Fair Credit Reporting Act Litigation Increases

By Lehr Middlebrooks Vreeland & Thompson, P.C.

January 28, 2019

Although employment litigation overall has declined, largely due to low unemployment, litigation regarding the Fair Credit Reporting Act increased by 4% in 2018 compared to 2017. The FCRA is a “gotcha” statute, where technical noncompliance can result in class action litigation and expensive resolutions. For example, Uber paid $7.5 million (ok, that’s chump change for them) in 2018 when they conducted background checks without proper authorization, and Amazon paid $5 million because its authorization was not on a required stand-alone form. In several sectors, failure to conduct a background check may be considered negligence by the employer if an incident occurs. For example, employer accountability to conduct a background check is higher for employees in healthcare, employees who enter private property in order to perform their job duties, employees who work with hazardous materials, and employees who drive vehicles in the performance of their job responsibilities. Background checks may also be required by some government contracts or to obtain licensures (ex: a daycare facility). Remember the following steps to assure compliance with the FCRA:

1. Create a stand-alone form for the applicant or employee to sign, where the form discloses that the employer will require a background report for employment purposes. A stand-alone form means that other terms and conditions may not be a part of this. For example, the form may not include a general release of liability, it may not include a “termination at will” statement, and it may not include a statement that an incomplete application or falsification of information will result in either termination of employment or no employment. Even if your authorization form is created by your vendor, you should ensure it complies. Many mid-sized vendors have been using non-compliant forms in the recent past.

2. If the report the employer receives contains information, which contributes in any way towards the employer taking an adverse action,such as termination or not hiring the applicant, the employer is required to give the applicant or employee a pre-adverse action notice containing a copy of the report and a summary of the employee’s rights under the FCRA.

3. The employer must wait for what’s considered a reasonable amount of time before taking the adverse action. If adverse action is taken, the employer must notify the employee and provide the name of the reporting agency that provided the information which was the basis for the adverse action.

More employers are conducting background checks without using a third-party agency. In that situation, the FCRA does not apply. For example, if an employer calls former employers and educational institutions or searches the court system in the county where the employer is located, that is not considered a third-party report that becomes a basis for the required disclosures. However, especially if an employer issuing a hybrid approach (for instance, if the employer conducts its own reference checks but uses a third party for criminal background research) we still recommend that an employer treat those inquiries as if they were covered under the FCRA, especially with respect to obtaining an authorization.