Lawsuit Raises FCRA Fears

A class-action lawsuit against Disney serves as a stark reminder that employers better follow the letter of the Fair Credit Reporting Act when it comes to notifying job candidates or employees about adverse actions against them due to something that showed up in a background-screening report.

Tuesday, December 10, 2013
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With an increasing number of employers facing lawsuits under the Fair Credit Reporting Act based on actions taken -- or not taken -- during their recruiting and hiring procedures, experts and employment attorneys are cautioning them to know the letter of this law before deciding on any job candidate.

More importantly, if they're going to decide not to hire someone because of what turned up in a background check, they'd better cross their t's and dot their i's when it comes to notifying the applicant about the decision that's about to be made.

The latest to be pulled into the fray, Disney, is accused of knowingly violating the FCRA by failing to provide job applicants and employees with adverse-action notices and copies of background reports prior to negative decisions being made.

In the class-action lawsuit, Culberson v. The Walt Disney Company, Robert L. Culberson claims Disney illegally barred him from employment by failing to provide him with the notice -- required by the FCRA when an adverse-employment decision is based on any portion of a background check.

The premise of the law, says Angela Preston, vice president of compliance and general counsel at Cleveland-based EmployeeScreenIQ, is that every employee deserves a chance to answer adverse actions; maybe a case was expunged, or maybe it should have been treated like a dismissal according to a probation officer or court. The bottom line, she says: "The FCRA contemplates what every employee deserves as a chance" to defend himself or herself against anything negative that shows up in a background screen. it was, Culberson's background check showed a criminal conviction on a battery charge from 1998 -- when he was 19 years old -- that had been expunged from his record in 2010. He claims he was not given the opportunity to correct the information before the company decided not to hire him, nor did Disney re-evaluate his application after the background-screening company, Sterling Infosystems Inc., eventually removed the conviction from his record and issued a new report.

Moreover, the complaint says, Disney signed a contract with Sterling absolving the latter of any adverse-action reporting -- something most every background-checking company offers as a service to its clients. In signing the contract, Disney agreed to take care of the adverse-action reporting and all the other stipulations under the FCRA. On the contrary, the suit says, Disney failed to provide Culberson with a copy of the background-screening report, issue a pre-adverse action notice and/or send him written notice of the adverse action itself -- all requirements of the law.

Disney has yet to officially answer the charges, which means "it's very possible they'll come back and say, 'We did send out notices,' " says Preston.

What's important to contemplate, she says, is that, if Culberson is successful at establishing the class action -- based on the notion that Disney conducts all screens and interviews this way and has harmed other candidates and employees as a result -- he could make a claim for statutory damages up to $1,000 per violation (or class member), actual damages, costs and attorney's fees plus punitive damages. In other words, it could end up costing Disney a lot.

Equally important is the fact that such cases are on the rise. In fact, there have been 368 class-action lawsuits filed under the FCRA since Jan. 1, 2010 that address failures to properly notify people of adverse actions against them. Settlements have reached as high as nearly $6 million.

Kmart, for instance, recently agreed to a $3 million settlement based on failure-to-notify charges.

"We know that more and more cases are being filed," says Preston. "We're definitely seeing a huge trend of people suing for this. I think it's a bit of both [company offenses on the rise and the] plaintiff's bar is just realizing this is another deep pocket. And with more people having trouble getting jobs, they're looking at all aspects of the background screening.

"This should be a wake-up call," she says, "that employers need to talk to their screening companies and their counsel. This is a pretty basic administrative process [one EmployeeScreenIQ handles for many clients], and if you're getting this wrong, especially where there's a class action, this could be a very expensive mistake."

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Preston advises employers to make sure they have a policy for adverse-action reports and all hiring managers understand the need to follow them uniformly. They should also include copies of background reports and the FCRA-required "Summary of Rights" with every pre-adverse-action notice. In addition, she says, they should consider outsourcing adverse-action notifications to their screening providers to ensure they're done right.

Paul Salvatore, a member of Proskauer's executive committee, former co-chair of its global labor and employment law department, and Human Resource Executive®'s legal columnist, writes in an upcoming column that HR professionals working for companies covered by the FCRA should also "disclose to the applicant the employer's intention to obtain a consumer report and/or investigative consumer report, and obtain the applicant's advance authorization to conduct a background check."

Most importantly, he adds, they should "notify the applicant in advance of the employer's intent to take adverse action based on the information contained in the report, provide a copy of the report and notify the applicant of the adverse action."

Montserrat C. Miller, partner with Atlanta-based employment law firm Arnall Golden Gregory, posted to in November that the Disney case should also serve as a reminder to consumer-reporting agencies to "consider the disclosure and authorization template you provide" employers to make sure it doesn't contain additional verbiage that could be "challenged by plaintiff's counsel as a notice which is not a 'clear and conspicuous disclosure.' " 

Another legal complication, says Preston, is the growing number of employers relying on the "lying-on-the-application" cause for adverse action as a way to skirt the notification requirements. In other words, if the application asks, "Have you ever been convicted of a felony?" and the applicant says "no" and the screen proves otherwise, "if they haven't gone through these proper steps, they'll have a harder time defending themselves in court on that 'lying' defense," she says.

"If the offense is something the employer never should have seen [as was the case with Disney], then the 'lying on app' defense faces potential failure," she adds, "because there are situations where there are mistakes on reports, and even if it's the background-screening company that mistakenly included said offense on said report, the employer is still the one responsible for notifications and adverse-action reports."

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