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A big wave of FCRA cases and an emerging voice of reason

April 14th, 2015  |  Lorene Park

By Lorene D. Park, J.D.

In penalizing arguably minor technical violations of complex notice requirements, the Fair Credit Reporting Act (FCRA) has spawned a rapidly growing docket of individual cases, class actions, and multi-million dollar settlements, yet it seems we have not reached high tide. In case after case, with a few notable exceptions, courts have refused to toss out claims arising from an employer’s failure to provide stand-alone advance notice consisting solely of a disclosure that a background check might be used to make an employment decision; to timely give an applicant a pre-adverse-action notice of negative information (a copy of the report and summary of FCRA rights); or to satisfy post-adverse-action notice requirements.

As if the plain statutory language of the FCRA weren’t demanding enough for employers, one plaintiff recently avoided dismissal by arguing that a pre-background check disclosure in a separate document containing no extra language was not really “stand-alone” because it was given at the same time as a separate acknowledgement. Wow. Notice, notice, and more notice, in a specified format, at a specified time, or pay damages and attorneys’ fees, regardless of intent—easy money for plaintiffs it would seem. If willful intent is shown (“reckless disregard” under Safeco Insurance Co. of America v. Burr), punitive damages are also on the table.

Recent typical cases. The latest wave of FCRA cases presents what is becoming a typical fact pattern—failure to strictly comply with notice requirements or failure to provide a copy of the report and summary of rights. For example, a federal court in Virginia denied summary judgment on two FCRA class claims by an applicant whose offer of employment was revoked due to a consumer report. Rejecting the employer’s claim that it complied with the spirit of the Act, the court noted that the pre-background check notice provision was clear: A disclosure that a report may be used for employment purposes must be made in a document consisting “solely” of the disclosure. Here, the document containing the disclosure also had other language, including a waiver of liability. In addition to this disclosure claim, a second class was certified involving an alleged violation of the requirement that a copy of the report and a description of consumer rights be provided before an adverse employment action is taken (Milbourne v. JRK Residential America, LLC). (Of note, the court previously ruled that a Rule 68 offer of judgment that seemed to favor the plaintiff did not satisfy his claim because the FCRA does not cap punitive damages.)

In another case, a federal court in New York refused to dismiss a putative class action alleging a property management firm, which had criminal record checks done before hiring staff, violated the FCRA by failing to make a proper pre-background-check disclosure and then revoking a job offer before providing a notice of the named plaintiff’s FCRA rights and a chance for him to dispute the background check, which inaccurately reported four criminal convictions. Also refusing to dismiss the claim that the violation was willful (opening the door for punitive damages), the court explained that an erroneous reading of FCRA requirements is “reckless” if it is “objectively unreasonable,” and a disclosure that included a liability waiver deviated so far from the FCRA as to be “objectively unreasonable” (Jones v. Halstead Management Co., LLC).

Other FCRA decisions include a denial of summary judgment to Johnson & Johnson and a grant of summary judgment for an applicant whose offer was rescinded based on incorrect information before she was given a required FCRA notice (Miller v. Johnson & Johnson). Also, a nationwide class complaint was filed against Genesis Healthcare, which operates long-term care facilities, alleging that it failed to give applicants a copy of their background reports and a summary of their rights before using the information for adverse decisions. And a national grocery retailer (parent of Food Lion, Bottom Dollar Food, Hannaford, and others) agreed to pay $3 million to resolve FCRA claims by a class of nearly 60,000 employees and job applicants (the plaintiffs sought preliminary approval of the settlement, reached after two days of mediation, according to their memo). Meanwhile, a California driver filed a class complaint against Uber Technologies alleging that the mobile app-based car service runs background checks on applicants without their knowledge.

Departures from the typical. In a small departure from the usual FCRA dispute, a federal court in Ohio found triable questions on whether a company’s form email telling a job applicant it was “rescinding your offer” was an adverse employment action under the FCRA or was merely a notice that his application was on hold pending any challenge to his consumer report (which erroneously listed a criminal conviction). In a partial victory of sorts for the employer, the court denied the plaintiff’s motion for class certification, finding his circumstances too unique to satisfy Rule 23 commonality and adequacy requirements (Cox v. Teletech@Home, Inc.).

In yet another case that varies from the usual, a federal court in Massachusetts denied summary judgment on a terminated employee’s FCRA claims after finding a question of fact on whether his employer performed a background check due to suspected misconduct, and consequently whether the investigatory report was excluded from the FCRA’s definition of a “consumer report.” Though the employer asserted that it was investigating misconduct, the timing and other facts suggested it was on a fishing expedition to stop the employee from filing a discrimination complaint against the company (Mattiaccio v. DHA Group, Inc.).

“Stand-alone” may require more than you think. In one pending FCRA case against Whole Foods, a plaintiff complained that even though the company provided the pre-background check notice in a separate document all by itself, it violated that “stand-alone” requirement because it was presented at the same time as a separate document containing an authorization and release of liability. Though the plaintiff attached the forms to the complaint, the court refused to consider them on a motion to dismiss and found it was enough that the plaintiff alleged that the forms had to be read together because they were presented at the same time (Speer v. Whole Foods Market Group, Inc.). (Whole Foods also was sued in a California class action under the FCRA.)

Voices of reason. Eschewing an unduly strict reading of the FCRA, a federal court in California has refused to ride the recent wave of lawsuits. Noting that claims often survive dismissal even if based on minor violations, the court would have none of it, dismissing the action against Paramount Pictures in a terse opinion, and with prejudice. In this case, in addition to the required pre-background check disclosure language, Paramount’s disclosure document to applicants included this statement: “I certify that the information contained on this Authorization form is true and correct and that my application may be terminated based on any false, omitted, or fraudulent information.”

Rejecting the plaintiff’s claim that this violated the directive that disclosure be made in a document consisting “solely” of the disclosure, the court distinguished other cases involving the inclusion of waiver language by stating that unlike those cases, the “one-sentence certification” language here was closely related to the statutorily permitted authorization and would “similarly serve to ‘focus the consumer’s attention on the disclosure.’” The court further concluded that even if the disclosure did not comply with a “strict reading” of the FCRA, it was “not plausible that Paramount acted in reckless disregard of the requirements of the FCRA by using this language” (Peikoff v. Paramount Pictures Corp.).

Similarly, a federal court in Massachusetts granted judgment for Uber Technology and Raiser LLC on the FCRA claims of a rejected driver, finding that the online disclosure that a background check would be done was “clear and conspicuous,” even though one had to scroll down to see the whole thing, and “a few sensible words explaining the reason for the background check could hardly qualify as an ‘objectively unreasonable’ act” supporting a claim for a willful FCRA violation (Goldberg v. Uber Technologies, Inc.).

Watch your waiver. Comparing the Peikoff ruling to the Jones v. Halstead case above, it is clear that courts really take umbrage with pre-background check disclosures that have language waiving an employer’s liability. As to more “minor” FCRA violations, where the first disclosure includes extraneous language like that found in Peikoff or Goldberg, we now know that at least some courts look to the reason behind the “stand-alone” notice requirement—to focus the applicant or employee’s attention on the disclosure that a background check may be used for employment decisions.

Notice, Notice, Notice. It will be interesting to see if Piekoff and Goldberg are joined by other decisions applying a bit of common sense when faced with minor technical violations. In the meantime:

  • Before obtaining a consumer report with credit or criminal background info:
    • In a stand-alone document, state that the information may be used for employment decisions. Do not put the notice in an application, and avoid extra information. Present any release form in a separate document to be read separately.
    • If seeking an “investigative report” (based on personal interviews) disclose the individual’s right to a description of the nature and scope of the investigation.
    • In a separate document get written permission to do the background check.
    • Certify to the company supplying the report that you gave notice; got permission; complied with FCRA requirements; and will not violate federal or state laws.
  • Before taking an adverse action based on the report, provide a copy of the consumer report and “A Summary of Your Rights Under the Fair Credit Reporting Act.” Best practice is to give the individual a chance to challenge or explain negative information.
  • After taking the adverse action, tell the individual (orally, in writing, or electronically):
    • that he or she was rejected because of information in the report;
    • the name, address, and phone number of the company that sold the report, that it did not make the hiring decision, and it cannot provide specific reasons for it; and
    • that he or she has a right to dispute the accuracy or completeness of the report, and to get an additional free report from the reporting company within 60 days.

In view of the complexity of the FCRA’s requirements and the penalties for even unintentional noncompliance, employers that rely on consumer reporting companies for background checks rather than doing their own footwork are well advised to seek the advice of an experienced employment law attorney before doing so to ensure full, technical compliance with the Act.

Additional resources. More information on FCRA requirements and recent cases can be found in a prior Employment Law Daily story: “Should employers go ‘old school’ in criminal background checks to avoid the FCRA?” Information can also be found in a joint publication from the EEOC and FTC: “Background Checks: What Employers Need to Know.” The FTC has also provided a summary of FCRA requirements in “Using Consumer Reports: What Employers Need to Know,” as well as information on recordkeeping requirements and proper disposal of background reports in “Disposing of Consumer Report Information? Rule Tells How.”