The Big Three … of FCRA Litigation!

Mary Poquette; Poquette Screening Solutions LLC

Posted: October 29, 2019

We have the Big Three in tech (Apple, Facebook, Google) … the Big Three in automotive (Ford, General Motors, Chrysler) … even Big Three basketball (B3), but the Big Three in Fair Credit Reporting Act litigation?

More than any other reason, employers are sued under the Federal Fair Credit Reporting Act (FCRA) because of their alleged failure to meet requirements in three specific areas: 1) disclosure, 2) authorization, and 3) adverse action. This litigation has been around for well over a decade, but employers continue to fall victim to legal challenges.

In June 2019, Good Jobs First published results of a research study in which they identified 146 significant FCRA-based cases (available here) between 2011 and 2018. An analysis of those cases revealed employers paid $174 million to settle class action claims and background screening companies paid $152 million.

“A new compilation of court records finds that over the past decade employers have paid out $174 million to resolve class-action lawsuits alleging that they violated federal rules governing the use of background-check reports on job applicants.”
Good Jobs First; June 19, 2019

Class action cases are, of course, the preferred form of FCRA litigation. With the FCRA allowing between $100 and $1,000 per violation, a class of hundreds or thousands of prospective employees or employees who all experienced the same allegedly illegal treatment by the employer rolls up to big dollars – much more so than a single plaintiff claim.  

Typically FCRA cases do not go to trial, but instead reach an out-of-court settlement. Reasons vary by employer, but two factors frequently cited by employers and their legal counsel is the cost of protracted litigation and the unknown variable represented by a jury.

So back to the Big Three in FCRA litigation – disclosure, authorization, and adverse action. Specifically what are the requirements that so often cause employers to trip up?

1. Disclosure FCRA § 604(b)(2)(A)(i)

“Disclosure” refers to a written document viewed by or given to the candidate before the employer obtains a background check from their screening partner. This disclosure informs the candidate s/he may be the subject of a background check.

The FCRA requires the disclosure be “clear and conspicuous” and “in a document consisting solely of the disclosure (emphasis added).”  Employers have allegedly violated this “solely” requirement by including a variety of extraneous language – everything from liability waivers to at-will employment clauses to company benefits.  The Federal Trade Commission offered this guidance:  

Some companies trip themselves up by using complicated legal jargon or adding extra acknowledgements or waivers. Here are some examples of the kind of things that shouldn’t be in this simple document:

  • Don’t include language that claims to release you from liability for conducting, obtaining, or using the background screening report.
  • Don’t include a certification by the prospective employee that all information in his or her job application is accurate.
  • Delete any wording that purports to require the prospective employee to acknowledge that your hiring decisions are based on legitimate non-discriminatory reasons.

The FTC summed up disclosure content by writing, “You can do it in a few sentences. Just include a simple, easy-to-understand notification that you will obtain a background screening report, perhaps with a simple explanation of what information will be included in the report.”

2. Authorization FCRA § 604(b)(2)(A)(ii)

Employers must obtain a written authorization from the candidate before the background check is obtained. The FCRA does not provide specific language, but includes: “…the consumer has authorized in writing(which authorization may be made on the document referred to in clause (i)) the procurement of the report by that person.”

In addition to the requirement to obtain authorization, the FCRA allows the authorization be combined with the disclosure. Although this practice was common 10 years ago, current practice is to separate the documents. This makes it easier to meet the “solely” requirement of the disclosure. Further it prevents a situation where questionable language in the authorization becomes a problem in the disclosure because the documents have been combined.

Neither the FCRA nor the FTC delve into content details for the authorization. However, the FTC offered, “The request for the prospective employee’s authorization should be in plain language, too.”

Employers may give candidates several documents, whether hard copy or on screen, which may include an employment application, disclosure, authorization, job description, and other company information. A caution in doing so … do not number the pages consecutively as it may be alleged the disclosure was not a separate document consisting “solely” of the disclosure. In fact, it may be helpful to include “Page 1 of 1” on the disclosure.

3. Adverse Action FCRA § 604(b)(3)(A)

Unlike disclosure and authorization which must occur before a background report is obtained by an employer, adverse action (if applicable) occurs after a background report has been prepared by a screening company and reviewed by the employer.

“Adverse action” refers to the FCRA-defined process an employer must follow if considering not hiring a candidate based, in whole or part, on information in a background report. (It also applies to other adverse employment actions such as not promoting, demoting, or terminating an employee.) Importantly, adverse action has multiple parts:

Part 1:  Pre-Adverse Action
If considering not hiring a candidate based, in whole or part, on information in a background report, the employer must: 1) provide a copy of the background report to the candidate, 2) provide the Federal Summary of Rights and applicable state notices, if any, and 3) inform the candidate an adverse employment decision is possible, of the candidate’s right to dispute, how to dispute, and the number of days during which a dispute may be initiated. (Note,however, that some ban the box laws add content requirements.)

Part 2:  Wait
The employer must wait the number of days specified in the pre-adverse notice for the candidate to initiate a dispute. Although the FCRA does not specify the number of days, the FTC suggested five days as being reasonable. (Note, however, that some ban the box laws include a specific number of days, sometimes longer than the suggested five days.)

Sometimes the candidate will initiate a dispute. The screening company will re-investigate, the background report will be changed, and the employer proceeds with the hire. In this situation, no actual adverse action is being taken, so additional notices are required.

Part 3:  Adverse Action
Sometimes, however, the candidate does not dispute, the dispute may not change the content of the background report, or the candidate simply does not respond to the pre-adverse notice. If the employer decides to take the adverse employment action, a second notice – the actual adverse action notice – must be provided to the candidate.

The FCRA requires specific points of information be included in the adverse action notice. The FTC has also made suggestions regarding content of the adverse action notice. (Note, however, that some ban the box laws add content requirements.)

Complaints against employers allege failure to provide a pre-adverse notice, a copy of the report, and/or summary of rights; failure to wait and allow the candidate an opportunity to dispute; and failure to provide the final adverse action notice.

Finally … employers are responsible for complying with disclosure, authorization, and adverse action requirements under the FCRA. Background screening companies often assist their clients in meeting these requirements, but bottom line it is an employer responsibility.

There are, of course, other requirements under the FCRA when obtaining background reports for employment purposes. Thus far, they have not presented the same level of litigation challenge for employers. Other laws (such as state FCRA analogues, ban the box, and salary inquiry) impose additional requirements. Employers are well advised to seek expert guidance and legal counsel.

While it is important to note that while we cannot provide legal advice, Info Cubic can help you stay compliant with these big three FCRA requirements in many ways. Info Cubic offers sample Disclosure, Authorization and Adverse Action forms that can be used, with the help of your legal counsel, to assist in creating your own FCRA-compliant forms. Additionally, our Clients can use the Cube to provide disclosure and obtain electronically signed authorization forms from applicants, helping to ensure compliance with the FCRA’s requirement to provide a clear and conspicuous disclosure to candidates and obtain a written authorization prior to procuring a background report. Info Cubic also provides Adverse Action services to help our Clients comply with the FCRA’s Adverse Action Requirements, making your adverse action process efficient and hassle-free. Reach out to our knowledgeable Client Service Ninjas today to obtain more information on how Info Cubic can be your partner in Compliance!

The author: Mary Poquette has almost 25 years’ experience in employment screening. Prior to establishing her consultancy in 2014, she was Chief Compliance and Security Officer for a U.S. based global screening company. Mary is a recognized industry expert specializing in compliance and process development. She holds Advanced FCRA Certification from the Professional Background Screening Association (formerly the National Association of Professional Background Screeners) and is a Certified Information Privacy Professional.