Employers Could Face Major Class Action Suits For Violations of the Fair Credit Reporting Act
Class action lawsuits against employers for violations of the Fair Credit Reporting Act (the “FCRA”) are rapidly increasing. Aaron’s, Inc., a rent-to-own business based in Atlanta, Georgia, was recently sued in federal court by employees alleging that the company ran background checks without providing a copy of the results and took adverse employment action against applicants and employees without providing required notices. In addition, Whole Foods was sued by a former employee alleging that the supermarket’s consumer report authorization form did not meet the requirements of the FCRA because it included a waiver of liability for companies sending or receiving consumer reports.
Why are these lawsuits dangerous? The FCRA requires employers to obtain a signed authorization from an employee prior to using consumer reports for employment purposes. The authorization to obtain and use the consumer report must be the only subject the document addresses. Furthermore, before taking any adverse action against an employee based on information in a consumer report, employers must give a copy of the report to the employee and provide notice of the employee’s rights under the FCRA. Damages for a negligent violation include actual damages, which could include lost wages and emotional distress, as well as reasonable attorneys’ fees and costs. If an employer willfully violates the FCRA, the plaintiff can also recover statutory damages of up to $1,000 per violation and punitive damages.
To mitigate the risk of class actions, employers must strictly adhere to the requirements of the FCRA when hiring third-parties to perform background checks and when taking adverse employment action based on the results of the background checks (which generally qualify as “consumer reports” under the FCRA). The statute establishes several requirements for employers who procure “consumer reports” for employment purposes. First, an employer must disclose its intentions to the applicant and obtain the applicant’s written authorization before obtaining a consumer report. The disclosure must be “clear and conspicuous” and may only address the employer’s purpose for the consumer report and the authorization. Therefore, an FCRA disclosure contained within a job application violates the statute. Furthermore, any waivers or releases of the employer or third parties must be set forth in a separate document.
If an employer refuses to hire, disciplines or terminates an applicant or employee based on the results of a consumer report, it must provide the applicant or employee with (a) a copy of the report and (b) a written description of the applicant’s or employee’s rights under the FCRA. Employers must also (1) inform applicants or employees of the name, address and phone number of the agency that furnished the report, (2) provide applicants or employees with a statement indicating that the credit reporting agency did not make the decision to take the adverse action against the employee and is unable to provide a specific reason for the action, (3) provide applicants or employees with notice of their right to obtain a free copy of the report from the agency within sixty (60) days of receiving the notice and (4) provide applicants or employees notice of their right to dispute the accuracy of the report. Additional disclosures are necessary if the decision to take adverse action is based on a numerical credit score.
Individual states also have requirements employers must follow before obtaining consumer reports. For example, the Maryland Job Fairness Act restrains an employer’s ability to request credit reports for employment decisions. In Maryland, unless an employer is otherwise required or permitted to obtain credit reports, the employer must have a bona fide purpose that is substantially job-related for requesting a credit report.
Employers should review and evaluate any hiring procedures that involve consumer reports to ensure compliance with the FCRA and state law. Employers should have a standard authorization and disclosure form for consumer reports and a separate document for any related waivers or releases. Furthermore, employers should have written, FCRA-compliant procedures established to deal with adverse consumer reports.
This article was written by Tony W. Torain II, associate of the Labor & Employment practice at Miles & Stockbridge P.C. in Baltimore, Maryland. Should you have any questions, please contact Stephanie Baron or any of the other members of the Labor & Employment Practice.
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