FCRA Class Action Lawsuits will Continue to Increase Even if No One is Actually Harmed in 2015

Background Check Trends

Written By Attorney Lester Rosen, Founder & CEO of Employment Screening Resources (ESR)

Class action lawsuits for federal Fair Credit Reporting Act (FCRA) violations will increase in 2015 even if no one is actually harmed. In 2014, an increasing number of FCRA class action lawsuits were filed and were settled for millions of dollars and several more lawsuits were filed. FCRA violations can range from not making legally required disclosures to not following proper “adverse action” procedures. This trend is number 2 on the Employment Screening Resources (ESR) 8th Annual ‘ESR Top Ten Background Check Trends for 2015.’ For a list of background check trends, visit http://www.esrcheck.com/ESR-Top-Ten-Background-Check-Trends.

The number of class action lawsuits against both employers and background check firms alleging a failure to comply with the FCRA is on the increase as plaintiffs’ attorneys become more familiar with the FCRA and the whole area of background checks.  Conversely, lawsuits for negligent hiring for an employer that fails to demonstrate due diligence in hiring or does an inadequate background checks will continue to be a hot area of litigation.

Part of the reason that FCRA class action lawsuits make a tempting target is that the recovery can be enormous. Under the FCRA, a class action lawsuit can ask for damages in the amount of $1,000 per person.  For an employer or screening firm that handles a large volume, that adds up quickly along with costs and attorneys’ fees.  In addition, class action lawsuits commonly ask for attorney’s fees, court costs, and punitive damages.

A 2007 U.S. Supreme Court case made it much easier for plaintiffs to seek punitive damages for an FCRA violation. The U.S. Supreme Court in Safeco vs. Burr 551 U.S. 47 (2007) ruled an entity can face punitive damages if it acts “willfully” under the FCRA by either knowingly or recklessly disregarding its statutory duty. Employers risk exposure to punitive damages if it is shown they should have known they were acting out of compliance with the FCRA. That means that even if a screening firm or employer was operating under a good faith belief they were following the law, if the belief was “objectively” unreasonable, punitive damages can be awarded.  For more information on the Safeco vs. Burr case, read the ESR article “Supreme Court Decision on Willfulness Under FCRA May Have Dramatic Impact on Employers and Screeners.”

Adding to the trend is the fact that currently, there is apparently no requirement that one single consumer be harmed in any way whatsoever.  Class action lawsuits can be brought based on the semantics of the FCRA, or failure for an employer or background screening firm to dot an “i” or cross a “t” even though no one was harmed in any way whatsoever.  In one case, the San Francisco, CA-based Ninth Circuit U.S. Court of Appeals ruled an unemployed job seeker may sue a data aggregator that inaccurately described him as wealthy and well educated by alleging a violation of the federal FCRA “without showing actual harm.” The job seeker claimed his job search was hampered by his description as a high earner with a graduate degree on Spokeo, “a search engine that aggregates information about individuals.” However, he made no showing that he, in fact, was harmed.  The Court allowed the suit to proceed even without any showing of damages.

The importance of FCRA compliance was underscored by a number of multi-million dollar class action lawsuit settlements in 2014. In November 2014, Publix Super Markets Inc. agreed to pay $6.8 million to settle a class action lawsuit that alleged violations of the FCRA for not making “legally required disclosures about background checks to job applicants.” Publix denied any wrongdoing but agreed to settle due to litigation costs and business disruptions.

In October 2014, a class action lawsuit filed against discount retail chain Dollar General for alleged FCRA violations claimed job applicants were sent outdated notices that a background check was performed. The lawsuit claimed Dollar General “willfully failed to comply with the disclosure and authorization requirements in [the FCRA] prior to obtaining a consumer report about him for employment purposes.” Dollar General “denies any wrongdoing and any liability to plaintiffs or to the putative class members” even though they agreed to the pay a settlement of $4.08 million.

In September 2014, a class action lawsuit alleging that Canon Solutions America Inc. ran illegal background checks on their employees reached a settlement agreement. The lead plaintiff filed the lawsuit after she was allegedly fired by Canon in 2012 while transitioning from her temporary data-entry job to a full-time position. The plaintiff was allegedly informed by Canon that she failed the background check due to a felony allegedly committed 12 years earlier. She claims she was fired the same day and not given a copy of her background check, a possible violation of the FCRA that regulates background checks for employment purposes.

In August 2014, a settlement was reached in a class action lawsuit that claimed a background check firm violated the FCRA when providing information for background check reports. As a result, subjects of these background check reports may be eligible to claim $1,500 or $40 from the settlement. The firm “has denied all claims in the Lawsuit and contends that it acted lawfully and in compliance with the FCRA at all times. Despite denying liability and wrongdoing, the Defendant has decided it is in its best interest to settle the Lawsuit to avoid the burden, expense, risk, and uncertainty of continuing the Litigation.”

In August 2014, a federal judge approved a settlement for $2.38 million in a class action lawsuit that alleged a retail theft database used for background checks wrongfully labeled job seekers as criminals even if they were not convicted of a crime. The background check firm agreed to suspend its retail theft database under terms of the settlement and set more stringent requirements to protect job seekers if the database is used for employment background checks in the future. The two lead plaintiffs alleged the background check firm distributed damaging information from their retail theft database without proper safeguards in violation the FCRA.

In April 2014, trucking conglomerate Swift Transportation agreed to pay a $4.4 million settlement for a class action lawsuit claiming Swift violated the FCRA by not disclosing to driver applicants that they could access and contest background check reports used in the company’s hiring process. The plaintiff claimed he was denied a job after Swift Transportation performed a background check on him. He argued that Swift was not authorized to view the background check report and did not disclose to him that he could see a free copy of the background check report to contest any information within it, both violations of the FCRA.

Several more FCRA class action lawsuits were also filed in 2014. In December 2014, a class action lawsuit filed against Uber claimed the technology company that provides a request tool to facilitate transportation allegedly performed illegal background checks that violated the FCRA and state credit reporting laws. The class action lawsuit alleges that Uber Technologies “knowingly violated” federal and state laws when checking on drivers applying to utilize a mobile app that helps users find transportation. The plaintiff also claims he did not receive a copy of the consumer report and also did not receive a “pre-adverse action notice” that would give him a chance to explain the contents of the consumer report.

In October 2014, a class action lawsuit filed against LinkedIn Corp. alleged that the world’s largest web-based professional network violated the FCRA through a “search for references” feature that allows employers to obtain information about job applicants. The lawsuit was filed by four plaintiffs who believe “their rights under the FCRA were violated by LinkedIn’s reference search functionality” and that “prospective employers may have made decisions that adversely affected their employment based on information found in LinkedIn’s reference search system.” LinkedIn is an online network of professionals with more than 300 million members that allows employers to post jobs and users to apply for them.

In September 2014, a class action lawsuit filed against Staples, Inc. alleged that the company failed to properly disclose to applicants and employees its use of consumer reports and deprived them of their rights under the FCRA. Companies are in violation of the FCRA if they fail to provide applicants and employees with proper notice of their plans to use consumer reports about them for employment purposes. FCRA violations can lead to a class action lawsuit for companies. If an employer violates the FCRA, such as by failing to give notice, not providing a copy of the report, not allowing time to dispute the information, or taking an adverse action without notice, job seekers and employees are deprived of their rights, including privacy rights.”

In July 2014, a class action lawsuit filed against Home Depot alleges the home improvement company violated the FCRA by performing background checks without notifying employees and job applicants and failing to give them copies of the background checks before taking actions against them based on the information in the reports. The Class of plaintiffs could potentially include “thousands of Home Depot applicants” due to the “sheer number of people who have applied for employment at Home Depot in the past year alone.”

Class action lawsuits are also being brought against background screening firms, also known as Consumer Reporting Agencies (CRAs). In 2012, Spokeo agreed to pay a $800,000 fine to settle Federal Trade Commission (FTC) charges that the company marketed profiles to companies in the human resources, background screening, and recruiting industries without taking steps to protect consumers required under the FCRA). The FTC charged that Spokeo operated as a CRA that violated the FCRA by: Failing to make sure that the information it sold would be used only for legally permissible purposes; Failing to ensure the information was accurate; and Failing to tell users of its consumer reports about their obligation under the FCRA, including the requirement to notify consumers if the user took an adverse action against the consumer based on information contained in the consumer report.

In November 2013, two background check firms agreed to pay $18.6 million to settle three class action lawsuits alleging violations of the FCRA for “failing to take reasonable measures to ensure the accuracy of background check report provided to prospective employers.” The two background check firms were accused “of violating the FCRA by providing incorrect, outdated or incomplete information to potential employers.” The two companies also failed to provide “consumers with copies of their consumer reports before delivering them to prospective employers.” The two defendants have denied all allegations in the class action lawsuits.

These class action lawsuits show why employers need to be sure that they follow basic FCRA requirements. While employers need to exercise due diligence in hiring with background checks, they also need to audit their background check practices when it comes to legal compliance. One resource available to assist employers with FCRA compliance is a joint publication from the U.S. Equal Employment Opportunity Commission (EEOC) and the Federal Trade Commission (FTC) titled ‘Background Checks: What Employers Need to Know.’ This publication explains how compliance with the FCRA and anti-discrimination laws intersect when employers use background checks.

It is also critical for employers to utilize screening firms that have a demonstrated expertise in legal compliance.  Background screening is a professional endeavor that is subject to extensive legislation, regulation, and litigation. Employers can protect themselves by looking to determine if a screening provider has an understanding of the legal aspects of background checks.

The FCRA, which is enforced by the FTC, is a federal law that regulates background checks for employment. Employment Screening Resources® (ESR) notes that any allegations made in a class action lawsuit are not proof that a business violated any law, rule, or regulation. Even a settlement of a claim is not an admission of wrongdoing, since parties to a lawsuit have the right to avoid risk and legal fees by settling even if they maintain no wrongdoing. Where a case is pending, there have been only allegations in the pleading stage and no factual adjudications. The fact that a demand for a jury trial has been made in the class action lawsuit does not mean there has been a finding of any liability or that any facts have been determined or any settlement entered into at the current time.

ESR TOP TEN BACKGROUND CHECK TRENDS FOR 2015 WEBINAR

Employment Screening Resources® (ESR) will present a complimentary webinar hosted by ESR Founder and CEO Attorney Lester Rosen titled ‘ESR Top Ten Background Check Trends for 2015’ on Wednesday, January 21, 2015 from 11:00 AM to 12:00 PM Noon Pacific Time. To register for this webinar, please visit the registration link at https://attendee.gotowebinar.com/register/3656006267617568513.