Executive Summary: There has been a recent uptick in class action litigation for technical violations of the Fair Credit Reporting Act when employers seek approval from applicants to obtain background checks from consumer reporting agencies. Employers who obtain consumer reports from such agencies must ensure their authorization and disclosure forms, even those provided by third-party vendors, are compliant with the Act.

Million-Dollar Settlements for Technical Violations

Many employers utilize some form of background or credit check during their hiring process.  Employers may not realize, however, that if they seek this information in the form of consumer reports or investigative consumer reports from a third-party consumer reporting agency ("CRA"), the federal Fair Credit Reporting Act ("FCRA") comes into play. Consumer reports include primarily objective information, such as basic identifying and biographical information, a summary of a person's credit standing, criminal records, and job and education verification, whereas investigative consumer reports contain primarily subjective information regarding a person's character, general reputation, and personal characteristics based upon personal interviews.  The FCRA sets forth specific requirements with which employers must comply when obtaining either of these reports.  The Act provides that willful violations can result in either actual damages or statutory damages, ranging from $100 to $1,000 per violation, which quickly adds up in class action litigation.  Additionally, there is the possibility that employers may be hit with punitive damages, as determined by the court, for willful violations.

Two recent cases illustrate the potential for million-dollar class action settlements for violations of the FCRA.  In Ellis v. Swift Transp. Co. of Ariz., LLC, a federal judge in Virginia approved a $5.053 million settlement for the claims of approximately 181,000 truck drivers for allegations of violations of the disclosure and authorization provisions of the FCRA. Case No. 3:130-cv-00473 (E.D. Va. 10/7/14).  Despite the staggering award, the settlement terms provided that each class member would be paid only $50, with additional incentive pay for class representatives, and $1.52 million going toward attorneys' fees, costs, and expenses. 

Likewise, in Adrian Singleton, et al. vs. Domino's Pizza, LLC,the parties agreed to settle allegations of FCRA violations with a $2.5 million total payout for approximately 42,000 class members.  Case No. 8:11-cv-01823 (D. Md. 7/1/11).  As inSwift, the plaintiffs alleged a violation of the disclosure and authorization provisions of the FCRA.  The action also involved allegations that Domino's did not provide class members with a copy of the consumer report and the required summary of consumers' rights under the FCRA prior to taking an adverse action regarding employment.

Much of the recent class action litigation has involved violations of the so-called "stand-alone" disclosure requirement in the FCRA.  This provision mandates that the disclosure to obtain a consumer or investigative report be in a separate document that consists solely of the disclosure.  The Act goes on to provide that the authorization may also be included in the disclosure document.  Employers must ensure that their disclosure and authorization forms do not include any extraneous information that could result in a violation of this provision.

Employers cannot rely on the disclosure and authorization forms provided to them by third-party vendors and must be aware that violations of the technical provisions of the FCRA have the potential to cause huge problems.  In addition to the federal FCRA, employers must also comply with state equivalents, many of which impose additional requirements.  

Bottom Line:

Employers who obtain background checks from consumer reporting agencies must ensure their forms comply with the federal Fair Credit Reporting Act and state equivalents.  The recent increase in FCRA litigation, the technical nature of the violations, and the potential for class action litigation with huge damages make this an extremely important issue for employers.  Employers that conduct background checks would be well-served to review their hiring forms to ensure they comply with the FCRA.