How Companies Can Avoid FCRA Class Actions

Littler Mendelson, the largest global employment law practice, recently released a report in which it documents the "swelling tide" of class actions brought against employers under the Fair Credit Reporting Act (FCRA).

In the report, it discusses why the number of FCRA class actions is growing, and what your company can do to protect, or defend, itself from a class action. Here's a brief summary of the report, which you can read in full by clicking here.

FCRA Requirements

The FCRA regulates the exchange of information between credit reporting agencies (CRAs) and employers, which is triggered when employers request not only a credit report, but other kinds of reports including motor vehicle or criminal records.

Under the Act, an employer must notify the employee or applicant in writing in a "clear and conspicuous disclosure" (and solely the disclosure -- not anything else) that it would like to obtain a consumer report, and the applicant or employee must give permission in writing.

If the employer is going to take "adverse action" based on the consumer report, it must do two things. First, it must give the applicant or employee "pre-adverse action" notice, including a Summary of Rights and a copy of the consumer report. Next, if the employer decides to take adverse action, it must give the applicant or employee an adverse action notice.

Increase in Class Actions

Littler Mendelson attributes the growing trend in FCRA class actions against employers to four reasons: (1) Recent multi-million dollar settlements; (2) law firms focusing on "wage and hour class actions"; (3) favorable outcomes for plaintiffs in federal court; and (4) "the lure of statutory damages awards to the plaintiff's bar when the U.S. Supreme Court has demonstrated a healthy measure of hostility towards class actions."

Protecting Against Class Actions

These types of class actions are occurring across industries, so all companies that request consumer reports of applicants or employees should take the following steps to protect themselves from class actions:

1. Make sure the applicant/employee "background check disclosure form [does not] contain[] language that is 'extraneous'";
2. Give applicant/employees pre-adverse action notice;
3. After giving pre-adverse action notice, wait enough time (i.e., keep the job listing open) "before taking final adverse action against an individual";
4. Note the reason why an applicant was not hired, especially if it's not related to his or her consumer report; and
5. Train all management within all the departments of the company so that they are aware of the FCRA requirements.

Defending Against Class Actions

If your company is in the unfortunate position of having to defend an FCRA class action, there are certain things you can do. Littler Mendelson recommends:

• "[G]athering information about whether the challenged practice has varied during the alleged class period (by department, supervisor, position, or over time)";
• Checking to see if any of the company's policies, which are being challenged, fall within "FACTA's exceptions to the consumer report definition";
• Determining whether any of the employees in the class have previously agreed to arbitration; and
• Finding out if there is a legitimate legal reason to forum shop transfer venue.

When you weigh the cost of multimillion-dollar settlements against the simple costs of making sure your company is in compliance, the decision seems easy. Put FCRA compliance at the top of your legal department's to-do list, and protect yourself from this growing trend in class action litigation.

Related Resources:

• In-House Counsel: Don't Let HR Send Nasty Rejection Letters (FindLaw's In House)
• Hiring Summer Associates: 3 Mistakes to Avoid (FindLaw's In House)
• 5 Strategies to Prevent Ex-Employee Lawsuits (FindLaw's In House)