If You Use Applicant Background Checks, the FCRA Is Lurking
Employers are accustomed to dealing with hurdles posed by federal and state laws and day-to-day employee situations. Some hurdles cannot be avoided. For example, a business may face a decision whether to terminate a problematic employee. Understanding that there may be some litigation risk if termination is pursued, the business must decide whether the benefit of removing the employee outweighs the risk of doing so. Those types of close calls are difficult to avoid and are sometimes just part of doing business.
On the other end of the spectrum, some hurdles can be avoided if a business makes minimal effort to ensure that its practices comply with the law. An example is the Fair Credit Reporting Act. Too many employers do not make even the minimal front end investment to avoid compliance issues with the FCRA. Failing to ensure technical FCRA compliance can lead to serious exposure to any business with employees.
The past several years has seen an increase in FCRA litigation. Some observers compare the increase to the prior rise in collective actions under the Fair Labor Standards Act. Like the FLSA, the FCRA poses a risk not of just liability to an individual employee, but to a large class of job applicants. The good news is that any employer can take inexpensive steps to ensure FCRA compliance and avoid exposure.
To understand this exposure, a basic understanding of the FCRA is useful. Despite the routine use of background checks in many industries, some employers continue to use application documents which are not current insofar as FCRA compliance. The FCRA primarily imposes two hurdles to employers. First, the FCRA imposes technical procedural requirements on how an employer must disclose to applicants that it will utilize a background check, and also to obtain the applicant’s authorization to do so. That document must consist solely of that disclosure and nothing else beyond a simple authorization. In other words, it cannot even be part of a job application form – it literally must be a stand-alone document. Second, the FCRA imposes obligations on an employer who takes an adverse action based upon a background check. Taking such an adverse action can be complicated and should be reviewed on a case-by-case basis to ensure FCRA compliance. However, the exposure from the FCRA’s disclosure and authorization requirement should be avoided by simply making sure that applicants use FCRA-compliant forms. Remember, FCRA liability can arise even if no adverse action is taken against the applicant. Just using a non-compliant form can itself be considered a violation leading to statutory damages. Despite the publicity given to large FCRA class actions throughout the United States, too many employers still fail to take that relatively inexpensive compliance step.
The exposure from failing to utilize FCRA-compliant forms is very real. Even a technical FCRA violation, i.e. utilizing the wrong disclosure form, can result in statutory damages of $100 - $1,000 per violation. Multiply that by the number of applicants over a multi-year period and you get a real sense of the type of exposure that employers face. For example, an employer who receives 1,000 job applications over a two-year period, but fails to utilize a proper disclosure document separate from the application, could potentially be liable for damages between $100,000 - $1,000,000. Industries which process many more applicants are even more at risk, and there is no statutory cap on those damages.
There is some good news. The U.S. Supreme Court ruled on May 16, 2016 in Robins v. Spokeo, Inc.
, that a purely technical FCRA violation without concrete harm is insufficient to support federal standing. Although Spokeo
has been lauded as favorable to business, the case has been remanded to the U.S. Ninth Circuit Court of Appeals for further consideration. In light of this being a presidential election year with uncertainty as to the future constitution of the Supreme Court, there is no way to know how the Spokeo
issue will be ultimately decided. What we do know is that employers, regardless of the Spokeo
outcome, can help avoid the most common FCRA exposure by taking the following steps:
Review their application process to confirm that an appropriate standalone FCRA disclosure form is being used.
Review their contracts with any credit reporting or background check agency to consider provisions as to which entity is responsible for FCRA compliance, how compliance is ensured, and whether the contract includes any indemnification language.
Review any insurance contracts, including employment practice liability (“EPL”) policies, to determine whether FCRA actions are covered.
Repeat Step No. 1.
In summary, employers who use background or credit checks face real exposure under the FCRA. Even seemingly minimal mistakes can trigger large FCRA liability. Fortunately, minimal effort can be all that is required to avoid that exposure.
For more information on FCRA liability or other employment law topics, contact Bill Barath
or a member of our Labor, Employment, and Immigration
This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.