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Rejected Sears applicant states plausible FCRA claim concerning notice of background check

By Lorene D. Park, J.D.

Refusing to dismiss claims against Sears under the Fair Credit Reporting Act (FCRA), a federal district court in California found that a plaintiff, who had his job offer revoked by Sears based on an allegedly erroneous background report, plausibly alleged that Sears violated the FCRA by not providing the required pre-adverse action notice. Indeed, it did not provide his report until three days after notifying him that the offer was revoked (Milne v. Sears Holdings Corp., April 26, 2016, Tigar, J.).

Offer revoked. In April 2015, the plaintiff was offered a position with Sears as “Senior Director of eCommerce Operations,” contingent on his successful completion of a background check. Consumer reporting agency HireRight completed the background check on May 14, 2015, and set his status as “Does Not Meet Company Standards – Education Report, Criminal Felony & Misdemeanor.” According to the plaintiff, a Sears rep contacted him by phone and told him that Sears would not honor the job offer. He asked why and she responded that she could not be more specific and he should contact HireRight for further information.

Background report has errors. Three days after the plaintiff’s job offer was revoked, on May 18, Sears sent him a copy of his background report, which he claimed was incorrect because he does not have a criminal record. He further alleged that “HireRight reported that it was ‘Unable to Verify’ Plaintiff’s degree” though it never actually tried to verify the degree from Almeda University. The plaintiff tried to get HireRight to correct the information, but it told him that under its guidelines, it could not contact unaccredited schools and it refused to consider his evidence of his education. He filed suit against both Sears and HireRight alleging violations of the FCRA.

Failure to provide pre-adverse action notice. The plaintiff’s sole claim against Sears was that it violated 15 U.S.C. §1681(b)(3) by “negligently and willfully failing to” provide him with a pre-adverse action notice. The FCRA requires that the notice include a copy of the consumer report to be used in taking any adverse action and a description, in writing, of the consumer’s FCRA rights. Basically, this is to provide job applicants a “real opportunity” to contest the contents of the background report before an employer relies on it to take an “adverse action,” which is defined to include the denial of employment.

Here, a Sears representative allegedly told him that Sears was revoking his job offer three days before it sent him a copy of his background report. Though Sears claimed that the telephone conversation did not constitute the adverse action because she was only convening Sears’ intent to withdraw the conditional job offer, the court found the plaintiff’s allegations sufficient under Rule 12(b)(6) standards.

Willful and/or negligent conduct. Also rejected was Sears argument that even assuming the plaintiff established a violation of the FCRA, he failed to state a claim because he did not allege willful and negligent conduct. The court pointed out that he specifically alleged that Sears “was aware of the requirements” of the FCRA and had “previously certified to HireRight that it would comply with” the Act. The plaintiff further alleged that “Sears and its subsidiaries” had previously been sued for FCRA violations related to the use of consumer reports for employment purposes. This was enough to plausibly allege that Sears was well aware of its obligations of the FCRA and willfully failed to comply.

The plaintiff also plausibly alleged that Sears negligently violated the FCRA. Though Sears argued that his negligence theory failed because he did not plead actual damages, the court disagreed—it was enough that he claimed he was unemployed for six months, suffered emotional and financial distress, and “continues to suffer damages” as a result of the alleged violation.