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Employers Settle FCRA Documentation Class Actions for $5.9 Million

By Michael Klazema on 6/6/2011

First Transit and First Student are apparently related companies that provide transportation services to school. They recently settled class action claims against them for three alleged violations of the Fair Credit Reporting Act:

  1. Failing to properly disclose that it would seek a consumer report on the employee to approximately 143, 577 people;
  2. failing to obtain the employee’s authorization before obtaining the consumer report on about 29,243 people; and
  3. using the consumer report adversely without giving the consumer notices before and on taking adverse action on about 7,191 people.

One important lesson from this case is in how to make the required disclosure. The FCRA requires an employer to present the disclosure to the consumer “in a document that consists solely of the disclosure,” but allows the employer to include the required authorization in that document. For example, the disclosure must not be in the employment application. According to one of the pleadings in the case, the document included a release of liability for the consumer reporting agency. Since the case was settled, we can’t know whether the plaintiffs would have won, but drafting to the most extreme possible interpretation of the FCRA could have avoided the claim. Employers should review their disclosure and authorization documents and, if unsure about their compliance, put the disclosure on to a separate piece of paper.

Another important lesson is the impact of big, disruptive events. The websites of First Transit and First Student both reflect that they acquired Laidlaw in 2007. Large acquisitions like this one are usually followed by rapid consolidation, including the acquiring company’s application its pre-existing policies to the employees of the acquired company. According to a pleading in this case, the companies ran background checks on thousands of employees acquired in the acquisition without first obtaining authorizations. One can guess that the acquiring companies thought that the employees’ files would have everything needed to run a new background check. Employers should check their files before relying on old disclosures and authorizations for new background checks and, if unsure about their compliance, make new disclosures and obtain new authorizations.

In the resulting settlement, class members received a total of $1.2 million for the first claim and $2.1 million for the second claim. To collect these amounts, they did not have to show that any adverse action was taken or that the reports were inaccurate. These were simply claims of a technical failure to have the right documentation.

Information about the settlement is available at http://www.firstgroupfcrasettlement.com/.


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