Background Checks

On July 24, 2020, the Federal Deposit Insurance Corporation (FDIC) published a Final Rule regarding Section 19 of the Federal Deposit Insurance Act, 12 U.S.C. § 1829 (“Section 19”), which restricts hiring at FDIC-insured depository institutions, such as FDIC member banks.  The Final Rule codifies the FDIC’s prior guidance

The Ninth Circuit recently issued two mostly pro-employer federal Fair Credit Reporting Act (FCRA) background check decisions.

With the start of a new year—and a new decade—employers in San Francisco, California, Waterloo, Iowa, and Grand Rapids, Michigan, must follow new “ban-the-box” laws restricting their use of criminal records in hiring and personnel decisions. In addition, Maryland’s statewide ban-the-box law becomes operative on February 29, 2020.1 Looking ahead, St. Louis, Missouri enacted new restrictions that will take effect on January 1, 2021. Federal contractors also will be subject to new restrictions as of December 20, 2021. The following summarizes the three new city-wide laws that are now, or will soon be, in place.

The Fair Chance Act prohibits federal contractors from inquiring about a job applicant’s criminal background in certain cases in the initial stages of the application process. The Act will go into effect on December 20, 2021.

Employers should continue to exercise caution and care in drafting their criminal record screening policies. A recent settlement by Dollar General underscores this point, even though it comes on the heels of the Fifth Circuit’s opinion holding that the EEOC violated the federal Administrative Procedure Act (APA) in issuing its 2012 Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII of the Civil Rights Act of 1964.1 The EEOC and Dollar General recently resolved the EEOC’s six-year lawsuit against the retailer arising under Title VII of the Civil Rights Act of 1964 (Title VII) for $6 million dollars and other programmatic relief.

Executive Summary: On Tuesday, August 6, 2019, the United States Court of Appeals for the 5th Circuit held that the Equal Employment Opportunity Commission’s (“EEOC”) Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII (“the Guidance”) is unlawful in the state of Texas. (See State of Texas v. Equal Employment Opportunity Commission, et al., August 6, 2019). The court agreed with the State of Texas that the EEOC and the Attorney General cannot treat the EEOC’s Guidance as binding in any way. The court concluded that the Guidance is a final agency action because it determines rights and obligations and legal consequences can flow from it. Thus, the EEOC went outside of its statutory authority when it issued the Guidance.

Almost two years ago to the day, the U.S. Court of Appeals for the Ninth Circuit became the first appellate court to rule on the lawfulness of a liability waiver in a Fair Credit Reporting Act (FCRA) disclosure. In Syed v. M-I, the Ninth Circuit ruled that an employer acted “willfully” in violation of the FCRA when it included a liability waiver in its FCRA disclosure.1 On January 29, 2019, the Ninth Circuit doubled-down on its ruling, holding in Gilberg v. Cal. Check Cashing Stores, 9th Cir., No. 17-16263, that the statute’s prohibition on including so-called “extraneous” information with the requisite disclosure extends even to information about the legal rights that job applicants have under state fair credit reporting laws.

Employers that use criminal record-screening policies must continue to be vigilant about compliance with all applicable laws and should know that the EEOC’s scrutiny of such policies, while perhaps scaled back, has not ended.1 To the contrary, the EEOC has demonstrated a continued interest in discouraging employers from directly or indirectly screening out job applicants who belong to protected classes under Title VII and tend to be arrested and convicted at disproportionately higher rates.

On September 12, 2018, the Consumer Financial Protection Bureau (CFPB), the federal agency which oversees the federal Fair Credit Reporting Act (FCRA) issued an interim final rule updating the agency’s model FCRA notice. The new form replaces the old form effective September 21, 2018.

Employers that use criminal record screening policies must continue to be vigilant about compliance with all applicable laws. Following a multi-million dollar settlement by a leading retailer earlier this year,1 a recent multi-million dollar settlement in New York involving a large New York City sports and entertainment venue reinforces this point.2 In the recent case, the employer settled a class action lawsuit for a significant cash payout, including $165,000 in attorney’s fees, and other noteworthy programmatic relief. This recent settlement provides valuable lessons for employers.

A new model “A Summary of Your Rights Under the Fair Credit Reporting Act” disclosure form document was released on September 12, 2018, by the Consumer Financial Protection Bureau (CFPB). Employers and background check companies may begin using the new form on September 21, 2018.

On September 10, 2018, in Long v. Southeastern Pennsylvania Transportation Authority (SEPTA), the U.S. Court of Appeals for the Third Circuit joined the chorus of recent circuit court opinions tackling the question of constitutional standing to sue in federal court under the Fair Credit Reporting Act (FCRA).

On September 6, 2018, in Auer v. Trans Union, LLC, the U.S. Court of Appeals for the Eighth Circuit joined the Seventh Circuit in holding that an individual plaintiff did not have constitutional standing to sue in federal court under the Fair Credit Reporting Act (FCRA) for an alleged violation of the FCRA’s authorization and disclosure requirement. This is one in slew of recent federal circuit court opinions that address the threshold issue of standing. Standing is constitutionally required for the plaintiff to pursue his or her claim in federal court. In order to have standing, a plaintiff must show that he or she suffered a concrete “injury-in-fact” because of the defendant’s alleged wrongdoing. In Auer, the court held that the plaintiff failed to establish her standing and directed the trial court to dismiss the lawsuit.

On August 29, 2018, the U.S. Court of Appeals for the Seventh Circuit issued its opinion in Robertson v. Allied Solutions, LLC, holding the plaintiff had standing to sue in federal court under the Fair Credit Reporting Act (FCRA). Standing is a constitutional requirement to bring a lawsuit in federal court. Standing requires, among other things, that the defendant’s alleged wrongdoing caused the plaintiff to suffer a concrete “injury-in-fact.” In Robertson, the court held that the plaintiff established standing for her class action claims based on the defendant’s alleged violation of the FCRA’s “pre-adverse action” notice requirement.1 Earlier this year, the Ninth Circuit reached just the opposite conclusion in a similar class action.2 Together, the two opinions underscore the grave uncertainty in this evolving area of class action litigation, one that employers should continue to be mindful of and closely monitor.3

Fair Credit Reporting Act (FCRA) class action lawsuits against employers are reaching epidemic proportions as class-wide settlements encourage more lawyers to move into this niche practice area.1 Because most of the opinions tend to come from trial courts, definitive guidance for employers is lacking. What’s more, the plaintiff’s bar may attempt to use a new amendment to the FCRA to argue that employers have additional duties under the FCRA’s “pre-adverse action” notice provisions (15 U.S.C. § 1681b(b)(3)). However, on closer scrutiny, as described below, this argument appears to be “creative” at best.