Retailers, restaurants, and other employers received a $4 million reminder last week of the need to ensure compliance with the Fair Credit Reporting Act’s disclosure requirements in connection with employee background checks. That reminder came in the form of the settlement Dolgencorp, which operates Dollar General stores, agreed to resolve a class action suit alleging FCRA violations. We previously identified FCRA claims against employers as something to watch in 2014, and in July, six high-profile companies—Aaron’s Inc., Home Depot, Nine West, Staples, Panera and American Multi-Cinema Inc.—were hit with class action suits alleging that their use of background checks violated the FCRA.
FCRA suits against employers usually focus on two points in the background-check process when disclosures are required:
- Before obtaining a report: Employers must provide a “clear and conspicuous disclosure” made in writing “that consists solely of the disclosure” that a consumer report may be obtained for employment purposes along with written authorization from the employee or prospective employee. 15 U.S.C. 1681b(b)(2)
- Before taking an adverse action based on a report: Employers must provide a copy of the report and “a description in writing of the rights of the consumer under this subchapter …” 15 U.S.C. 1681b(b)(3).
Two cases decided in Pennsylvania within the last year shed light on some of the issues facing employers. First, in Reardon v. ClosetMaid Corp., No. 2:08-cv-01730-MRH (W.D. Pa. Dec. 2, 2013), the court held that an authorization form did not satisfy the pre-report disclosure requirements because it contained not only a disclosure that a background check would be completed and an authorization by the prospective employee for a release of records, but also language releasing the employer from “liability for damages of whatever kind, which may at any time, result to [the prospective employee] . . . because of compliance with this authorization and request to release.” (Slip Op. p. 12.)
The second case, Moore v. Rite Aid Hdqtrs Corp., No. 13-1515 (E.D. Pa. July 30, 2014), provides guidance regarding pre-adverse-action notifications. Rite Aid uses a background-check company to sort prospective employees into three categories (eligible, non-competitive, and decisional) based on the results of the background check. The plaintiff was sent an initial notice letter indicating that she had been scored non-competitive because there had been a hit on her report, which was attached to the letter. The letter also stated that if the plaintiff responded within five days, Rite Aid would “consider whatever information you provide to us in making our final decision whether to terminate/employ you.” While an employer cannot avoid the FCRA by simply designating a point in the future as the time of a final decision, the plaintiff did not respond within the five-day period and did not provide any explanation for her failure to do so. Because she did not give Rite Aid an opportunity to respond to her dispute, the plaintiff could not plausibly claim that she did not have a real opportunity to contest the contents of her report, and so the court dismissed her claims.
TAKEAWAY: The case law on FCRA disclosures is still developing. The decision in Reardon conflicted with Smith v. Waverly Partners, LLC, 3:10-CV-00028-RLV (W.D.N.C. Aug. 23, 2012), which held that the release language at issue there was “not so great a distraction” to negate the effect of the disclosure. FCRA suits are continuing to rise, however, so retailers and other employers should review their background check disclosures and procedures to ensure compliance with the FCRA.