Although the Fair Credit Reporting Act (FCRA) is a statute which sounds like it applies to credit reports, by now all employers should know that it covers almost all third-party background checks employers conduct on employees and prospective employees, including reference checks, credit checks, and court record or criminal record checks. The FCRA provides individuals with a number of rights, including, but not limited to, the ability to know what is in their file with a consumer reporting agency, to dispute inaccurate, incomplete or unverifiable information, and to seek damages for violations. Specifically pertaining to employment-related background checks, the FCRA provides that a prospective employee must consent to the background check, be informed if information from the background check is being used against them for employment purposes, and be given the opportunity to contest the information in the report prior to a final employment decision being made. If employers take adverse action based in part on information contained in a third-party background check, then employees are entitled to notice before the adverse action is taken, and another notice after. If the check involves interviews of people (instead of just document review), then another notice requirement is triggered. Importantly, the FCRA normally does not apply if the background check is performed entirely in-house (if the employer does not use any outside entity in gathering or analyzing information or records).
Lawsuits concerning background checks in general, and claims under the FCRA in particular, have proliferated in recent years and HR and legal professionals have been peppered with updates and warnings on this trend. Even so, not every employer appears to be aware of FCRA requirements. A recent proposed class action lawsuit filed in Virginia federal court alleges that trucking conglomerate Swift Transportation Co. failed to inform more than 10,000 job applicants of their right to access and contest information contained in background checks that Swift conducted in its hiring process. Specifically, the lawsuit alleges that Swift failed “to advise the plaintiff prior to the procurement of his consumer report that he could receive a free copy of the consumer report within 60 days, and that he could dispute the accuracy or completeness of any information contained within the consumer report with the consumer reporting agency.” The suite alleges that this failure to disclose the plaintiff’s rights amounts to a lack of proper authorization to view the report altogether.
The use of background checks for employment purposes have also received greater scrutiny by the Equal Employment Opportunity Commission (EEOC), with the EEOC taking the position that use of conviction record information disparately impacts minorities. In a twist on this argument, ten former African-American "American Idol" contestants recently filed a lawsuit against the show alleging that producers illegally researched their arrest records and used those records as a basis to remove them from the show. The suit further alleges that Caucasian contestants were not similarly treated and seeks $25 million for each plaintiff.
These recent lawsuits follow in the footsteps of a number of other FCRA claims. In February, K-Mart settled a suit by agreeing to pay $3 million over claims that it did not comply with FCRA authorization requirements before obtaining consumer reports. In April, US Xpress agreed to pay $2.75 million to settle claims that it did not provide proper FCRA disclosures prior to obtaining background checks. Finally, in May, Domino’s Pizza obtained preliminary approval for a $2.5 million settlement over claims that it did not comply with FCRA notice and pre-adverse action requirements.
This spate of recent lawsuits, and multi-million dollar settlements of lawsuits, clearly indicates that employers need to be aware of, and comply with, FCRA notice, authorization and pre- and post-adverse action requirements.© MICHAEL BEST & FRIEDRICH LLP