Pizza Hut Joins the FCRA Class-Action Club

By Angela Preston Jan 29, 2015

As we kick off a new year, one trend continues to gather steam. The flood of Fair Credit Reporting Act (FCRA) class-action lawsuits shows no signs of slowing down.

Here’s the roundup:

Rivera v. Pizza Hut of America: Pizza Hut is the latest restaurant in the hot seat. The pizza chain is facing an FCRA lawsuit filed last week in the Southern District of New York. A class action complaint was filed on Jan. 15, 2015, alleging that the company violated the portion of the FCRA that requires a “clear and conspicuous disclosure” about the background check that is made in writing “in a document that consists solely of the disclosure.”

Rivera, a job applicant at a Bronx location, claims that Pizza Hut inserted a release of liability into the disclosure form, which is not allowed. In addition to the black letter of the law, the plaintiff also cites the Federal Trade Commission—specifically an opinion letter (the “Haynes” letter of June 12, 1998) which states that the inclusion of a liability waiver violates the sole document requirement.

The complaint also alleges a number of other problems, namely that the form is found at the bottom of the job application, it contains an authorization, it requires a certification as to policies and manuals, and has a statement of employment at-will. It makes no mention of consumer reports. The disclosure appears to be wedged into a one-inch text block at the bottom of a Document titled “Employment Application” in 8 point type.

The suit is seeking statutory damages of $100-$1,000 per violation, reasonable costs, attorney’s fees, an injunction, and a declaration that the defendant’s conduct is unlawful. It is targeting Pizza Hut’s 6,000 restaurants in the United States and identifies the class as all people who applied for employment with Pizza Hut on or after Jan. 13, 2013.

Graham v. Michaels Stores Inc.: The complaint alleges that the craft store chain violated both the New Jersey Fair Credit Reporting Act (NJFCRA) and the FCRA. According to Graham, the company violated the requirement of providing a stand-alone disclosure. According to the complaint, the disclosure was part of the application form, included a space to list prior employers, and contained ten different state notices. The two classes identified in the pleading include all those who applied to Michaels through the online job portal in the two years prior to the suit, and all New Jersey applicants who applied in a six-year window prior to the suit.

Peikoff v. Paramount Pictures Corporation: Peikoff alleges that Paramount violated the FCRA provision requiring a disclosure in a document that “consists solely of the disclosure.” The complaint alleges that the disclosure form included a release from liability: “Further, I release all parties and persons from all liability from any damages that may result from furnishing such information to Paramount as well as from any use or disclosure of such information by Paramount of any of its agents, employees or representatives.”

Doe v. Express Services, Inc.; Express Employment Prof.; and Palisade Services, Inc.: While not a class action, this case fits the mold and illustrates how staffing companies can be targeted as well as traditional employers. According to the complaint, Express is the fourth-largest employment staffing company in the United States. The plaintiff was recruited by Express for a job, and in the hiring process was given a “Disclosure Authorization” that did not disclose the name, address, and telephone number for the employee screening company, nor did it have a box for Doe to check to indicate that he would like to receive a copy of any consumer report that would be prepared. The plaintiff alleges violations of the FCRA and California’s Investigative Consumer Reporting Agencies Act. The complaint also alleges that the defendant did not provide Doe with a copy of his report until after taking adverse action, and that it never provided a Summary of Rights.

Blueprint of an FCRA Claim

By now it’s a familiar story. The FCRA has specific requirements for employers—requirements meant to protect job candidates—prior to running employment background checks. These are not new requirements. In fact, I’m sure these requirements are familiar to most readers. Most frequently at issue are the following requirements for authorizations and disclosures (consent forms), and adverse action requirements:

  • Failure to meet the “stand alone” or “sole” disclosure requirements of the FCRA.
  • Including a release of liability with the disclosure.
  • Burying the disclosure in application-type questions and state disclosures.
  • Failure to provide proper pre-adverse action and/or adverse action notices.
  • Failure to include a copy of the report or a Summary of Rights with the pre-adverse notice.

These suits are calling out technical breaches of these requirements. It’s kind of like the pop up license agreements that everyone clicks through. If I had to guess, most conscientious employers probably think they are compliant with the law. But the potential for a lawsuit is buried in the details. The plaintiff’s bar is seizing the opportunity to seek statutory damages between $100 and $1,000 for each FCRA violation.

Here are a few of the astronomical settlements that employers have shelled out for similar cases:

  • K-Mart: $3 million.
  • Domino’s Pizza: $2.5 million.
  • Swift Transportation Corporation: $4.4 million.
  • Dollar General: $4 million.
  • Publix Stores: $6.8 million.

Tips to Avoid Joining the Club

Review your consent forms. The FCRA requires both a “disclosure” form and an “authorization” form, signed by the applicant. Many of these cases revolve around outdated or incorrect forms. Electronic and paper forms are both OK, but electronic forms should be reviewed just as carefully as paper.

Confirm that the authorization and disclosure forms are signed prior to ordering the background check. Provide a mechanism for the applicant to date the form.

Consult with legal counsel or a background screening expert on what language can be included with the disclosure form. The “disclosure” must be clearly marked as a stand-alone document. The common practice of combining the authorization for the background check with the disclosure is now under scrutiny.

Don’t include extraneous information, like a disclaimer, release of liability, or acknowledgments with the disclosure form.

Consider putting state requirements on a separate document, so as not to be confused with the FCRA disclosure.

Bring together the different stakeholders within your organization to make sure you are getting the background screening process right. The HR department, recruiting, procurement, legal counsel and information technology departments may all have a stake in this process.

Review your adverse action process. If you disqualify a candidate based on the background check, make sure you are sending a pre-adverse action notice before a decision is made.

Make sure you wait five business days (minimum) before sending the final adverse action notice.

Don’t forget to include a copy of the background check and a Summary of Rights with the pre-adverse action notice.

Angela Preston is vice president of compliance and general counsel at EmployeeScreenIQ, a global provider of employment background screening.

Copyright 2015 © EmployeeScreenIQ. All rights reserved.​​


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