Employers Hit with Background Check Lawsuits

Employees and job applicants are filing class action lawsuits against employers alleging that they are using invalid forms to obtain consent for background checks as part of their hiring process. The lawsuits allege violations of the Fair Credit Reporting Act, 15 U.S.C. § 1681, et seq. (“FCRA”), which provides for statutory damages of up to $1,000 for each instance when an employer obtains a consumer report without proper disclosure and authorization.

In Gezahegne v. Whole Foods Market California, Inc., Case No. 4:14-CV-00592 (N.D. Cal. Feb. 7, 2014), plaintiffs alleged that Whole Foods failed to obtain valid consents to obtain consumer reports from thousands of applicants. Specifically, plaintiffs allege that Whole Foods violated Section 1681b(b)(2)(A) of FCRA. That provision provides that an employer cannot obtain a consumer report for employment purposes unless “a clear and conspicuous disclosure has been made in writing to the consumer at any time before the report is procured . . .that consists solely of the disclosure . . . .” § 1681b(b)(2)(A)(i) (emphasis added). Plaintiffs allege that Whole Foods’ inclusion of language on their disclosure forms releasing those obtaining the consumer reports from all liability, certifying that the applicant has not knowingly withheld information that might adversely affect his or her chances for employment, acknowledging that the application does not create an employment contract, and other statements violated the FCRA requirement that the authorization consist solely of the required disclosure. Anyone who “willfully fails to comply” with provisions of FCRA may be liable to each “consumer” for damages of up to $1,000 as well as attorney’s fees. § 1681n(a).

Similar lawsuits are being filed against other companies. For example, in Saye v. CSK Auto, Inc. d/b/a O’Reilly Auto Parts, et al., Case No. 2:14-cv-3470 (C.D. Cal. May 5, 2014), plaintiffs filed a class action against subsidiaries of O’Reilly Automotive, Inc. alleging that background check disclosures containing additional information violated FCRA and that adverse employment decisions without affording those affected a chance to see the report or challenge its accuracy also violated FCRA. InCamacho v. ESA Management, LLC, Case No. 14CV1089 CAB BGS (S.D. Cal. Apr. 30, 2014), plaintiffs filed a class action against the operator of Extend Stay America hotels alleging it violated FCRA by including additional statements and information on the background check disclosure.

So far there are only a few court decisions addressing disclosure violation claims, but some do provide support for plaintiffs. In Singleton v. Domino’s Pizza, LLC., No. DKC 11-1823, 2012 WL 245965 (D. Md. Jan. 25, 2012), Domino’s included a liability release along with the background check disclosure. The court looked to the dictionary definitions of “solely” that defined it as being “to the exclusion of all else.” The court denied Domino’s motion to dismiss the claim, finding that if Congress had intended to allow employers to include additional information in their disclosure documents it would have said that in the FCRA provision.

Employers who require their employees and job applicants to consent to background checks as part of their application process or as a condition of employment should review their procedures for those screenings, as well as their insurance policies to determine if they provide coverage for this type of lawsuit. Plaintiffs often seek to certify classes asserting FCRA claims extending back three or more years. Employers who may be a target of a background check lawsuit should review their insurance coverage over the past few years and evaluate their options for coverage under Employment Practices Liability Insurance (“EPLI”) or other types of insurance policies.

Kenneth Remson

Ken began his legal career clerking for the Honorable Andrew J. Kleinfeld, then U.S. District Judge for the District ofAlaska. From 1995 to 1996, he was a Deputy Attorney General for the State of Hawaii, in the Civil Recoveries Division,where he was responsible for litigating major claims involving the State of Hawaii and its agencies, including theUniversity of Hawaii.While studying at Duke University School of Law, he was editor-in-chief of the Alaska Law Review. He has represented insureds in coverage matters in state and federal courts throughout the United States and has also argued before the Ninth Circuit Court of Appeals. Ken is active in the Alliance for Children’s Rights and regularly provides pro bono legal services to families adopting children from foster care or seeking benefits for their foster or adoptive children.

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