Employers who run background checks on prospective employees take note – applicants who sue prospective employers for Fair Credit Reporting Act violations for failure to provide notice in a stand-alone format may not be able to maintain a lawsuit unless they can show that they suffered an actual injury. As employers should know, the Fair Credit Reporting Act has specific procedures employers must follow when running background checks, including providing notice to applicants in a stand-alone format and getting written permission before running the background check. Employers who don’t comply may find themselves facing expensive and time-consuming class action lawsuits for statutory damages of up to $1,000 per violation.
In 2016, the Supreme Court in Spokeo, Inc. v. Robins issued an important decision involving a different provision of the Fair Credit Reporting Act, deciding that plaintiffs must show that they suffered a “concrete injury” in addition to the statutory violation. Since that time, defendants have argued with mixed success that standing requirements articulated by Spokeo should apply to a variety of statutes, including other provisions of the Fair Credit Reporting Act. Several courts have considered whether to apply Spokeo in the stand-alone notice context of the Fair Credit Reporting Act. The Seventh Circuit, which includes Illinois, Indiana and Wisconsin, has applied Spokeo in that context, but the Ninth Circuit, which includes Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon and Washington did not apply Spokeo and instead found standing existed. Lower courts within a federal circuit must usually follow what the higher court does, but because the latter decision was limited to situations where the plaintiffs claimed confusion by the failure to provide a stand-alone notice, subsequent cases where confusion is not claimed are not necessarily bound by it. A recent California district court decision confirms that California judges see it the same way.
The California class action lawsuit alleged that Home Depot violated the Fair Credit Reporting Act by including unlawful waivers in the background check consent forms. Plaintiffs alleged that the notice and waivers were not in a stand-alone format, and instead contained extraneous information in violation of the Act. According to the Plaintiffs, because the forms contained additional information, the waiver and the background checks were invalid and violated the Act. The Plaintiffs did not allege that they had suffered any actual injury though. Home Depot moved to dismiss citing Spokeo and argued that the complaints just alleged bare statutory violations, without claiming the plaintiffs suffered any actual injuries. The court agreed, finding that alleging a violation of the Act was not enough, plaintiffs also had to show a concrete injury. The court’s short opinion did not address the Ninth Circuit case that found standing existed, but did note that the plaintiff “failed to plead even general allegations of injury,” which could arguably include confusion.
Lack of standing is, by no means, a new defense, but after Spokeo, federal courts seem to have a heightened sensitivity to standing issues. If the plaintiffs can’t show that they suffered any harm, employers can breathe easier even if they may have made a mistake. Each case and each complaint varies, but employers facing such lawsuits should carefully consider whether the plaintiffs have actually shown that they suffered any concrete injury and raise standing arguments where appropriate.