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Revisiting FCRA Requirements

A recent spate of class-action suits should remind employers and HR of the steep cost of FCRA violations. Experts say the time is right for employers to reassess their background-checking processes-and the role staffing and consumer reporting agencies play in those processes.   

Monday, June 15, 2015
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These days, it seems as if U. S. courtrooms are full of class-action cases involving alleged violations of the Fair Credit Reporting Act.

Consider these recent claims:

In April, Gregory Williams sued online retailer Inc. and staffing firm Staff Management Solutions after being turned down for a warehouse job at Amazon. Williams claims the companies violated FCRA by allegedly failing to provide job candidates with background-check results before making hiring decisions.

According to court documents, Williams-who was rejected on the basis of a felony cocaine possession conviction that turned out to be erroneous-claims Amazon and the staffing agency systematically denied potential employees the results of their background checks before hiring decisions were made, which denies applicants the opportunity to correct any mistakes that may be contained in the record.  

The suit seeks class-action certification to include all individuals rejected for positions at Amazon over the past five years who did not receive copies of background checks done by any consumer reporting agencies used by Amazon in that five-year span.

A $3 million settlement was recently reached in Jeneen Brown v. Delhaize America, LLC et al., in which the plaintiffs claimed Food Lion and its parent company Delhaize America violated the FCRA requirement for "a clear and conspicuous disclosure" or "stand-alone disclosure" when a background-check report is obtained for employment purposes.

In March, plaintiff Colin Speer filed a motion in a federal Florida court, seeking class certification for another lawsuit involving a grocery chain. In the suit, Speer, a former Whole Foods employee, alleges the company's disclosure that it may procure a consumer report for employment purposes wasn't included as a stand-alone document when he applied for a job and completed an online background-information form.

Speer also claims the company required him to authorize the procurement of the report on another page, and asserts that the forms-while both are single-page documents-don't comply with the law because they be read and analyzed together.

And, there are numbers suggesting such class-action suits centered around claims of FCRA violations are on the upswing-and are likely to keep increasing.

For example, labor law firm Littler's recent report, The Swelling Tide of Fair Credit Reporting Act (FCRA) Class Actions: Practical Risk-Mitigating Measures for Employers, found at least 27 nationwide FCRA class actions were filed against employers as of August 2014. That number, according to Littler, roughly tripled from the year before.

There may be a few factors driving this spike, says Veena Iyer, a labor and employment attorney in the Minneapolis office of Nilan Johnson Lewis.

With respect to FCRA, the statute "has a lot of technical requirements," says Iyer. "This means there are lots of technical ways to violate the statute, and there a lot of plaintiffs' attorneys who recognize that."

Some of the most common complaints, the report noted, include claims that employers' background check disclosure forms contained language not limited to the disclosure required by the statute, the employer failed to provide a pre-adverse action notice, and the employer did not wait the right amount of time before taking final adverse action against an individual.

With respect to potential FCRA violations, where many organizations trip up-as evidenced in the aforementioned cases and the Littler report-is in how they handle adverse action notices.

Nevertheless, this part of the FCRA compliance process doesn't have to be especially difficult to understand or carry out, says Doug Kauffman, a Birmingham, Ala.-based partner in Balch & Bingham's labor and employment group.

First, he urges ensuring any and all forms provided by consumer reporting agencies are FCRA compliant, adding that employers must follow all the necessary steps in providing individuals with the required notices and information in the event a consumer report influences an employment decision.

"Do not assume that no one will challenge the information in the consumer report," continues Kauffman. "Employers who become too mechanical in the application of providing the notice of a potential adverse action, wait seven days, and then automatically send the final adverse action, may effectively skip a key requirement under FCRA to provide a meaningful opportunity to the applicant to correct any misinformation."

In terms of assessing how the organization discloses these decisions to job candidates, HR leaders frequently serve as the point person, says Rod Fliegel, a San Francisco-based shareholder and co-chair of Littler's hiring- and background-checks practice group.

He advises clients to keep things simple.

"I say less is more. We need to strip these forms down to just what they have to say, and present the information in a way that satisfies the stand-alone disclosure requirements," he says. "Getting that part of your house in order is critical in my mind."

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As the Amazon case illustrates, involving a staffing agency can add a degree of difficulty for employers, says Iyer.

"It's an age-old conundrum for employers," she says. "You don't want to be too involved in the process, because that's why you went to a staffing firm in the first place."

On the other hand, "you can be on the hook for what they do, so you have to have oversight of what [the staffing agency] is doing."

The employer organization must make its expectations crystal clear to the staffing firm, she says.

"Make sure the agency knows what FCRA is, make sure it has a method for compliance, and make sure it's going to be sending the same notices to everyone," says Iyer, who recommends regular audits of the adverse-action-notification process as well.

"Pick a few people who were rejected, select a few who were hired, look at your process and see if everything was done properly."

Of course, employers can be held responsible for the actions of the staffing agencies and background-check vendors they engage.

It's a "buyer beware situation," says Kauffman.

As such, FCRA compliance "is something that an employer should review with any vendor that is involved in the employment process," he says. "In addition, employers should consider having appropriate language in their contracts with vendors, whereby the vendors represent that their processes are compliant with FCRA, and employers will be indemnified for any liability resulting from their vendors' failures."

In Kauffman's experience, employers often start with a compliant process, "but, over time, forget the reasons why forms were drafted a certain way or why processes were set up."

Companies may subsequently start making decisions based solely on administrative burden, such as combining forms and adding further language, he says, noting that the aforementioned cases are "a wake-up call for employers to go back to the basics of FCRA compliance."

Once that happens, says Kauffman, "plaintiff's attorneys will have less ammunition to fuel their claims."

In the meantime, however, expect to see the number of FCRA class-action cases to continue at a steady clip "until employers go back and review FCRA requirements and make sure they are in compliance."

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