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Employers Paid Out $174M to Resolve Background Check Lawsuits

July 30, 2019 | Chris Catalano

A new compilation of court records finds that over the past decade employers have paid out over $174 million to resolve class-action lawsuits alleging that they violated federal rules governing the use of background check reports on job applicants. Companies providing those reports have paid out another $152 million when they have been sued directly.

The case information was assembled by the Corporate Research Project of Good Jobs First as part of the latest expansion of Violation Tracker, the first wide-ranging database of corporate crime and misconduct.

“At a time when employers increasingly use background-check reports to screen job candidates, class action lawsuits have become an important tool to ensure that the rights of applicants are protected,” said Good Jobs First Research Director Philip Mattera, who leads the work on Violation Tracker (available to the public at violationtracker.org).

 

Understanding the Fair Credit Reporting Act Is Key for Employers

The Fair Credit Reporting Act (FCRA) is a complex, highly technical statute that allows recovery of statutory damages, actual damages, punitive damages, and attorney’s fees and has resulted in significant jury verdicts. For these reasons, the FCRA has become a favorite vehicle for class actions and often threatens outsized liability even when a plaintiff’s chance of success on the merits is slim. The class certification battle is therefore the decisive point of the litigation in many cases.

Related: Why FCRA Standards and Processes Matter for Employers

The FCRA requires employers to get written consent from a job candidate before obtaining a background check report, which may include criminal records as well as credit history and other personal information. Before making an adverse decision based on data in the report, the employer must give the applicant a copy and allow time for the person to challenge any inaccuracies in the document. When taking an adverse action (for example, not hiring an applicant or firing an employee) based on background information, the FCRA has the following requirements:

  • Before you take an adverse employment action, you must give the applicant or employee:
    • a notice that includes a copy of the consumer report you relied on to make your decision; and
    • a copy of “A Summary of Your Rights Under the Fair Credit Reporting Act,” which you should have received from the company that sold you the report.

 

  • By giving the person the notice in advance, the person has an opportunity to review the report and explain any negative information.
  • After you take an adverse employment action, you must tell the applicant or employee (orally, in writing, or electronically):

 

    • that he or she was rejected because of information in the report;
    • the name, address, and phone number of the company that provided the report;
    • that the company providing the report didn’t make the hiring decision, and can’t give specific reasons for it; and
    • that he or she has a right to dispute the accuracy or completeness of the report, and to get an additional free report from the reporting company within 60 days.

 

Since 2011 more than 40 employers have paid out FCRA employment settlements of $1 million or more. Large payouts by well-known companies include: Target ($8.5 million), Uber Technologies ($7.5 million), Amazon.com ($5 million), Home Depot ($3 million), and Domino’s Pizza ($2.5 million).

 

Employers and Background Check Provider Responsibilities Under the FCRA

Providers of background check reports also have obligations under the FCRA, including a duty to employ reasonable procedures to ensure the accuracy of the information they report. The Violation Tracker compilation includes 30 provider class actions with settlements amounts as high as $28 million.

Related: Key Employer Takeaways to Ensure FCRA Compliance in Background Screening Disclosure and Authorization

The FCRA cases are the fourth compilation of employment-related class actions to be added to Violation Tracker, following ones covering wage theft, workplace discrimination and retirement-plan abuses. With the addition of the FCRA cases and the updating of data from more than 40 federal regulatory agencies and the Justice Department, Violation Tracker now contains 369,000 civil and criminal entries with total penalties of $470 billion.

 

Proposed Amendments to FCRA Create More Employer Risk

The complexity of these laws and proposed amendments to FCRA legislation, along with the different regulations that vary by state, means that your background screening vendor partner must be on top of compliance continuously. This is why Cisive assists clients in developing responsible hiring practices as recommended by the Equal Employment Opportunity Commission (EEOC) and by following the guidelines of the FCRA, plus ensures that your company is compliant with state and local regulations.

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