by Rebecca E. Kuehn

Responsible employers screen applicants and employees to protect the safety and welfare of their workforce and the community and to comply with state and federal law. Working with background screening companies, employers are able to identify and address possible risks. But this responsible practice may lay the groundwork for a class action lawsuit if an employer does not mind the details.

Background checks are covered by the Fair Credit Reporting Act (FCRA). Under the FCRA, an employer seeking to obtain a background check on an applicant or employee must follow certain requirements that are unique to employment: written disclosure; written consent; and, where applicable, pre-adverse action notices. Because these requirements may apply to each screening, any failure in compliance is an attractive target for class action attorneys because the violations may be numerous and similar. The best illustration of this risk is in the recent spate of class action cases concerning the written disclosure requirement.

The FCRA requires that, before an employer can obtain a report, it must provide the consumer with a “clear and conspicuous disclosure…in writing” that a consumer report may be obtained for employment purposes. The disclosure must be provided to the consumer “in a document that consists solely of the disclosure.” This last provision is the one that trips many employers up – usually because they are trying to combine other relevant notices and helpful information with the required disclosure. One word of advice: Don’t.

Multiple class actions have been filed around the country against employers for including additional provisions in their written disclosures. Some examples include:

Waivers of claims/releases from liability

State law disclosures and waivers

Explanation of employer’s screening policies

Privacy policy

At-will language and hours of work

A number of cases are still in litigation, but several have settled for sums ranging from $1.75 million dollars to $13 million dollars. This is because the exposure can be very high: the FCRA permits statutory damages ranging from $100-$1000 per violation (plus attorney’s fees), and current case law has permitted these cases to proceed even in the absence of any actual damages.[1] Unlike other consumer protection statutes, the FCRA does not contain a cap on class action damages.

The lesson for employers is to review the forms that you are using, including any sample forms provided by your screening provider. Make sure that the disclosure forms do not contain any “extras.” Note: the FCRA specifically allows an employer to include the written authorization with the written disclosure, and employers may prefer to collect the consumer’s signature on a combined disclosure/authorization document as proof that the applicant was provided with the written disclosure.   Just be careful that the addition of the authorization does not come with any unwanted baggage.

Rebecca E. Kuehn (rkuehn@hudco.com) is a partner in Hudson Cook, LLP’s Washington, D.C. office.   Ms.Kuehn’s practice is concentrated on regulatory issues surrounding the collection, sharing, and use of consumer data, and she counsels financial institutions, consumer reporting agencies, service providers, and others in complying with federal and state laws, including the Fair Credit Reporting Act, the Gramm Leach Bliley Act, and other privacy laws and regulations. She represents clients before federal and state agencies, particularly the Federal Trade Commission and Consumer Financial Protection Bureau, in investigations and other proceedings, and has served as an expert witness in cases involving the Fair Credit Reporting Act.

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[1] The question of whether a plaintiff has standing to bring a claim for statutory damages in the absence of any injury in fact is currently pending before the United States Supreme Court.

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