Details matter. The Titanic sank because its center propeller didn’t work in reverse. A Japanese company lost between $225 and $350 million because a typing error caused it to offer thousands of shares for 1 yen apiece instead of single shares for thousands of yen apiece.

For employment, the most dangerous illustration of this “minor mistakes, major consequences” syndrome is the Fair Credit Reporting Act (“FCRA”). Recent FCRA settlements make this point perfectly clear:

  • A major transportation company settled an FCRA class action case for $7.5 million.
  • A major bank settled an FCRA class action case for $12 million.
  • A major home improvement store settled an FCRA class action case for $2.2 million.

Let’s review the FCRA details. This federal law regulates the use of consumer reports, which includes the typical background check that employers often use for job applicants. The law sets specific, detailed, and unforgiving standards for each step of the process:

  • Prior to obtaining a report, the employer must advise in a stand-alone written disclosure that a consumer report may be obtained for employment purposes; get written authorization from the individual; and certify to the consumer reporting agency that it will comply with various legal requirements.
  • Prior to taking an adverse action based on the report, the employer must provide the individual a copy of the report and a description in writing of the individual’s rights under the FCRA. This is typically done in a pre-adverse action letter.
  • Next the employer must wait 5 business days before taking any adverse action. While not explicitly required in the text of the FCRA, a federal advisory opinion and related case law support this 5-day waiting period. See, e.g., Kelchner v. Sycamore Manor Health Ctr., 305 F.Supp.2d 429 (M.D. Pa. 2004) (acknowledging in dicta that a reasonable period for the employee to respond to disputed information is not required to exceed five business days following the consumer’s receipt of the consumer report from the employer).
  • After taking an adverse action based on the report, the employer must: 1) give post-adverse action notice to the individual of the adverse action; 2) provide the name, address, and telephone number of the consumer reporting agency as well as a statement that the agency did not make the decision to take the adverse action and cannot provide reasons for the adverse action; and 3) provide notice of the individual’s right to dispute the accuracy or completeness of the agency’s report and to obtain a free copy of the consumer report within 60 days. This is typically done in a post-adverse action letter.

These requirements are technical details that—like the Titanic’s propeller specifications—have significant consequences if not met. The FCRA creates mandatory damages of $100 to $1000 for violations with respect to each individual, which have enticed class action attorneys to bird-dog employers’ compliance with the law.

Common employer mistakes—many of which led to the multi-million dollar settlements—include providing extraneous information in the stand-alone disclosure document, failing to provide a copy of the consumer report, failing to wait the full 5 business days before denying employment, and failing to provide the necessary pre- or post-adverse action letters. Oops!

Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016) suggested respite in upholding dismissal of the case due to the lack of any concrete harm and noted that bare violations of the law’s “procedural requirements may result in no harm,” and thus no standing to bring suit. But, that is hardly immunity.

Post-Spokeo, the common employer mistakes itemized above have been sufficient to bring suit. Thomas v. FTS USA, LLC, 193 F.Supp.3d 623 (E.D. Va. 2016) (failure to provide disclosure, written consent, and notice of adverse action before applicant received a copy of the report constitutes injury in fact); Rodriguez v. El Toro Med. Investors LP, 2016 WL 6804394 (C.D. Cal. Nov. 15, 2016) (inclusion of liability release in disclosure was an injury in fact).

Employers who utilize background checks (and wish to avoid shipwreck or other FCRA disasters) should remember that checking the small things is essential. Your checklist for success should begin with this one-two:

  1. Make sure the stand-alone disclosure stands alone. The FCRA requires a clear and conspicuous disclosure, in a document that “consists solely of the disclosure” that states a consumer report may be obtained for employment purposes. Feist v. Petco Animal Supplies Inc., 218 F. Supp. 3d 1112 (S.D. Cal. 2016) (disclosure with 35 extra paragraphs created injury in fact because applicant could be “confused or distracted by the length of the consent form”). The best practice here is to limit any extraneous information in the disclosure and to not include any waiver of claims, FCRA or otherwise. Put simply, the disclosure must stand alone.
  2. If you’re going to take an adverse action, double-check. If you’re going to turn down an applicant or fire a current employee based on a background check, make sure to follow the necessary steps, most notably: A) get proper disclosure and authorization; B) send a pre-adverse action letter including a copy of the report and a description of the individual’s rights; C) wait at least 5 business days before taking an adverse action; and D) send a post-adverse action letter with the necessary information.

Given this, there is also a need to ask when, where, and how employers should utilize background checks. There is no science to link credit history to greater employee integrity. Further, using criminal history to screen potential candidates invites EEOC scrutiny. Worrying about FCRA details is important but only after worrying about why using consumer reports is important.