FCRA Litigation on Track to Reach a New High

 

Roy Maurer By Roy Maurer December 3, 2019
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​The number of lawsuits brought under the Fair Credit Reporting Act (FCRA) will be the highest on record at the close of 2019—a reminder to employers that conduct background checks that they need to comply with the law to avoid expensive legal action.

FCRA litigation increased by 8.7 percent year-over-year, with 4,163 claims filed through October 2019, according to data-tracking firm WebRecon LLC.


The number of FCRA lawsuits has risen each year since 2011 and reached 4,531 for the whole of 2018. The number of claims has more than doubled since 2009, and they have mostly been brought against screening firms for reporting inaccurate information or employers for failing to satisfy consent and adverse action requirements. Because individual departments in large companies use standardized documents and screening processes—and thus repeat the same violations—many FCRA claims have been filed as class actions, resulting in multimillion-dollar settlements, often for procedural or technical violations.

"FCRA cases are getting more publicity, and increased publicity is, in turn, generating more filings," said Matthew Simpson, a partner in the Atlanta office of Fisher Phillips. "Simultaneously, the spike in FCRA litigation can be attributed to the heightened consumer expectation of privacy," he said. "As we see more concerns about maintaining privacy of personal data and more sensitivity to the disclosure and authorization of that data, we see more people looking at the FCRA as a potential cause of action."

Additionally, the structure of the FCRA is attractive to the plaintiffs' bar, since remedies include defendants' paying actual damages, punitive damages, lawsuit costs and attorney fees. "It's so easy for plaintiffs' lawyers to quickly enter into settlements with employers because of the availability of statutory damages, especially in the class-action context," said Elizabeth McLean, general counsel for background-screening provider GoodHire, based in Redwood City, Calif. "In order to prevent operational disruption and the potential for very high penalties, many employers decide to settle out of the gate. Even lawyers outside of the FCRA space—personal injury firms, for example—are starting to realize how easy it is and starting to jump on the bandwagon."

The marked increase in the number of employment background checks conducted over the last decade has also likely given rise to more claims.

Areas to Focus On

Two employer actions present the greatest risk of falling into noncompliance: when preparing the stand-alone disclosure and authorization form before performing the background check, and when providing notice to the applicant or employee before taking adverse action, such as disqualifying an applicant or firing an employee.

[SHRM members-only toolkit: Conducting Background Investigations and Reference Checks]

"The majority of litigation in the employment context arises around the form used to obtain authorization to conduct a background check," Simpson said. "The FCRA requires that employers make a stand-alone disclosure to applicants or employees that a criminal-background check will be performed, and courts have very narrowly interpreted that stand-alone disclosure requirement to find violations in instances where other information or material is included with the disclosure form."

Courts continue to find violations where federal FCRA disclosure forms include state law disclosures, releases of liability or other extraneous documents, Simpson said.

Employers must also be sure to follow adverse action requirements, McLean said. If a background check leads to a decision against hiring or retaining a candidate, the employer must give the affected individual notice of that action, along with a copy of the report, as well as a summary of rights. She said the employer must then wait a "reasonable period of time," usually five business days, before sending a final adverse action notice, to give the applicant or employee a chance to refute or explain any findings.

"Some employers just aren't doing this," McLean said.

She added that employers also need to be aware of new "ban-the-box" laws taking effect around the country, with provisions that sometimes differ from FCRA rules; enforcement of Title VII violations related to discrimination in screening procedures; salary-history bans; and litigation around drug screening.

"Stay educated," she said. "Make sure you have a compliance advocate, whether that's an in-house counsel, outside counsel or your screener. It can be hard to stay up-to-date on the current legal landscape, but employers must have access to correct and up-to-date information."

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