Businesses regularly conduct background checks on existing or prospective employees. While this practice is legal, employers must comply with some fairly technical rules found in the Fair Credit Reporting Act. Noncompliance could be costly.
The FCRA is best known for governing the “big three” credit bureaus — Equifax, Experian and TransUnion — but it also applies to data commonly used by businesses to make informed employment decisions. For example, when a job involves access to money or sensitive information, businesses want to screen applicants extra carefully. They commonly review a candidate’s resume, conduct interviews and check references. Increasingly, businesses take an additional step: a background and credit check.
Consumer reports available in today’s market provide remarkably detailed information about ones’ finances — including assets, liabilities and bankruptcies — as well as public record information, such as criminal histories.
Unquestionably, such information is relevant to an informed employment decision. It is possible, however, that an existing or prospective employee can be maligned unfairly by a consumer report if it contains outdated or inaccurate information. For this reason, Congress requires employers to adhere to strict guidelines when accessing and using consumer reports. Those guidelines are found in the act.
Let Employee Look
One notable FRCA requirement applies when an employer anticipates taking “adverse action” against an employee because of information obtained from a consumer report. Before doing so, the employer must give the employee a copy of the report, along with a summary of consumers’ rights under the act. This requirement provides an opportunity to correct any inaccuracies in the report on which the employer might rely. Additional disclosures are required if the employer ultimately elects to take adverse action, regardless of whether the report’s contents are disputed.
Although the FCRA is not especially complicated, it is detailed and compliance may be burdensome. Employers that hire fewer people and only occasionally use consumer reports are particularly vulnerable to running afoul of the act. In contrast, many of the nation’s larger employers which regularly utilize consumer reports have found it economical to use compliance services offered by consumer reporting agencies. Such agencies promise to take actions necessary to satisfy employers’ FCRA obligations.
Despite this promise, well-meaning consumer groups and plaintiffs’ lawyers routinely file class action lawsuits against CRAs, alleging FCRA violations in the course of providing employers with consumer reports. The price of FCRA violations can be extraordinary. For example, two such class actions recently settled — one for $3 million and the other for $22 million. Both settlements await court approval.
Mistaken Identity
The first case involved job applicants claiming that they were denied employment because their consumer reports, obtained by the employer through a CRA, contained inaccurate information. For some, the inaccuracy was a misdemeanor improperly categorized as a felony. For others, the CRA provided the employer with someone else’s consumer report, perhaps because of similarities in name, date of birth or social security number.
In the second case, employees alleged that a CRA did not provide proper notice that their consumer reports were accessed. After receiving the reports, the employer summoned these employees to a conference room. There, it provided those employees with copies of their reports and summaries of their rights, explaining that they were being terminated because the reports reflected felony records. The court held this did not provide the employees with sufficient time to dispute and rectify inaccuracies in the reports.
Informed and energized by these cases, consumer groups and the plaintiffs’ bar will continue pursuing claims alleging FCRA violations against unsuspecting employers and CRAs. Consumer groups almost certainly will advance similar claims against smaller, more vulnerable employers. Accordingly, businesses of all types and sizes should view consumer reports as a double-edged sword. Although such reports are useful for vetting employees, the FCRA can become a costly trap if not strictly followed.
Jennifer R. Rossi is a member of the business litigation practice group at Robinson & Cole.
