Federal Court Rule Raises Questions about the FCRA in the Gig Economy

How does the Fair Credit Reporting Act (FCRA) apply to independent contractor roles? A recent federal court ruling out of the Southern District of Iowa may shed some light on this question.

Per a detailed report from Mondaq, Smith v. Mutual of Omaha Insurance Company is an FCRA class action lawsuit in which Smith alleged that Mutual of Omaha Insurance did not comply with the “pre-adverse actions” requirements of the FCRA. The FCRA requires that an employer provide a candidate with a copy of his or her background check report before disqualifying that candidate based on the findings of the background check.

FCRA-related lawsuits are on the rise, highlighting the need for employers everywhere to double-check their FCRA compliance. The complicating factor in this case was that Smith, the plaintiff, sought an insurance agent role with Mutual of Omaha Insurance that was a contract position, not a part-time or full-time job. As such, the case is relevant to the question of how the FCRA should or must be observed in the growing gig economy.

Mutual of Omaha Insurance argued that the plaintiff was being screened for an independent contractor position, not an employment position. As such, the FCRA section regarding background checks for “employment purposes” did not apply. The federal court agreed, citing previous cases to bring a summary judgment that the FCRA’s requirements for “employment” background checks do not apply to independent contractor roles.

The plot thickened when the plaintiff amended the complaint, stating that the defendant obtained permission to conduct the background check under the pretense that it was intended for employment purposes. The FCRA only allows organizations to obtain consumer reports for “permissible purposes” as defined under the law. Mutual of Omaha Insurance could not claim that it had cited an alternative permissible purpose when ordering the background check. The court held that the plaintiff had the right to pursue litigation for this alternative complaint. 

This case underlines both the complexity of FCRA lawsuits and the need for businesses using independent contractors to be clear about their intentions. If your business is conducting background checks on candidates for contracting roles, you need to state in all relevant materials that the positions in question are for contracting work, not full-time or part-time employment. You also need to make clear in background check disclosure and consent forms that the background checks are intended “not for employment purposes” but for an alternate, permissible purpose under the FCRA (such as "in accordance with the written instructions" of the applicant).

Businesses hiring contractors should follow the FCRA to the letter regardless of whether the position that they are filling is a contract “gig” or an employment “job.” Providing a candidate with a copy of his or her background check report before rejecting the candidate for a contracting role is not a huge inconvenience, and it may save your business from a convoluted and expensive legal battle.

Sources: http://www.mondaq.com/unitedstates/x/808780/employee+rights+labour+relations/Ruling+Raises+Important+Considerations+For+Independent+Contractor+Background+Screening