Background Screening 101 - The Applicant's Best Ally

We all know laws aren't worth the paper they are printed on if there's not some means of enforcing that law. The laws related to background screening are no different. There are two forces that HR departments across America fear the most. Those are "Plaintiff's Bar" and the Equal Employment Opportunity Commission (EEOC). Plaintiff's bar is a fancy way of saying the lawyers that applicants hire and we'll focus on that force today. Tomorrow we will tackle the EEOC, if that is even possible.

Even if you never hire a lawyer, the sheer existence of lawyers hired by applicants aides you and every other applicant out there. When an HR professional sets policy or procedure they spend an extraordinary amount of time considering how plaintiff's bar would present that policy or procedure to a jury. When decisions are made about a specific individual (e.g. whether to hire or not), the decision maker will consider at great length how plaintiff's bar might represent that decision in a lawsuit. And I can tell you that background screening companies spend hundreds if not thousands of work hours each year dedicated to ensuring their processes will stand up to the scrutiny of plaintiff's bar.

So who is this plaintiff's bar and why is everyone so afraid of them? Certainly, any lawyer can act as plaintiff's bar if hired by an applicant. But in practicality, there are but a handful that have made a name for themselves suing under the Fair Credit Reporting Act (FCRA). However, the success of these lawyers is certainly attracting the attention of other law firms to this area.

Before we get into too many details, there's a little background I would like to lay down. First, you need to understand that virtually every business carries insurance. Relative to this topic, they will carry a type of insurance known as Errors and Omissions (E&O) which protects the company if they make a mistake in the normal course of business operations. Small companies like background screening companies will carry somewhere around a $3-5M policy. Larger companies will carry much larger policies that can be in the tens of millions of dollars. These policies will carry some sort of deductible just like you have with car insurance. The deductible will vary wildly based on industry, company history, etc. Typically, I have seen deductibles in the $75-150k range, but they can be as low as few thousand and as high as $500k. And just like your car insurance, the deductible applies to each "accident". Every accident can increase your premium. And if you have too many "accidents", your insurance is cancelled. The second component to understand is the difference between individual and class action lawsuits. An individual lawsuit, as the name implies, is when only one person acts as the plaintiff. A class action lawsuit involves a "class" meaning a group of people that are alleging a similar injury.

Let me clear about this, I am not against attorneys whatsoever and my statements here are definitely generalities and stereotypes to help you understand the landscape. Having been a part of these legal actions for years, I have come to understand that the business of civil lawsuits is just that business...So from many attorneys' lens, they are going to view your case as a business opportunity. They are going to consider things such as probability of winning/settling, cost of fighting, and how this fits in with the other cases they are working. Not that they don't care about your plight, but they are going to also be concerned about the financial implications to their business. If you are their client, this serves you well because you don't want to go chasing windmills left with exorbitant legal fees and no settlement. So concepts like the insurance policy limit and whether it's a potential class action is critical.

Most individual background screening claims with merit are going to settle out of court at or below 1 year's salary for the individual. This is because the harm caused to the individual is he/she failed to get a job. The argument to the jury would be that surely the individual would have been able to find another job within a year. So even if the company loses in court, the most they will lose is likely one year of salary or less. Also, as long as the settlement is under company's insurance deductible amount, the insurance company will stay out of the mix. This lowers the cost for everyone in the lawsuit. So that's where they tend to settle.

Class action lawsuits are whole different story. At the root of any class action lawsuit is a claim that there is a flawed policy or procedure or that the company executes inconsistently causing harm along the way. But lawyers can't just declare a lawsuit as a class, the lawyer must present key elements to a court and have the lawsuit certified as a class. Once that happens, the key ingredient with class action lawsuits begins which is a legal proceeding known as "discovery". In discovery, plaintiff's bar gets the opportunity to investigate which includes reviewing documents, talking to company employees, and host of other activities. This is what scares companies the most. In many cases, if a case gets certified as a class, it will magically settle at or just below the insurance limit. This is because any settlement above the insurance limit is the responsibility of the company being sued. The insurance company will often advise to settle and the company, fearful of being wiped out, will go along with that settlement.

If plaintiff's bar gets into discovery, often their claims will change and take on new life. Sometimes they now have new targets to go after with much larger insurance policies. Let me illustrate, however, I need to use a fabricated story versus an actual one. Let's say a class action lawsuit is filed against a background screening company alleging that their procedure to process adverse action (you learned this in the post last week) is not executing consistently. This might have impacted possibly 5,000 people over the last 3 years. During discovery, plaintiff's bar will get to view a lot of documentation and notices the screening company's procedures in another area are questionable. By adding this component to the existing lawsuit, the class size may grow from 5,000 people to over 100,000 people. If the settlement or judgement is just $100 per person in the class, that changes the value of the lawsuit from $500k to $10M. And if in the course of reviewing documentation, plaintiff's bar notices some adjudication matrices for the background screening company's clients are out of whack...well there's the next 3-4 lawsuits. Trust me, plaintiff's bar wants to get into discovery very, very much.

So how do you know if your situation warrants a class action or not? You don't. Frankly, your best advice is to talk with an attorney. This topic is way to complex with too many variables to do it justice. Contact an attorney and review the facts. The attorney may have to do a little research and consider the matter, but he/she will be in the best position to guide you.

This is an overly simplistic rendering of class actions, but you need to understand the economics in play. Some of these law firms only have 4-6 employees with payrolls under $1M annually. They can receive 25+% of any settlement they reach. So if they win a $5M class action suit, they receive $1.25M of that settlement. And it is not uncommon for these law firms to have 20-40 of these cases going at any given time. This is good business and there are reasons some lawyers have named their vacation homes after background screening companies.

More importantly, this is good for you as applicants. HR professionals and background screening companies understand these economics as well. As a result, they invest significantly to minimize their risk of plaintiff's bar from coming after them. Because of this force, employers do make a concerted effort to create fair and appropriate procedures. Without a doubt, plaintiff's bar is the single biggest ally for applicants even if you never hire an attorney. THEY ARE the checks and balances in the system.