Court Decisions Don't Alleviate Employer Vigilance

Despite favorable rulings on Fair Credit Reporting Act claims, companies should still toe the line on background screenings

By Roy Maurer Oct 19, 2016
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Employers can't let their guard down about complying with background screening rules, despite recent court decisions. If courts are finding more often in favor of employers, experts say, then plaintiffs' attorneys will turn to regulatory agencies on behalf of their clients.

In recent decisions, a federal judge threw out a proposed class-action lawsuit against ride-hailing company Lyft, finding that the plaintiff could not demonstrate that he experienced actual harm as a result of technical employment screening violations. His ruling followed the Supreme Court's precedent, set in May. 

Magistrate Judge Joseph C. Spero of the U.S. District Court for the Northern District of California ruled Oct. 5 that the claimant, Michael Nokchan, lacked standing, or the right to sue the company for alleged privacy violations of the Fair Credit Reporting Act (FCRA).

Nokchan alleged that Lyft buried the disclosures required under the FCRA in employment application documents (which he signed) and failed to inform him that he had a right to request a summary of his rights under the FCRA, two technical violations of the law.

Nokchan also alleged a violation of California's Investigative Consumer Reporting Agencies Act based on failure to provide clear and unambiguous disclosure, and a violation of the state's Consumer Credit Reporting Agencies Act based on the allegation that Lyft didn't provide certain information in the authorization report.

Spokeo Precedent Felt

The court ruled that Nokchan wasn't able to show that his injury was concrete and real, a requirement in Spokeo v. Robins, a U.S. Supreme Court decision from May.

The Supreme Court ruled in Spokeo that, in effect, Thomas Robins did not have standing to sue Spokeo, an online assembler of people information, because he could not demonstrate that he suffered a real injury as a result of inaccurate information about him having been published on the Internet.

The court technically did not reject Robins' suit on the merits, issuing a "no decision" ruling, and sending it back to the 9th Circuit appellate court, leaving the future of this type of litigation uncertain.

During oral arguments in the Lyft case, Nokchan had argued that Lyft invaded his privacy, a violation traditionally viewed as an injury. "It is true that under common law a consent to disclosure obtained by fraud or deceit may result in an invasion of privacy," Spero said. "But no such conduct is alleged here."
The court found that Nokchan was not confused about his rights.

"Nor does he allege that he was harmed by the background check in any way," Spero said.
In fact, Nokchan was hired by Lyft and still works as a driver for the company.

"The court absolutely got it right, especially in its evaluation that the facts did not support an informational injury," said Pamela Devata, a partner in the Chicago office of law firm Seyfarth Shaw. "I see the Spokeo trend continuing and shaking out for at least the next year. At some point there will be either a circuit split resulting in another petition to the Supreme Court or enough of a critical mass that claims will subside, especially those related to disclosure claims where the applicant received a job."

Either way, the final decision in the Spokeo case will have a tremendous impact on employers. If it is upheld, employers may be free from class-action litigation from current or former workers who claim technical violations of the law, and if it's not, they can expect an onslaught of such class-action claims being filed.

Employers Can't Relax on Compliance

The Spokeo decision "in no way means that employers can relax when it comes to FCRA compliance," said Les Rosen, an attorney and the CEO of Employment Screening Resources, a background screening firm based in the San Francisco area. "It doesn't mean that employers have a carte blanche right to ignore the technicalities of the FCRA. Employers certainly still need to ensure that they are in compliance with their obligations and they are working with background firms that understand the FCRA inside and out."

Rosen explained that if the Lyft decision and others like it are indicative of a barrier to being able to sue unless there are actual damages to plaintiffs, a couple of things might happen.

First, plaintiffs' attorneys will focus on those cases that contain actual harm, such as employers running employment screens without consent or background check firms delivering reports with erroneous information.

Second, if the courts are no longer seen as a way to regulate procedural requirements of the FCRA, the regulatory agencies—the Federal Trade Commission and the Consumer Financial Protection Bureau—will fill the vacuum.   

"Don't be lulled into a false sense of security," Rosen said. "Employers must still be vigilant with compliance."

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