A Worsening FCRA Environment: The Screws Tighten on Employers - PowerPoint PPT Presentation

A Worsening FCRA Environment: The Screws Tighten on Employers Teleseminar May 7, 2014

So many laws, so little time… why focus on the FCRA?  Explosion of FCRA Class Litigation: Long-standing law generating a new wave of class action litigation  Perfect Avenue for Class Action Litigation: FCRA allows for recovery of statutory damages, punitive damages and attorneys’ fees, with statutory damages available for willful violations even if the consumer did not suffer any damages as result  Success Fueling the Fire: Success has encouraged plaintiffs’ lawyers to look for new targets  ALL Employers Should Take Note: Companies large and small and across all industries should be wary  Investment In FCRA Compliance Pays: Potential for big losses and expenses associated with FCRA litigation make compliance more important than ever 2

Complying with FCRA in the Employment Context  FCRA requires employers to follow notice and disclosure procedures when obtaining or using Consumer Reports or Investigative Consumer Reports from third-party Consumer Reporting Agencies  “Consumer Reports” may include information related to criminal background checks, credit checks, educational history, employment history, driving and other license records, and general reputation or character that is used as a factor when considering an individual’s eligibility for hire, promotion or other employment actions, including investigations  “Investigative Consumer Reports” are a specific type of Consumer Report containing information on these subjects that is obtained through personal interviews with neighbors, friends, or other people who may have knowledge concerning any such items of information  Many types of Consumer Reporting Agencies, including credit bureaus as well as data collection agencies mining the internet through social media 3

Complying with FCRA – Before Obtaining a Consumer Report  Notify employee or applicant in writing that a Consumer Report may be obtained and used for employment purposes (hiring, retention, promotion, reassignment)  Obtain conspicuous written authorization from employee or applicant prior to requesting a Consumer Report  Provide certification of compliance to the Consumer Reporting Agency  Note special rules for requesting Investigative Consumer Reports and for using Reports during Investigations 4

Complying with FCRA – Before Taking an Adverse Action  Notify employee or applicant that a Consumer Report has been obtained and that adverse action may be taken on the contents of the report  Provide FCRA Summary of Rights and a copy of the Report upon which the decision may be based  Allow for reasonable opportunity for candidate or employee to notify company of inaccuracies or otherwise dispute the Report contents 5

Complying with FCRA – After Taking an Adverse Action  Notify employee or applicant in writing that adverse action has been taken based in whole or in part upon the contents of the Consumer Report  Include name, address, telephone number of the Consumer Reporting Agency that furnished the Consumer Report  Inform employee or applicant of his or her rights under FCRA, including the right to dispute accuracy or completeness of the Consumer Report  Inform employee or applicant of right to obtain a free copy of the Consumer Report from the Consumer Reporting Agency if requested within 60 days  Provide a statement that the Consumer Reporting Agency did not make the adverse action decision and cannot provide information as to the reasons for the adverse action 6

Beware Restrictions on Procurement or Use of Reports  EEOC Guidance - employment decisions based on an individual’s criminal history report may constitute unlawful discrimination because reliance on criminal history reports in employment decisions could have disparate impact on or lead to disparate treatment of individuals of minority groups (e.g., race, national origin)  According to the EEOC , employers should…  Eliminate blanket policies and conduct individualized assessments  Ensure accuracy of criminal records obtained  Provide the individual with notice of possible denial/exclusion and an opportunity to provide additional information regarding the arrest or conviction  Ensure that denial/exclusion based on criminal history is sufficiently job- related and consistent with business necessity  Duties and nature of the job  Nature and gravity of the offense committed  Time that has passed since the offense committed and/or completion of the individual’s jail sentence 7 •

Beware Restrictions on Procurement or Use of Reports (cont.)  Existing State Credit Check Laws prohibit the use of credit checks for employment purposes  Based on reasoning similar to that underlying the EEOC’s Enforcement Guidance, several states and municipalities have enacted (or seek to enact) “ban the box” legislation that limit an employer’s ability to conduct background checks of or even inquire about an applicant’s criminal history  Pending federal legislation (Equal Employment for All Act) aims to prohibit most private employers from obtaining or using credit reports for employment purposes  Proposed “credit privacy” bills in a number of states 8

FCRA and Social Media  The Internet and, in particular, social media networks, can provide a wealth of personal information about job applicants and employees  Data collection agencies, or “data brokers,” are private companies that mine personal data made available through the Internet and social media, and sell it to clients  FTC has sent warning letters to several data collection agencies regarding their obligation to comply with FCRA  According to FTC, a data collection agency “is a consumer reporting agency because it assembles or evaluates consumer report information that is furnished to third parties that use such information as a factor in establishing a consumer’s eligibility for employment” 9

Explosion of FCRA Class Litigation Generally  Generous remedies available under the FCRA  Statute allows lawsuit for violation of ANY provision of the broad statute  Statute allows for recovery of statutory damages of $100 - $1,000 (in lieu of “actual damages ”), punitive damages and attorneys’ fees  Statutory damages are awardable even if the consumer did not suffer any damages as result of willful violation  U.S. Supreme Court decision in 2007 ( Safeco Insurance v. Burr ) lowered standard for “willfulness” to “recklessness,” i.e., something more than negligence but less than knowing  At issue in Safeco was whether the defendant's erroneous interpretation of FCRA was “objectively unreasonable” and therefore supported a “willfulness” finding  Therefore, for example, proof that a business practice was brought into question by an FTC staff opinion letter or court may establish “willfulness” 10

FCRA Class Litigation Aimed at Employers  Success in FCRA litigation aimed at use and disclosure of credit reports have encouraged plaintiffs’ lawyers to look for new targets  Employment screening practices are subject to a unique array of additional duties under the FCRA that each can be basis for a lawsuit  Employment screening practices are typically uniform and standardized, making it easier to aggregate claims for class treatment  Form disclosures, authorizations and notices  Human resource policies used company-wide 11

Types of FCRA Employment-Screening Claims  Stand-Alone Requirement for Disclosure/Consent Form ( § 1681b(b)(2))  Formatting requirement now interpreted as prohibition on “extraneous language”  Dozens of class action lawsuits filed against employers in last 6 months challenging the content of disclosure forms  Many of these claims challenge waiver-of-liability language  Per Safeco analysis, willfulness claims bolstered by recent court decisions on stand-alone requirement and inclusion of waiver language  2012 district court decision, citing earlier FTC staff opinion letter  Reardon v. Closet-Maid (Dec. 2013 W.D. PA.)  Inclusion of waiver in disclosure is willful violation as a matter of law 12

Other Types of FCRA Class Litigation  Other Claims Based on Disclosure/Consent Forms  Inclusion of form in employment application  Inclusion of additional authorizations in form  Inclusion of state-mandated notices in form  Pre-Adverse Action Notice Claims  Content requirements  Timing – before decision is made; and allow time to dispute  Impact of scoring/adjudication by data vendor  Allowance for applicant to dispute before decision made 13

Best Practices  Develop a tailored and FCRA-compliant written policy on background checks that specifies the notice requirements, the rights of the employer and individual, and any limitations at each stage of the relevant employment decision process  Review and develop FCRA-compliant notice and authorization forms to ensure compliance given the recent wave of FCRA class claims  Provide HR representatives and managers with comprehensive training regarding FCRA and similar state laws, and the company’s policies and procedures relating to background checks 14