Avoiding Litigation in the Era of Surging FCRA Class Action Suits
Fair Credit Reporting Act (FCRA) litigation has increased 47 percent in the last year according to ACA International. Background screening is a vital hiring tool for employers. However, amendments to the FCRA have significantly increased the rights of applicants and employees. Therefore, employers must ensure compliance with the detailed requirements of the FCRA. Adverse Action violations seem to be the most prevalent.
The FCRA requires that employers disclose to applicants that a background report may be obtained for employment purposes, and obtain signed authorization from applicants before procuring a background report. Further, the FCRA requires that before an employer makes an adverse decision in whole or in part based on the contents of a consumer report that the applicant be given notice of potential adverse action, be provided with a copy of the report and a copy of the prescribed Summary of Rights. Special attention should be given to the words “before” and “in whole or in part.” Those words have been the subject of much discussion and litigation. If a company makes a decision not to hire, promote or retain, and then sends out all required documents with a “pre-adverse” notification, it has not adhered to the law. If a company receives a potentially disqualifying consumer report, but then tries to sidestep the pre-adverse notification saying that they “found a better candidate”, it is in violation of the FCRA.
Following a reasonable time after the pre-adverse notification and deliverables allowing the applicant to dispute the reported information, the FCRA requires that a final adverse action notification be made. If any person takes any adverse action with respect to any applicant that is based in whole or in part on any information contained in a consumer report, the person shall:
- Provide oral, written, or electronic notice of the adverse action to the applicant;
- Provide to the applicant orally, in writing, or electronically: A) the name, address, and telephone number of the consumer reporting agency that furnished the report to the person; and B) a statement that the consumer reporting agency did not make the decision to take the adverse action and is unable to provide the applicant the specific reasons why the adverse action was taken; and
- Provide to the applicant an oral, written, or electronic notice of the consumer’s right to: A) obtain a free copy of a consumer report on the applicant from the consumer reporting agency , which notice shall include an indication of the 60-day period under that section for obtaining such a copy; and B) dispute with a consumer reporting agency the accuracy or completeness of any information in a consumer report furnished by the agency.
The above requirements seem relatively simple on the surface, but have turned out to be harder to implement properly in practice. Many companies have learned that the hard way after finding themselves in the crosshairs of legal action filed against them.
Litigation Avoidance
There are no fail-safe solutions to avoid litigation, but employers can take steps to ensure compliance and mitigate risk. Part of the compliance problem may be that company employees who are tasked with initiating the notices are uncertain as to when notices are required or what must be in those notices. The problem is further exacerbated by having insufficient tools with which to track the timing, delivery and receipt of such notices. Some employers are understandably cautious about outsourcing this function. The FCRA makes it absolutely clear that the employer is ultimately responsible for compliance in this area, but this function is often best outsourced to the Consumer Reporting Agency (CRA) performing the background, and is the practice that Cisive recommends.
Establishing and enforcing strict compliance procedures can certainly reduce exposure. The difficulty that many companies have when it comes to complying with FCRA notification requirements is that the pre-adverse action notification is a triggered event that is not required for every employment background, and the final adverse action notification is also a triggered event that is not required for every pre-adverse action notification.
Also worthy of careful consideration are effects of various ban-the-box laws that alter the period to respond to adverse information that an applicant has, which can as a result alter the timing of any final adverse action letter. Proper sequencing of these events also requires close coordination with the employer’s CRA. Because of the irregularity of these events and the coordination required, employers are often ill-equipped to execute them properly, and recruiters and managers are often not fully aware of the employer’s responsibility.
Education of recruiters and managers helps. However, proper execution requires that they have the tools to comply. The best tools contain systematic, gated controls implemented by electronic workflow that recognize the triggers and guide those responsible through the compliance process. These tools exist today and employers should aggressively engage in evaluation, selection, and implementation of the right tools to realize compliant pre-adverse and adverse notification and avoid expensive and brand-destroying class-action litigation.
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