Publix Settles for $6.8 Million in FCRA Class Action

“I release Publix Super Markets, Inc., its employees, its authorized agents and representatives from any liability in connection with any decisions made concerning my employment based on information reported.” The inclusion of this language in their background check disclosure form is costing Publix millions of dollars. Facing a potential 90,000+ class members and an indisputable violation of the FCRA, Publix has decided to settle for $6.8 million.

Long story short, your disclosure form cannot consist of anything more than stating your intent to procure a consumer report for employment purposes per the FCRA. The inclusion of release language, i.e. “I hereby release company from liability”, will open your business up to a potential class action suit much like this one. Publix isn’t the only company to have made this mistake recently. This class action lawsuit follows closely on the heels of many similar cases. Whole Foods, ClosetMaid, O’ Reilly’s Automotive Stores Inc., CEC Entertainment Inc., and ESA Management are just a few of the companies who failed to provide a standalone disclosure and/or included release language.

While the disclosure and authorization can be put together, employers may want to separate the two. As it stands, there are no rules against release language on your authorization form. Before implementing any changes, however, it would be prudent to discuss them with your legal counsel. Also, it would be wise for all employers to review their current disclosure and authorization forms with their legal counsel to make sure you are not making a similar mistake.

You can find the Fair Credit Reporting Act in its entirety here.

FCRA Compliance: Reviewing Your Disclosure and Authorization Forms

    We would like to stress the importance of carefully reviewing the Disclosure and Authorization forms ("Authorization") that are sent to job applicants prior to obtaining background checks. You should ensure that these Authorizations do not include any indemnification or release provisions. 

    Recently an individual in California filed a class action lawsuit seeking to hold both a prospective employer and the CRA that provided a consumer report to that employer liable for failing to comply with the requirements of Section 604(b)(2) of the Fair Credit Reporting Act (FCRA).

    The Authorization that the employer used contained language asking applicants to indemnify and release both the CRA and the employer from any claims that may arise from the collection, disclosure or use of the information provided on the Authorization form. Similar release language, sometimes called a hold-harmless clause, has been the subject of many claims against employers. 

    Class action lawsuits alleging violations of the FCRA are on the rise. Therefore, please be certain that the Disclosure and Authorization forms that you provide to job applicants do not include any type of indemnity, release, or hold-harmless language."

Thanks for your attention to this important compliance matter.

Three Employers Face Class Action Lawsuits from the Same Law Firm

 Despite all of the FCRA-related class action suits taking place, it appears large companies are not taking an appropriate course of action to ensure they are in compliance. One has to wonder whether, whether it is simply a lack of attention to detail (That would be a surprise) or simply HR/Legal/Compliance not staying current. The latest three companies in question are Panera, LLC, American Multi-Cinema, Inc. (AMC), and Nine West Holdings. Two of these class action suits involve the same plaintiff, and all three are from the same Florida law firm. In each of these cases, the plaintiff applied for employment online. Each of these companies allegedly failed to provide a valid, compliant consent form before initiating pre-employment background checks.

An employer’s obligation before obtaining background information is as follows (from the co-published FTC/EEOC guide):

·         Tell the applicant or employee you might use the information for decisions about his or her employment. This notice must be in writing and in stand-alone format. The notice can’t be in an employment application. You can include minor additional information in the notice (like a brief description of the nature of consumer reports), but only if it does not confuse or detract from the notice.

·         If you are asking a company to provide an “investigative report” – a report based on personal interviews concerning a person’s character, general reputation, personal characteristics, and lifestyle – you must also tell the applicant or employee of his or her right to a description of the nature and scope of the investigation.

·         Get the applicant’s or employee’s written permission to do the background check. This can be part of the document you use to notify the person that you will get the report. If you want the authorization to allow you to get background reports throughout the person’s employment, make sure you say so clearly and conspicuously.

You can find the FTC/EEOC guidance as a whole here.

Panera allegedly violated the FCRA by not providing a consent form specifically for a consumer report. The plaintiff also alleged that the bakery-café chain included extraneous information that detracted from the notice. American Multi-Cinema, Inc. (AMC) allegedly did not have a stand-alone consent form for online application for employment. And finally, Nine West Holdings allegedly had consent language that was part of a web page that contained a number of links to Nine West information on the website.

The main takeaways from these alleged violations is:

·         Your consent, AKA disclosure and authorization, must be a stand-alone (not part of the application) form.

·         The consent form cannot contain extraneous information

·         The purpose of the consent must be clearly stated (i.e. employment screening)

The lawsuit demonstrates that violations of the FCRA can create large potential liability.  Potential class members, including employees and prospective employees, may be entitled to statutory damages of up to $1,000 for each violation in the case of willful non-compliance. Class action lawsuits also create exposure for large awards of attorney’s fees and the potential exposure to punitive damages.

If you have any doubts about your company’s FCRA compliance, PLEASE act before you wind up on the wrong end of a class-action lawsuit.

Latest Class Action - Canon Solutions America Inc.

Canon Solutions America Inc. is the latest company to come under compliance fire for an alleged failure to follow FCRA guidelines. Anya McPherson, the individual responsible for the class action, claims that Canon Solutions America fired her without offering her a chance to dispute the results of a background check. McPherson also claims that the charge was more than a decade old and that the conviction was expunged. To make matters more complicated for Canon, the plaintiff also stated that she did not receive a copy of her report, and did not receive a summary of her rights under the FCRA.

Due to the high frequency of cases being brought against employers for FCRA violations, I decided to include a ‘refresher’ for FCRA compliance. 

Please be sure to take into consideration the following:

1) Before Obtaining A Consumer Report

If you intend to use a consumer report for employment purposes, you must provide written disclosure of your intent to perform a background check as a condition of employment. You must also get permission from the applicant. This comes in the form of a written consent form. Once you have obtained consent from the applicant, you can move forward with the background check. The Disclosure and Consent should be kept as separate clearly defined documents or ‘pages’ if you will.

2) Pre-Adverse Action

Adverse Action basically means that you may or intend to deny the applicant employment based on the information you obtained from the background check. If based on your review of the background you plan to pass on the applicant based on this info, you must send the applicant a pre-adverse action letter. 

The Pre-Adverse Action letter must include the following re notification:

• The name, address, and phone number of the Credit Reporting Agency (CRA)

• The fact that the CRA didn't make the adverse decision and cannot give reasons for the decision

• His/her right to a free copy of the consumer report within 60 days

• His/her right to contact the CRA to dispute the accuracy of the report

• Summary of Rights including any State specific requirements

3) Adverse Action

After you have given the applicant 5 days to dispute the report, you may take Adverse Action against the applicant. You must notify them of your final decision to deny employment based upon their consumer report, through use of an Adverse Action Letter, which also must contain all of the above notification provisions mentioned above under pre adverse.

The FTC and EEOC also co-published guidance on the proper procedure for background screening, which can be found here. 

Litigation Brought Against Whole Foods for FCRA Violations

                  

On February 7, 2014, litigation was brought against Whole Foods for the use of invalid authorization forms in the background screening process. The lawsuit claims the “defendant obtained consumer reports on the plaintiff and similarly situated persons without having obtained factually valid FCRA authorization forms”. 

The online application process included a form labeled “Consent”. Whole Foods allegedly had a section in this form that states “I hereby release the company, my former employers and all other persons, corporations, partnerships and associations from any and all claims, demands or liabilities arising out of or in any way related to such investigation or disclosure.” The form also included other paragraphs that should not be part of a consent form. 

The plaintiff claims that a valid consent form was used, but not until after Whole Foods had already implemented a background check.

The invalid consent forms were allegedly used on thousands of applicants. Should this class action suit be successful, Whole Foods may be paying upwards of $1000 to each class member for the violation. 

FCRA Violations:

1) A consent form, which informs the consumer that a background check may be obtained as a condition of employment, must be signed by the applicant. The consent form, which consists of the required disclosures and requested authorization, cannot include any extraneous information. Including a section in the form about the releasing of liability for companies receiving or providing information for the background check is definitely not legal.

2) When the plaintiff allegedly received the valid consent form is also an FCRA violation. An applicant must sign a valid consent form BEFORE the background check is run, NOT after. 

$1000 per applicant is not something many companies can afford. Precaution should be taken to insure the consent form utilized does not include anything other than the disclosures and requested authorization. Also, get authorization BEFORE you run the background check on the applicant. As always, you should discuss this topic with your in house counsel.

If you have any comments or questions about FCRA compliance, please let us know.

A Snag in EEOC's Plans to Regulate Background Checks

The U.S. Equal Employment Opportunity Commission  is a bipartisan Commission that enforces employment discrimination laws. One of their most recent oversight efforts has been to engage in lawsuits aimed at businesses who use background checks to rule out applicants with criminal records. The EEOC claims that certain policies and procedures followed by companies are an act of discrimination against certain minorities. Lawsuits against Dollar General and a U.S. unit of BMW are pending;  however, on August 9th, a lawsuit filed in 2009 by the EEOC against Freeman Companies was resolved last week.

Freeman Companies, an event-marketing company, may have set precedent for several other similar cases when a Federal District Judge dismissed the case brought by the EEOC.  The Judge's opinion letter stated there was a lack of facts and error-ridden statistics. There was no evidence to prove that Freeman Companies, a company that employs 30,000+ people of varying races and backgrounds, was discriminating against African Americans or Hispanic applicants. While this is but a single ruling, this case will certainly have long reaching effects on the efforts of the EEOC’s plan to enforce their opinion on how background checks are used by companies.

Companies should be allowed to protect their primary assets.... their employees and their customers. The refusal to hire an applicant with a relevant, past conviction is not the same as racial discrimination. Safeguarding a company and its employees from violence, fraud, harassment, etc. is a perfectly reasonable course of action. The recent rulings may play a huge factor in the EEOC’s attempts to regulate the use of background checks. This is a victory of sorts for companies that want to maintain a safe workplace and protect their bottom line.

How do you feel about the ruling? 

How do you think it will affect the EEOC’s attempts to enforce their opinion on how background checks should be used by companies? 

Man Denied Job Over 20-Year-Old Criminal Conviction, Wins Discrimination Lawsuit

A job applicant for a temporary staffing agency was denied a position over a record from the 1980's.  He filed a discrimination case against the temporary staffing agency and won. 

“Employment policies that impose a blanket exclusion on people with past convictions, without any consideration of the relationship of the conviction to the job in question, can constitute unlawful discrimination," Jennifer Clarke, executive director of the Public Interest Law Center of Philadelphia, said in a press release.

The nonprofit law center helped the man file the employment discrimination lawsuit, which explains why denying an applicant employment based on their criminal record violates the law:

"While such policies are facially neutral, they produce severe disparate impact on racial minorities, including African-American, Native Americans and Latinos, because of the significantly higher rates of criminal convictions experienced by these populations."

Recently Pepsi settled a similar case for $3.1 million dollars for using arrest records that kept approximately 300 people from getting a job.

"More companies are getting sued because of their inconsistent hiring policies, using arrest records, and using convictions that are not within the Federal or State guidelines or inconsistently applying the law", says Bill Whitford, CEO of S2Verify.  "Companies need to review their policy and framework around hiring to adjust to these actions and lawsuits"    

New Class Action Lawsuit against Major Financial Institution for FCRA Violations

A class action case filed against a large financial institution – one of the nation’s top 10 banks – shows once again that legal compliance is a critical part of any background screening program.  The lawsuit was filed on behalf of an employee alleging violations of the federal Fair Credit Reporting Act (FCRA). According to a press release from the Attorneys for the Plaintiff, the lawsuit alleges that the financial institution obtained background checks in violation of the FCRA and failed to provide required notices.  The Plaintiff seeks to represent a class of all of the financial institution’s employees and job applicants for the past three years.

The lawsuit – filed in the United States District Court for the District of Maryland – alleges the financial institution violated the FCRA in two ways:

• First, the lawsuit alleges that the financial institution’s authorization form is flawed. The law imposes strict formatting requirements on companies who do background checks. The Plaintiff alleges that by burying its background check authorization in a job application, including extraneous information, the financial institution violated the FCRA. The FCRA requires that a consumer receive a “clear and conspicuous” disclosure in a document that consists solely of the disclosure that a background report may be obtained for employment purposes. 
• Second, the lawsuit also alleges that the financial institution failed to provide copies of the background reports when it used them to take adverse employment actions, such as refusing to hire an applicant, refusing to promote an employee, or terminating an employee. The FCRA requires employers to provide consumers with copies of their background checks if the employer intends to take adverse action that is based in any part on the background check report, along with a statement of rights prepared by the Federal Trade Commission (FTC), so consumers have an opportunity to contest any information they feel is inaccurate or incomplete.  If the employer proceeds to take adverse action, a second post-adverse action notice is required.

Based on the Attorneys for the Plaintiff’s understanding of the financial institution’s practices, everyone who has applied or worked for the financial institution in the past three years should be eligible to receive statutory damages if the lawsuit succeeds. Additional information about the case can be found at www.nka.com/case/capital-one-fair-credit-reporting-act/

The lawsuit demonstrates that violations of the FCRA can create large potential liability.  Potential class members, including employees and prospective employees, may be entitled to statutory damages of up to $1,000 for each violation in the case of willful non-compliance. Class action lawsuits also create exposure for large awards of attorneys fees and the potential exposure to punitive damages.  A United States Supreme Court case decided in June 2007, Safeco Ins. Co. v. Burr, substantially increased the risk of punitive damages under the FCRA by ruling that a reckless disregard of the FCRA could be sufficient to show “willful” non-compliance.

Company Settles "Class Action Lawsuit" for $4.3 million

The company failed to follow the Fair Credit Reporting Act (FCRA) by first obtaining written consent to conduct background checks and second they failed to offer the applicants a copy of their report or the Credit Reporting Agency's (CRA) contact information to obtain a copy.

The proposed settlement would pay the worker that was terminated because of a background check between $2,000 and $4,000 each.

This company was a subcontractor to a large metropolitan school district and provided transportation for children. 

Maybe it is time for you to reevaluate how you perform your employment screening, your consent, and how you notify your applicants of the outcome.  In addition, you should understand what your current CRA is providing and how it is impacted by the FCRA and State Laws.

Recently, we were preparing a consent for a new client.  After reviewing several Fortune 500 companies existing consents, we found NONE of them were in compliance with both the FCRA and the state regulations.  

Companies need to understand that these types of lawsuits and actions by the Federal Trade Commission over violations of the FCRA and state regulations will continue.