A recent settlement of a class action lawsuit alleging violations of the Fair Credit Reporting Act (FCRA) reinforces why employers should ensure all aspects of their hiring practices are compliant with the FCRA, as well as other applicable federal, state, and local employment laws. Hall v. Vitran Express, Inc. (N.D. Ohio). The lead plaintiff in the case claimed the prospective employer's failure to seek or receive appropriate approval from job applicants before obtaining criminal background reports and its failure to provide pre-adverse action notice to job applicants, including a copy of the applicant's criminal background report and a statement of the applicant's rights, constituted “willful, wanton and reckless” violation of the FCRA. The court certified a nation-wide class that included all applicants about whom the prospective employer obtained criminal background reports or other consumer credit reports without giving the written notice or obtaining the authorization required by the FCRA. The company settled the case for $2.6 million.

The FCRA requires that an employer provide written notification to an applicant that a consumer credit report may be obtained and used in conjunction with one's application for employment and to obtain the applicant's written authorization before requesting a consumer report.

Before relying on a consumer report to deny a job application, the employer must give the applicant a pre-adverse action disclosure that includes copies of the individual's consumer report and of A Summary Of Your Rights Under The Fair Credit Reporting Act as prescribed by the Federal Trade Commission. After the employer has denied employment to the applicant based on the report, the employer must give the applicant an adverse action notice that includes certain information. An employer that willfully fails to obtain an applicant's permission before requesting a consumer report or that fails to provide requisite pre-adverse or an adverse action notice is liable to the applicant for (1) actual damages or damages of not less than $100 and not more than $1,000, (2) court costs and reasonable attorney fees if the action is successful, and (3) punitive damages “as the court may allow.”

It is apparent that plaintiff lawyers view class action litigation for violation of the FCRA as a lucrative source of fees. Several other class action lawsuits involving claims for violation of the FCRA are pending against employers around the country. In March, another company agreed to pay $5.9 million to settle two similar class actions premised on alleged FCRA violations brought against the company and its subsidiaries in Illinois.

Hence, employers should audit their hiring practices to ensure they not only comply with the FCRA but all other applicable state and local laws pertaining to use of criminal background and consumer credit reports when assessing an applicant's qualifications for employment. An increasing number of states and municipalities have enacted or are considering enacting laws or ordinances that impact whether an employer may permissibly use an applicant's criminal record or credit history to disqualify the applicant from employment or when during the hiring process it is permissible to inquire about these matters. Congress also is considering legislation that will amend the FCRA to limit employer use of consumer credit reports.

Notwithstanding, an employer that permissibly obtains and uses criminal background and consumer credit reports about applicants when determining their qualifications for employment should ensure consistency in its hiring decisions to avoid an inference of discrimination against racial or ethnic groups. It also should be prepared, if necessary, to demonstrate that any decision disqualifying an applicant from employment based on adverse criminal background or credit history is justified based on job-related requirements since the Equal Employment Opportunity Commission and plaintiff lawyers are increasingly scrutinizing and legally challenging such decisions depending on the circumstances.