heighten by the fact that they have no access to legal counsel of legal protections during the detentions and may be given incomplete or even deceptive information about the effects of the admission statements.  In some cases, for example, store employees accused of theft may be led to believe that they can keep their jobs if they agree to provide…written admission statements.  Individuals may also be led to believe that if they do not provide an admission statement they will be criminally prosecuted, regardless of whether the merchant has any intent of doing so.  Moreover, detained individuals may be led to believe that they are not free to leave the office until they have provided an admission statement for the crime for they have been accused. Further, they may be led to believe that an admission statement will only affect their employment, or ability to shop at, the particular retailer accusing them of theft…”

The Complaint also alleges that, database members “have no incentive to take the time, effort, expense and development of proof necessary to criminally prosecute individuals they accuse of theft or fraud. Instead…members use the existence of other member’s detention records…as an equivalent to legal action for purposes of hiring decisions even though their secret process strips accused employees and consumers of due process safeguards provided in legal actions.”

The Complaint further alleges that when the background screening firm supplies negative information, no effort is made to  determine if the admission statement is true or not.  The screening firm simply verifies that it is in possession of a “so-called admission statement contributed to the database by another member.” 

According to the Complaint, the selling point of the database is that it contains information that can only be obtained through the database, since it provides members with “access to propriety theft and fraud data that may not be available anywhere else.” 

The Complaint alleges that as a result of the use of the database, individuals “who are not experienced in other professions are deprived of their livelihoods by inclusion in the database without ever suffering a criminal conviction for their alleged wrongdoing and without ever being afford the protection of due process of law.”

The specific allegation in the lawsuit is that the database contains information that did not result in a conviction. Under Californian law, employers are prohibited from seeking or inquiring into arrests or detention records that did not result in a conviction, which according to the Complaint is a state equal employment opportunity laws. The basis for a federal case under the federal Fair Credit Reporting Act (FCRA) is that that the FCRA specifically prohibits a background screening firm from making an inquiry  for employment purposes if it would violate any applicable Federal or State equal opportunity law (FCRA at 15 U.S.C. Sec. 1681d(d)(2)).

In the specific case, the individual defendant alleged he was rejected for employment at a retailer because at a previous employer, he was accused of fraud, taken into a room, told “he would be placed in handcuffs” if he tried to leave and “that he needed to be very careful in how he answered questions or the police would be contacted” and he would be taken out of the store in handcuffs.  Per the Complaint, the loss prevention officer directed him “to prepare and sign an admission statement” and plaintiff understood that if he did not cooperate, “he would be turned over to the police for arrest and criminal prosecution.” The plaintiff further alleged that at no time was he informed that his admission statement would be submitted to a theft database “that could potentially affect his future employment with any employer other than his then employer.”

It is the policy of the Employment Screening Resources (ESR) News Blog not to identify background screening firms named in lawsuits that are in pleading stage since allegations are not facts, and there have been no factual or legal determination of any issues. However, allegations in a lawsuit may be worth noting for educational purposes. ESR has long cautioned employers that this type of database has potential legal pitfalls that need to be carefully considered before use. Any employer or staffing firm utilizing such a database may want to review their policies and procedures in light of the allegations made in this lawsuit.

This case was filed in United States District Court, Northern District of California, on January 31, 2014 (CV 14-0493).

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