Fair Credit Reporting Act Violations When Background Checking – A Hidden Cost for Employers

Do you run criminal background checks on would-be employees? Every business that hires employees has an investment of time and money on the process. They advertise to find prospective employees. They screen applicants and go through long interview processes where human resource managers invest time in qualifying a candidate. There is a lot to do to ensure a person is a good fit.

Often, companies need to take steps to minimize further risk. They need to hire a person who can do the job well and make sure the person they bring on board is not the type of person to put the business or other employees at risk. As a result, they conduct background checks to gather any available information on an applicant to ensure there is no risk.

This action is necessary and should be done.

However, if it is not completed properly, companies may face hundreds of thousands of dollars in fines and fees for making small, seemingly insignificant (though very important) mistakes.

If you have not done so recently, now is the right time to review your organization’s use of criminal background checks and credit reports. Over the last few years, there has been an increase in the number of businesses facing highly expensive, high-dollar settlements from class action lawsuits from making mistakes when conducting these reports.

Understand the Limitations and How FCRA Violations Occur

Any failure to comply with the federal Fair Credit Reporting Act (FCRA) can position your business to face costly fines that have topped millions of dollars for some organizations. Numerous technical requirements exist regarding how consumer reports, including credit reports and background checks, are used. These types of mistakes often lead to class action litigation and settlement agreements.

Consider the following commonly overlooked requirements that may lead to this type of outcome.

Failure to provide standalone disclosure

One of the most common concerns is a failure to provide a standalone disclosure when requesting this type of information. The FCRA requires a “clear and conspicuous” written disclosure that informs all applicants that a consumer report may be obtained. It requires that the disclosure state that the report will be obtained for employment purposes. The disclosure also notes that the applicant must provide written consent before the employer has the right to obtain a consumer report.

More specifically, the disclosure needs to be a “standalone” document. That means that the document itself contains nothing but the disclosure on it. It cannot include other information. For example, the disclosure may not be put into the center of an employment application. It cannot be a part of a liability release. It also cannot be a part of any other type of pre-employment document.

Failure to provide applicants or employees with adverse information before taking action

The second component that often leads to mistakes made by employers is a failure to provide applicants and employees with required information before they take any type of adverse action based on the consumer report. To meet this requirement, employees must provide a "summary of rights" to each individual prior to taking any action considered adverse.

Adverse conditions may include things like terminating an employment relationship or refusing to hire someone because of the information on the consumer report. It may be any type of negative information that prompts the employer to not want to hire the individual or keep them employed.

The law requires that this information be communicated to the applicant before any adverse action takes place. Additionally, employers must also provide the applicant with a reasonable amount of time to dispute the report or to respond to it in any way. This, too, must be done prior to any type of adverse action being taken.

Failure to provide key information after taking adverse action

Employers also must take steps to provide additional – detailed – information after they make a decision and take adverse action against the applicant or the employee. For example, after the consumer reports information is received and disclosure of it, employers must then provide notice of the action that they are taking.

The employer's requirements include providing notice of the adverse action taken by the employer, including specific information on the consumer reporting agency that provided the information to the company. In addition to this, the employer is required to provide a notice of the consumer’s rights to obtain a copy of that consumer report. The employer must state that the applicant or employee has 60 days to do so. They also have the right to dispute the information that is contained on the consumer reports.

Authorization and Disclosure Forms Are Complex

Even with a full human resource department, small mistakes in the timing or the way this type of information is presented can lead to costly finds for organizations. FCRA violations can weigh heavily on a company's financials. There is also the risk that the company's employer reputation is tarnished if they seem to be not following all legal requirements when interviewing and hiring individuals.

It is not uncommon for employers to cost themselves millions of dollars when they do not adhere to the very strict requirements under FCRA when it comes to performing background checks. Even large companies make mistakes in this area and find themselves suffering financially as a result.

The key to remember is that all of this can be avoided.

Examples of FCRA Violations and the Cost of Those Violations

Background screening is not something employers can afford to skip today. Not performing these necessary screenings and checks can lead to other liability risks. However, it is all a matter of how the employment background checks are conducted.

Take a look at a few examples of companies that have made mistakes in this area and how it impacted their ability to hire or manage their business.

Publix Super Markets

Perhaps one of the most notable FCRA violations happened to Publix Super Markets Inc. The company faced a class action lawsuit related to the procedures it used to obtain background checks. The company ended up settling the claim for $6.8 million.

In this case, Erin Knights, the plaintiff in the case, filed a lawsuit in Tennessee on behalf of 90,000 potential class members. The class action stated that the disclosure that Publix used included language that was a violation of FCRA. Here is what the specific disclosure statement read according to Knights: "I release Public Super Markets, Inc., its employees, its authorized agents, and representatives from any liability in connection with any decisions made concerning my employment based on information reported.”

The disclosure itself is muddled with other information – it is not a standalone disclosure in this instance. The FCRA disclosure was not a separate document in any way. As a result, the company had to pay $6.8 million due to the language used.

Delta Airlines

Delta Airlines also faced a similar situation when it suffered FCRA violations due to its pre-screening process for applicants. In this case, the Court of the Northern District of California ruled on a class action lawsuit against the airline company that involved 44,100 people. Ultimately, the company was forced to pay a $2.3 million claim for these individuals.

The plaintiff in the case claimed they had applied for a job with the company and were given inadequate disclosure documents regarding their consent to complete background checks. The plaintiff believed that the company had violated FCRA rules, and the courts agreed with that finding. However, this case did not go to fruition for the plaintiff because it was beyond the two year statute of limitations from which the plaintiff could file such a claim. It is likely to have gone through if it was filed sooner.

Allied Solutions, LLC

Another claim, this time brought by Shameca S. Robertson to the Seventh Circuit Court, stated that the company, Allied Solutions, LLC, did not follow the specific requirements of the FCRA action. After discovering information on the background check, the lawsuit stated that the company rescinded its offer to provide a job to the plaintiff. However, the class action claimed the organization took that action before providing the plaintiff a copy of the consumer report. As a result, the applicant states, she was not given a chance to review it and provide information about the findings there. ?The Court ultimately rejected the Class action because the plaintiff did not prove that she suffered loss as a result of Allied’s actiona but had that not happened we would be looking at another multi million dollar settlement.

K-Mart

Though K-Mart may no longer be the big box retailer it once was, it has to meet all requirements for criminal background checks. That includes domestic and international background checks. The company was forced to pay a $3 million settlement after FCRA violations. The class action suit involved 60,000 people who were denied employment based on the findings on their consumer reports.

This time, the violations came because the plaintiffs claimed that the employer failed to notify the applicants if it planned to take adverse action based on the information contained in the background check. The applicants were therefore unable to defend themselves. They did not have an opportunity to challenge the negative information that the background check produced. Though the company stated it did not do anything wrong, the lawsuit outcome sided with the plaintiffs in the case.

How Can Organizations Reduce These Risks?

The examples of FCRA violations are just a few of the many violations that have occurred over the last few years. They clearly indicate that employers have many risks when it comes to conducting even what seems to be a simple background screening. However, employers can simplify the process and minimize these risks.

To do that, they need to step outside of their traditional human resource departments and hire a professional organization that specializes in performing background checks and fully understands the FCRA requirements.. This is by far the most important and most effective way of protecting themselves from violations of the Fair Credit Reporting Act. ?

Choose the Right Provider for Background Screening

It is important to hire the right company, though. When looking at options in professional organizations that provide this type of work, do your research into that organization. Be sure that the company has no history of losing lawsuits related to FCRA violations – a simple process of Googling the company's name, and FCRA violations will likely pop up any significant information. ?As a final step when choosing your provider, it is probably a good idea to ensure that they are a member of the Professional Background Screeners Association.?(PBSA)?This is a good indicator that they are much more likely to adhere to all?requirements under the law.

It is simply too dangerous for employers not to vet their background checking providers. Proper authorizations and disclosure forms can have small errors that can cost companies millions of dollars. Unfortunately, not all organizations put the same amount of time and effort into ensuring that the federal (and any applicable state laws) are met when performing background checks like this.

What Steps to Take Now as an Employer

Most organizations?need to have access to employment background screenings. That is specifically important for international background checks, too. When you need to perform such a screening, have a go-to provider that you have already vetted ready to help.

Be sure to verify with the background checking provider the three common areas of concern listed above – these are not all of the risks, but they are some of the most common when it comes to FCRA violations. Discuss with the background screening company that they provide services within your state (some states like California have their own set of rules). Verify that every step is performed as well.

While having an in-house human resource team helps with the verification of the accuracy of data and handles your interviewing, they cannot provide as much information as necessary for verification that FCRA is met.

Find the Right Company to Trust

You will find that the effort you put into finding the right background screening company will pay off. While dollars are always important, the cheapest company is not always the right company.?Look for those providers?that offer 24-hour support, do not utilize off shore researchers ?and of course are PBSA members.. You can still find affordable options and companies that can handle?the specific information you need. The key is to ensure that the company you hire to do this type of work is the best party to complete the work for you on a consistent basis.?