The U.S. District Court for the Eastern District of Wisconsin recently held that an employer potentially violated the Fair Credit Reporting Act (FCRA) when it provided the employee with three days to dispute information contained in a background report and not the five it promised in the pre-adverse action notice.1 The court’s opinion is a cautionary tale to employers to pay careful attention to their adverse action notice procedures, and in that regard, has takeaways for consumer reporting agencies (CRAs) that provide notices on behalf of employers.
You can learn a lot about reputational harm and hiring decisions from the NFL. A college football player potentially lost millions recently as his draft stock tumbled in the wake of a rape investigation weeks before the NFL Draft. Granted, the player was selected in the first round, but at a lower pick than originally projected. Reportedly, numerous teams called the player within 48-hours of the disclosure of the investigation to hear his version of events. Some teams reportedly administered a polygraph test to the player. But what’s enough? What steps must an employer take to investigate potential employees? A related question: what’s the potential reputational cost to the employer? These are critical employment decisions.
On April 28, 2017, the Federal Trade Commission (FTC) issued a blog article entitled “Background checks on prospective employees: Keep required disclosures simple.”1 The FTC is one of the two federal agencies with oversight of the Fair Credit Reporting Act (FCRA); the other one is the Consumer Financial Protection Bureau (CFPB). The FCRA imposes specific obligations on employers that order background checks from vendors (known as consumer reporting agencies), including the obligation to obtain informed authorization from job applicants for background checks.
In 1998, Hawaii became the first state to “ban the box,” prohibiting private employers from inquiring about a candidate’s criminal history until the employer has made a conditional offer. It was not for another 12 years before another state, Massachusetts, followed suit and enacted similar legislation, although the Massachusetts statute permits employers to ask the question about criminal history during the interview process.
Executive Summary: In a case of first impression, the Ninth Circuit Court of Appeals recently held that a background check disclosure that included a liability waiver violated the Fair Credit Reporting Act (FCRA). The Ninth Circuit is the first federal appeals court to decide this issue and definitively stated that the statute “unambiguously bars the inclusion of a liability waiver.”
On January 20, 2017, 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.
Executive Summary: The Sixth Circuit Court of Appeals in Smith v. LexisNexis Screen Solutions, Inc., __ F. 3d ___, 2016 WL 4761325 (6th Cir. September 13, 2016), recently upheld a jury verdict in favor of a plaintiff in a Fair Credit Reporting Act (FCRA) case, who was initially denied a job due to an error made by LexisNexis Screen Solutions, Inc. (Lexis) in performing a background check. The Sixth Circuit found that the evidence supported the jury’s verdict that Lexis was negligent and upheld the $75,000 compensatory damages award, but found no evidence of willfulness and reversed the punitive damages award.
Plaintiffs must show they suffered from an actual injury, not just a “bare procedural violation,” in order to sue in federal court, the U.S. Supreme Court has ruled in its long-awaited decision in Spokeo, Inc. v. Robins, No. 13-1339 (May 16, 2016).
Employers regularly turn to background screening companies in order to obtain information/reports about applicants and employees. The Fair Credit Reporting Act (FCRA) applies to companies that sell or provide these background screening reports if such a report meets the FCRA’s definition of a “consumer report.” A consumer report is a report which serves as a factor in determining a person’s eligibility for employment, credit, insurance, housing, or other purposes and includes information bearing on an individual’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living. Organizations that sell or provide consumer reports to employers are considered “consumer reporting agencies” under the FCRA.
Executive Summary: On May 16, 2016, in a 6-2 decision, the U.S. Supreme Court remanded the closely watched Spokeo Inc. v. Robins case back to the Ninth Circuit for further analysis. The issue is whether the plaintiff, Robins, has standing to sue Spokeo under the Fair Credit Reporting Act (FCRA) for injuries allegedly caused by Spokeo’s dissemination of incorrect information about Robins. Standing requires the plaintiff to show (1) injury (2) that is fairly traceable to the defendant’s conduct, and (3) that is likely to be redressed by a favorable judicial decision. The appeals court held that Robins had standing. The Supreme Court, however, vacated the appeals court’s decision and remanded the case back to it to consider whether Robins’ complaint sufficiently alleged that his claimed injuries were “concrete.” The case is still alive. Employers had hoped that the Supreme Court’s decision would prevent plaintiffs from establishing standing by alleging mere statutory violations.
On May 10, 2016, the Federal Trade Commission (FTC) released a new publication related to background checks and the Fair Credit Reporting Act (FCRA) titled What Employment Background Screening Companies Need to Know About the Fair Credit Reporting Act.1 As the name suggests, the publication surveys the obligations that consumer reporting agencies (background check companies or CRAs) have under the FCRA when compiling employment-purposed consumer reports (background reports). The FTC’s publication is a useful resource for employers for learning about the legal requirements governing the preparation of background reports by CRAs, and indirectly highlights several compliance requirements applicable to employers.
In the last two years, the number of employment class actions under the federal Fair Credit Reporting Act (FCRA) has ballooned. Most of the cases reported in the media have involved challenges to an employer’s compliance with the FCRA’s disclosure and authorization requirements.
Last month, President Obama announced a new mandate to the federal government’s human resources department to “delay inquiries into criminal history until later in the hiring process.”
On Monday, November 2, 2015, President Obama announced the federal government is joining the long list of large employers, 19 states, and more than 100 cities and municipalities that currently “ban the box” on employment applications. The President outlined several ideas to improve the reintegration of the formerly incarcerated into society. He noted that “millions of Americans have difficulty even getting their foot in the door to try to get a job; much less actually hang onto that job … so, we’ve got to make sure Americans who paid their debt to society can earn their second chance.” To that end, he announced, “I’m taking action to ban the box for the most competitive jobs at federal agencies.” The “box” refers to the place on job applications where applicants are asked to indicate whether they have been convicted of a crime. Research confirms that a criminal record reduces the likelihood of a job call back or offer by nearly 50 percent.
After several high-profile setbacks in disparate impact discrimination lawsuits challenging criminal record screening policies,1 the EEOC has entered into a settlement (consent decree) in one of its few remaining cases, a settlement that includes payouts to individual employees in an amount up to $1,600,000. Beyond this not insubstantial settlement amount, the consent decree also reflects the EEOC’s view of a model criminal record screening policy, and is useful in that respect.2 While the EEOC has been trumpeting the settlement on its Web site, the EEOC’s bluster may have been tempered by a further and strongly worded opinion in the Freeman case in Maryland, one of the EEOC’s spectacularly unsuccessful disparate impact lawsuits challenging criminal record screening policies (affirmed by the Fourth Circuit).3 The opinion awards Freeman just under $1,000,000 in attorneys’ fees and costs from the EEOC.