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.
- “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/.
- 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).