Old statute put to new use in challenging screening practices

There has been an uptick in class actions over employment screening practices that use consumer reports as grounds for making decisions about job applicants or employees.

The weapon of choice for lawyers who represent employees is a statute that has been around for years but is just beginning to be used in the employment context.

The Fair Credit Reporting Act has been a fixture in the consumer law context when consumers are denied housing or credit because their credit or consumer report contains errors that were not properly disclosed to them.

Employment attorneys say that the use of the same type of consumer reports has skyrocketed among employers and is driving lawsuits against them for running afoul of the FCRA.

“When I first started my practice 13 years ago, only very high-level jobs with security clearance required background checks. Now a cashier at McDonald’s or Wendy’s [will get] a background check,” said James Francis, a consumer attorney at Francis & Mailman in Philadelphia, who has settled dozens of cases against both employers and credit reporting agencies.

Management-side attorneys complain that some big settlements — including a $6.8 million settlement by Walmart and a $5.9 million settlement by FirstGroup with class-action plaintiffs for violating the FCRA — have fueled other lawsuits against employers for violating the act’s somewhat technical provisions.

“We’ve seen a dramatic increase in these claims over the last three to four years. When plaintiffs’ lawyers see that there’s been a large settlement in a case, they begin looking for other cases to bring,” said Craig Berschi, a partner at Kilpatrick, Townsend & Stockton in Atlanta, who defends class actions.

But plaintiffs’ attorneys say the reason for the spike in lawsuits is that lawyers who advise employers and write their policies are experts in employment law, not on statutes like the FCRA, which traditionally have been utilized by consumer attorneys.

“Employment lawyers are generally not as up to speed on the FCRA as they should be,” said E. Michelle Drake, a partner at Nicholas Kaster in Minneapolis.

Drake has filed two class actions in federal court against employers Capital One and Domino’s Pizza for violating the FCRA based on the way they used consumer reports to make employment decisions.

A disclosure statute

FCRA dictates what a consumer or employee must be told when an entity runs his or her consumer report.

A consumer report is an umbrella term under the statute that includes a credit report, criminal background check and any other public record such as a lien, judgment or bankruptcy filing.

There are three disclosure provisions in the statute, and all of the lawsuits allege that employers violated one or more of them.

The first — a mandate that a written authorization from the employee or job applicant be obtained before an employer runs a consumer report — has specific requirements.

“Employers are supposed to get authorization to conduct a background check in a standalone disclosure document. Instead, what many employers are doing is burying an insufficient disclosure in all kinds of other information,” such as within a multi-page employment application, or in a catchall waiver at the end of a document, Drake said.

An emerging issue related to the written disclosure is whether a click-the-box consent on an online job application constitutes sufficient written authorization, said Lucas J. Asper, an attorney at Ford & Harrison in Spartanburg, S.C., who represents employers.

The second disclosure, a “pre-adverse action notice,” requires that employers provide a copy of the consumer report with any negative information so the employee or job applicant has a chance to respond or dispute the information.

“Failure to give pre-adverse action notice is a rampant violation because of the way industry works. They want to fill a position, and they want to fill it quickly. The minute they find something negative, that person is done. The employers just go to the next person in line,” said Francis, who added that consumer reports are notorious for containing errors and that he has had cases in which the wrong report was pulled because of similar names.

Employers are also required by the FCRA to provide a post-adverse action notice if they have made a decision based on information in a consumer report. They must then give the person a reasonable time to dispute and correct the information.

Jonathan Harris, a staff attorney at the Public Justice Center in Baltimore, said he has received complaints from job applicants for security guard and retail clerk positions that they were subjected to instant credit checks and told on the spot that they could not get the job because of bad credit or other negative information on a report.

Suitable for class actions

The FCRA is suitable for class-action treatment in employment suits because employers usually treat every employee or applicant the same way when it comes to background checks.

“You likely have a very big group of potential plaintiffs against a nationwide company doing background checks on all applicants,” Asper said.

Statutory penalties run from $100 to $1,000 for each violation and depend on willfulness.

“It doesn’t require any proof of sustained damages. You could have somebody who applied for a job and got turned down and doesn’t realize there was a FCRA violation until they get a letter asking if he would like to be in a class action,” Asper said.

Defense lawyers also complain that there is an incentive for attorneys to bring class claims because the statute provides for attorneys’ fees.

Actual damages, such as lost wages, would generally be fact-specific and pursued on an individual basis, Francis said. He noted that punitive damages are also available regardless of whether there are actual damages.

According to Francis, a willful violation could be any violation that flows from a systemic procedure, such as a company policy not to hold a job open to allow someone to dispute a background report.

“If something is carried out regularly and routinely that would be, at a minimum, a reckless violation and constitute [a] willful [violation] under the statute,” Francis said.

He said his caseload for FCRA cases is growing by the day.

“More and more companies are selling this type of data. More and more employers are using background checks. The error rates are so great, and if someone is fired for a faulty background check, he or she might be out of work for six months. On top of that, the job market has gotten more competitive,” Francis said. “It creates a perfect storm for burgeoning litigation.”