The FCRA is not a classic employment law, but regulates the procurement and use of background checks by employers. Before procuring a background check from a consumer reporting agency (CRA), the employer must disclose its intention to do so and obtain the individual’s authorization (known as the “stand-alone disclosure requirement”). And, before taking any adverse action against the individual based, in whole or in part, on the background check, the employer must provide the individual with a copy of the background check and the statutory summary of FCRA rights (known as the “pre-adverse action” notice). The plaintiffs’ bar has been flooding the courts with class action lawsuits asserting technical violations of these requirements.1 Some of these lawsuits have settled on a class-wide basis. However, employers have notched some significant victories in recent cases.
Lewis v. Southwest Airlines
In Lewis, the plaintiff asserted classwide and “willful” violations of the FCRA’s disclosure requirement and corresponding violations of California’s fair credit reporting act. The plaintiff did not accuse Southwest of ignoring the FCRA outright, but rather of impermissibly presenting the statutory disclosure to him along with other supposedly “extraneous” information. Southwest successfully moved to transfer the case from California to Texas, persuaded the court to trim the plaintiff’s California claims by filing a motion to dismiss, and then convinced the court to dismiss the suit by filing a motion for summary judgment. Relying on the U.S. Supreme Court’s opinion in Safeco Insurance Company of America v. Burr, the court agreed that Southwest’s precise disclosure obligation was too uncertain to support a willful violation when the plaintiff applied for a job in January 2015. The court reasoned that the district courts that have considered whether extraneous information in an FCRA disclosure constitutes a willful violation have provided inconsistent and even conflicting answers.2
Branch v. GEICO
In Branch, GEICO did not defeat a pre-adverse action claim on summary judgment, but did beat the plaintiff’s motion to certify a class action. The plaintiff alleged that GEICO took an adverse action when it assigned the plaintiff’s background check a preliminary grade of “Fail”—based on GEICO’s “Adjudication Process.” Because this grading occurred before the plaintiff was provided her report and the statutory summary of rights, she alleged a FCRA violation. GEICO moved for summary judgment—relying on substantial evidence that its preliminary grading is not a “final” decision and citing to prior cases holding that the grading (or scoring) of a background check, without more, does not constitute an adverse action. The court acknowledged the “legitimacy” of GEICO’s pre-adverse action notice processes, and commented that they exemplify “the very manner in which dispute processes are supposed to operate under the FCRA.” The court also agreed that the grading of a background check, alone, does not constitute an adverse action. However, the court denied summary judgment because a GEICO employee allegedly told the plaintiff, on the day of the grading, that the plaintiff’s job offer had been rescinded. If GEICO’s employee deviated from its normal process by denying the plaintiff an opportunity to dispute the background results, a jury could find the plaintiff’s “Fail” grade was an adverse action. At the same time, the court denied class certification because no common proof existed as to whether calls made to any other class members deprived them of an opportunity to respond to the pre-adverse action notice before adverse action was taken. Relying on the U.S. Supreme Court’s opinion in Spokeo v. Robins, the court also refused to certify a class that included class members both with and without Article III standing.3
Culberson v. Walt Disney
Culberson involved allegations similar to those in Branch. Disney “coded” the plaintiffs’ background checks as “no hire” based on certain criminal convictions. The plaintiffs alleged that this pre-notice “coding” constituted an adverse action and a “willful” violation of the FCRA. Disney moved for summary judgment following an order certifying the case as a class action.4 Similar to GEICO, Disney argued that its “coding” was not an adverse action itself, but rather only an “internal decision” to potentially take an adverse action in the future. Disney further argued that its alleged conduct (i.e., “coding” prior to sending applicants their reports) was not based on an “objectively unreasonable” FCRA interpretation, and thus the plaintiffs could not prove any willful violation. The court agreed. Relying on the opinion in Lewis v. Southwest, the court held that Disney did not act “objectively unreasonable” even if its FCRA practices were similar to those in recent cases in which courts found non-compliance. As the Culberson court explained, the plaintiffs cannot demonstrate a willful violation by relying on authorities that “were decided years after Plaintiffs applied for employment at Disneyland.”
The law in this area is dynamic, and employers should continue to monitor case law and regulatory developments. To mitigate risk, employers should also arrange for a privileged review of their disclosure documents and pre-adverse action notices and procedure. In addition, employers should continue to be mindful of their obligations under expanding state and local ban-the-box laws, which intersect with the FCRA’s required processes.5