District Court Allows Class Action Suit Based On Technical Failures to Comply with FCRA

By Michael Klazema on 5/24/2011

A federal district court recently certified a class action against an employer based on arguable, but technical, failures to comply with the Fair Credit Reporting Act.

In the case, the employer obtained and used background reports for employment purposes. The employer allegedly did two things wrong.

  • First, it included the disclosure that it would run a background check on its normal employment application. The plaintiff claimed that this violated the FCRA’s requirement that the disclosure be a separate document (though it can be combined with the authorization).
  • Second, it only waited four business days between sending a pre-adverse-action notice and sending the adverse-action notice. The plaintiff pointed to a Federal Trade Commission opinion interpreting the FCRA to require a reasonable time between the two notices and another FTC opinion that five days was reasonable.

The court found that the plaintiff could win based on these claims if she proved them. On the first claim, this means the court found that the plaintiff can win by proving that the disclosure was included in a general employment application. On the second claim, the court found that the plaintiff can win by showing that the period of time between the two notices was not reasonable.

It is important to note that the plaintiff does not need to prove that her background report was inaccurate or that she would have been hired if the employer had not done the things noted above. Instead, the plaintiff class can attempt to prove that the employer violated the FCRA willfully.

If successful, each member of the plaintiff class (around 6,700 people) will receive statutory damages of at least $100 and as much as $1,000 (i.e. $670,000 to $6,700,000 in total). In addition, the court can award punitive damages and attorneys’ fees. The employer will have to bear the cost of its defense even if it wins. Under these circumstances, most risk-averse employers will try to settle.

Employers should review their current practices. To avoid expensive class actions like this one, employers should not include FCRA-required disclosures in the same document as a general employment application and should wait at least five days after sending a pre-adverse-action notice before sending an adverse-action notice.

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