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Workplace background check violations and privacy concerns prompting a change in the law

Whole Foods, Home Depot and Wells Fargo are just a few of the dozens of big-name companies that have been hammered in the past year by employment class action lawsuits.

A Whole Foods Market store in New York's Union Square. (AP Photo/Julie Jacobson, File)

The Fair Credit Reporting Act has been getting a lot of attention recently. For starters, companies seem increasingly unable to adhere to it.

Whole Foods, Home Depot and Wells Fargo are just a few of the big-name companies that have been hammered in the past year by employment class action lawsuits alleging they’ve failed to comply with the technical requirements of the FCRA when running background checks and credit reports on potential and current employees.

Common violations include failure to obtain written consent prior to the check; failure to share details about what was gleaned and giving the person time to respond before taking other adverse action; and failure to provide additional details and allow time for a dispute after the adverse action has been taken. The companies tend to settle, and quickly. But, companies may no longer face such lawsuits because using credit checks in employment decisions could soon be a thing of the past.

Earlier this month, Philadelphia became the 12th U.S. jurisdiction to make it illegal for employers to obtain or use job applicants’ or current employees’ credit history in order to make hiring and other employment-related decisions, with narrow exceptions. In May, Congresswoman Maxine Waters introduced the Comprehensive Consumer Credit Reporting Reform Act of 2016, which would also ban employers from running credit checks except in limited cases.

Why the sudden surge in interest in protecting consumers’ rights to credit report privacy? Is it part of the broader interest in consumer privacy protection in the face of countless new companies and technologies gathering personal data from consumers around the clock?

Inside Counsel sat down with two legal experts Bennet Alsher, partner in the Atlanta office of national labor and employment firm Ford Harrison and Daniel Kalish, managing partner at HKM Employment Attorneys, who have litigated numerous cases alleging violations of the FCRA. They know the FCRA inside and out and shared insight into its history, the overall landscape, and what the current litigation portends for the future.

There have been a number of 6- and 7-figure settlements in recent months involving high-profile companies. The FCRA is a very complex and challenging statute for employers to comply with. ‘In our practice group, we’ve noticed that there are a number of firms that hold themselves out as ‘Consumer Reporting Agencies’ within the meaning of the FCRA,” explained Alsher. “As CRA’s, these firms are required to comply with the FCRA.”

“Job applicants understand that most employers will do a background check before an employee is hired.  So, applicants recognize that they are going to have to give up some of their privacy when they apply for a job.  I think it’s more related to the fact that plaintiff attorneys see dollar signs in their future when they have an FCRA case,” said Alsher.

However, some of the background check materials that these CRA’s use for their client-employers do not comply with FCRA. Unfortunately, employers that use a non-compliant CRA, or non-compliant forms, risk liability in the event that an FCRA case is brought. And, plaintiffs’ lawyers view FCRA cases as the proverbial low-hanging fruit. It is very easy for a plaintiff’s lawyer to go online and find an employer’s onboarding documents that do not comply with the FCRA. “Then, it becomes a matter of attracting some plaintiffs and before you know it, a class action lawsuit is filed against the employer,” he said.

As cases get published in the news, employees and attorneys are becoming more aware of the strict requirements that a company has to follow when doing background checks, according to Kalish. There have been some recent class action lawsuits, which has greatly increased awareness about these violations. 

“As things about your life become more and more public, there is a push back to keep more and more of your history private. I think that’s an understandable give and take in this environment,” he said.

So, what are the most commonly alleged violations in these types of lawsuits? From an employment law standpoint, Alsher said they include: (1) The FCRA paperwork in the onboarding documents is incorrect. (2) Employers do not understand how the pre-adverse action and adverse-action letters or processes work. (3)  Employers do not realize that some states have “mini-FCRA” laws that must be complied with, in addition to the federal FCRA. 

So, will credit checks in employment decisions soon become a thing of the past? According to Alsher, if an employer can demonstrate that a credit check is job-related and consistent with business necessity, generally speaking the employer has a legal right to implement a credit check. 

Employers with jobs that require an employee to handle cash are unlikely to give up the right to request credit checks and will lobby Congress to prevent legislation that would prohibit employers from implementing credit checks.   

Kalish said, “I’m not sure if it will ever go away, but I do believe we will see a significant debate about the role of credit checks in employment decisions.”

This area of the law is hyper-technical and the courts are sticklers about enforcement and compliance, so Alsher shared some advice for companies.

“There are gray areas that are subject to interpretation, so an employer should not rely on form book applications or form background checks,” said Alsher. “There is not a one-size-fits-all form that may be applied to every employer. In addition to the federal FCRA, many states have their own background check laws that require compliance. Seek the advice of qualified counsel to ensure your company’s forms are compliant with the laws.”

Further reading:

Arbitration 201: Drafting the arbitration clause for the arbitration you want

Non-compete agreements, inevitable disclosure, and the DTSA

How to create your cyber-incident response plan

Employee-developed apps: Employer rights and liabilities

Contributing Author

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Amanda Ciccatelli

Amanda G. Ciccatelli is a Freelance Journalist for InsideCounsel, where she covers intellectual property, legal technology, patent litigation, cybersecurity, innovation, and more. She earned a B.A....

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