Employer Sued in Class Action for Inadequate Disclosures and Notices

By Michael Klazema on 11/2/2012

As we previously reported, plaintiffs’ lawyers are targeting employers in class actions based on violations of the Fair Credit Reporting Act. These violations are generally not related to the decision that the employer made on a pre-employment background check, but are based on the process around the employer obtaining and using the background check.

In a recently filed case against a chain of auto-parts stores, a job applicant asserted that the stores violated the FCRA’s provision about giving the applicant or employee a disclosure that the stores would obtain a background report for employment purposes. That provision requires the employer to give that disclosure “in a document that consists solely of the disclosure.” The applicant claimed that the disclosure actually given violated the FCRA because (a) it was part of an online job application and (b) it included language that is not a disclosure, such as acknowledgements and releases of liability. The applicant pointed to long-standing guidance from the Federal Trade Commission stating that including the disclosure in a job application or including a release of liability in the disclosure are FCRA violations. Therefore, the applicant is seeking the court to certify a class action allowing each applicant to receive up to $1,000 of statutory damages, whether or not the applicant was qualified for or received the job.

The applicant goes on to fault the stores for failing to timely provide the applicant with copies of the background report and the FTC’s summary of rights. The requirement is that an employer must provide the two documents (often referred to as a “pre-adverse-action notice”) a reasonable amount of time before taking any adverse action based on them. This waiting period is intended to give the applicant an opportunity to review the report and contest any inaccurate or incomplete information on it. The FTC has previously said that five business days is a reasonable period of time when the employer provides these documents by mail. The complaint does not specifically state how the employer failed to perform this duty, so it is possible that the employers (a) failed to send the documents at all, (b) took adverse action too quickly after sending them, (c) sent an outdated copy of the summary of rights, or (d) sent only one of the two documents.

Employers should immediately check their forms of disclosure and authorization. While the FCRA allows your disclosure and your authorization to be in the same document, separating your disclosure into a different document will make defending an FCRA case much easier. Fundamentally, the message of an FCRA disclosure is “we are going to get a background check about you.” Employers with information that is on their disclosure form and is not giving this fundamental message should immediately move that information to another form.

Employers should also check their processes for providing the applicant with a copy of the report and the FTC’s summary of rights. These documents must be sent at least five business days before making a decision. Employers should not make a decision until the end of that five-day period, and then only if the applicant has not disputed the report. That means that employers must also avoid the appearance of having made a decision. Employers should train managers to understand that, during this waiting period, the applicant is genuinely still under consideration, and no decision can be made until the applicant has an opportunity to review and dispute the report. Managers will understand this message when the employer tells them that background checks can have errors, and the employer does not want to disqualify the person that the manager chose as the most qualified applicant based on that kind of error. Employers should also remember to provide the applicant with a notice upon taking adverse action.

If you are a client with questions concerning your disclosures, authorizations, pre-adverse-action notices, and adverse-action notices, please contact client services.

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