A case decided by a federal district court demonstrates the need for background screening firms to exercise reasonable procedures for maximum possible accuracy in order to avoid lawsuits for punitive damages. 

In that case, the plaintiff alleged among other things that his background report unnecessarily repeated information about a single criminal incident multiple times, so that the criminal record appeared much more serous then it was.  The case was brought on behalf of not only the plaintiff, but on also on behalf of “the thousands of employment applicants throughout the country who have purportedly been the subject of prejudicial, misleading and inaccurate background reports  performed by Defendant  and sold to employers.”

The plaintiff complained that the repeated reference to a single incident was inaccurate under the federal Fair Credit Reporting Act (FCRA) because it was misleading in such a way and to such an extent that it can be expected to affect employment decisions.

The plaintiff contends that this constituted a violation of FCRA section 607(b) which states:

(b) Accuracy of report. Whenever a consumer reporting agency prepares a consumer report it shall follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates.

The background firm brought a motion to dismiss on the basis that the plaintiff did not state a claim upon which relief could be granted.  In reviewing such a motion, the Court does not make any factual determination, but instead assumes the plaintiff’s allegations are true for purposes of the motion, and determines if there is a basis for a judgment in favor of the plaintiff.  In other words, the Court was not making any factual determinations or any finding that the background firm did anything wrong.    

The plaintiff also asked for punitive damages, and the background firm requested that claim be dismissed. 

The Court ruled that the prevailing national rule is that a claim can be made where the plaintiff alleges sufficient facts in the legal pleadings  to demonstrate that even an accurate report can be misleading if it presents information in such a  way that it is misleading or it creates a materially misleading impression. (Although the 6th Circuit has adopted  a more limited rule that looks at the technical accuracy of the report, the Court noted the majority of courts have agreed on a broader definition that would include misleading information.)

It is important to note, however, that while it was still a factual issue for the trier of fact (such as jury or a judge in the case of a Court trial) as to whether the information was misleading, the mere fact that a background report may be incorrect or misleading does not prove that a background firm did not utilize reasonable procedures. In some circumstances, the error can be so egregious that the error itself demonstrates a lack of reasonable procedures.  The background firm however, still has the opportunity to present evidence that even though there was an error, the firm uses reasonable  procedures, and the error was not a usual occurrence.

To prevail in a claim for an erroneous, inaccurate or misleading background report, a plaintiff must generally prove that:

  • There was inaccurate or misleading information in a report;
  • The report was inaccurate because a screening firm failed to exercise reasonable care;
  • There was harm to the consumer; and
  • The harm was caused by the background firm.  

The case also discussed the punitive damages allegation which the background screening firm sought to dismiss.  The background firm argued, among other things, that any alleged error in the report did not rise to the level of willful recklessness under Supreme Court case of Safeco Ins Co. v.  Burr, 551 U.S. 47 (2001).  That case arguably lowered the threshold for a punitive damages against a background screening firm.  Here, the background firm argued that the allegations made against it did not meet to the standards in the Safeco case.  However, the court held that the “statutory text at issue here …has a plain and clearly ascertainable meaning.”  Since the allegations in case was that the background firm’s conduct  under FCRA section 607(b) could be found to be an  objectively unreasonable interpretation of the statute,  the plaintiff had the right to request punitive damages. 

It should be noted that the actual case is much more detailed and contains other issues.  In addition, it is critical to note that the motion was decided at the stage where the court only had legal pleadings and allegations, and there have been no actual facts determined.

However, the case does have some walkway points for background screening firms:

  • Unnecessary reporting of a single criminal event multiple times in a background report where the impact is arguably  to mislead an employer into believing that the consumer’s background is more serious then it really is can be the basis for a claim of inaccuracy.
  • Given the presence of punitive damages, it is even more critical for screening firms to pay close attention to their legal obligations.  Errors made in such a way that is arguably objectively unreasonable under the plain meaning of the FCRA or in violation of clearly stated authority, can raise the stakes in any litigation.

This case once again underscores that background screening is far from being a data driven endeavor where employers are just given data. It is a professional endeavor that is heavily legally regulated, and  can be unbelievably  complex. It requires the services of background firms that have a great deal of ability and knowledge when it comes to federal and state legal compliance.

Part of the expertise required by a screening firm can be demonstrated by the accreditation standard of the National Association of Professional  Background Screeners (NAPBS). Employment Screening Resources (ESR) has successfully proved compliance with the Background Screening Agency Accreditation Program (BSAAP) and is formally recognized as BSCC Accredited firm through NAPBS.

(Note:  ESR’s policy is to not identify parties in legal matters where the case is sill in a procedural  state and there have been no factual determinations.  For any one that has a need for a copy of the case for research or other similar purposes, please contact Jared Callahan at 415-898-0044 or [email protected])


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