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

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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

Complying with FCRA in the Employment Context

• FCRA requires employers to follow notice and disclosure procedures when
• btaining 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

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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

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Complying with FCRA – Before Taking an Adverse Action

• Notify employee or applicant that a Consumer Report has been
• btained 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

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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

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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
• pportunity 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

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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

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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”

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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”

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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

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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

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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

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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

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Best Practices (cont.)

• Review job duties for each position to determine which roles have

a legitimate job-related reason to obtain a background check in compliance with applicable laws

• Avoid blanket criminal record disqualification policies and

practices

• Determine for each position whether only particular

crimes/offenses or all crimes/offenses should disqualify candidates

• Make individualized assessments, and maintain appropriate

records of the rationale

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Best Practices (cont.)

• Assure appropriate signed and dated authorizations are
• btained before requesting a Consumer Report, confirming

authorization to conduct the background check

• Refrain from conducting background checks too early in the

hiring process

• Refrain from seeking authorization that is buried within an initial

application

• Do not include extraneous information, like a disclaimer, release
• f liability, or acknowledgments on FCRA forms
• Consider state law requirements

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Best Practices (cont.)

• Provide each individual with pre-adverse action notice and notice
• f FCRA rights upon receipt of a report containing information that

may be disqualifying

• Provide a reasonable opportunity of at least 5 days to such

individuals to respond to or dispute the contents of the Consumer Report, or produce additional information about the disqualifying crime/offense

• Thoughtfully consider explanatory or other information received

from applicants or employees following notice, and document the consideration

• Preserve and protect the confidentiality of information regarding

criminal records

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Best Practices (cont.)

• Engage reputable, FCRA-knowledgeable vendors when seeking

Consumer Reports from third-party agencies

• Assure compliance with FCRA when collecting social media

information compiled by third parties

• Assure that HR and other representatives are complying with

FCRA requirements through continuous and periodic audits of the processes

• Assure use of Consumer Reports does not have a disparate

impact on groups protected from discrimination

• Beware intersection of various federal and state laws and passage
• f new governing legislation

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Sherri A. Affrunti Partner, Princeton +1 609 514 5950

saffrunti@reedsmith.com

Wanda G. Holloway Partner, Houston +1 713 469 3814

wholloway@reedsmith.com

Michael O’Neil Partner, Chicago +1 312 207 2879

michael.oneil@reedsmith.com

Mark D. Temple Partner, Houston +1 713 469 3848

mtemple@reedsmith.com

Questions?

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