If your company runs background checks on employees and applicants, you must comply with the Fair Credit Reporting Act, 5 U.S.C. § 1681 (“FCRA”). Failing to do so can result in significant financial trouble. For example, on June 15, 2016, Uber reported settlement of an FCRA class action lawsuit for $7.5 million. The basis of the lawsuit was an allegation that Uber failed to provide proper notice of its intent to rely upon background checks when screening its drivers. This is simply the latest in a series of multi-million dollar FCRA class action settlements.
Unfortunately for Uber, but fortunately for you, compliance with the FCRA is a simple process as long as your company follows these four steps:
- Before Obtaining a Background Check or Credit Report, you must provide the applicant or employee with the following two forms, both of which must be signed:
- Before Taking Any Adverse Action, you must provide the employee or applicant an opportunity to dispute any false information on the background check, or to identify any information that was mistakenly attributed to the applicant. The law requires you to provide them with the following three items:
- a “Pre-Adverse Action Letter,” which notifies the individual of your intent to take an adverse action based on consumer information;
- a copy of the Federal Trade Commission’s form titled, “A Summary of Your Rights Under the Fair Credit Reporting Act”; and
- a copy of the credit or background report upon which you intend to base your adverse action.
- Communicate the Adverse Action.
- First contact the applicant or employee by telephone to communicate the information being provided in step 2; and
- then, follow up with written correspondence (email is sufficient).
- After Taking an Adverse Action.
- Provide the declined applicant or employee with a “Post-Adverse Action Letter.”
- If the applicant or employee requests a copy of the consumer report after receiving the post-adverse action letter, you must provide it within 3 business days as well as another copy of the FTC’s handout, “A Summary of Your Rights Under the Fair Credit Reporting Act.”
As noted above, failure to follow the steps required by the FCRA can result in significant exposure. While technical violations of the FCRA may seem insignificant, courts may find that a company’s failure to comply with the statute is “willful,” which subjects the company to paying statutory damages of between $100 and $1,000 per violation, even if complaining employees cannot demonstrate any actual harm or financial damage. The FCRA also entitles a plaintiff to recover attorney’s fees, which can add thousands, if not millions of additional dollars to the cost of resolving a claim.
Many of the forms discussed above should be prepared by a lawyer. I am happy to give them to you for free. Email me, or call me at (470) 839-9300, and we can discuss how to ensure that your company is complying with the FCRA. Avoiding Uber’s costly mistake is simple; you simply have to take the four simple steps discussed above.
 In October 2014, Publix Super Markets, Inc. settled an FCRA class action in federal court in Tennessee for $6.8 million, including $2.3 million in attorney’s fees. In March 2015, Food Lion’s parent company settled an FCRA class action for $2.99 million, including $1 million in attorney’s fees. In October 2014, Dollar General settled an FCRA class action for $4 million, including $1 million in attorney’s fees. In January 2013, K-Mart Corporation settled an FCRA class action for $3 million, including $900,000 in attorney’s fees.
 The Notice That a Consumer Report May be Obtained for Employment Purposes is a very specific form, with a handful of important technical requirements. For example, you cannot include any sort of waiver or release in the Notice, or you will be deemed to have failed to comply with the FCRA. If a plaintiff’s attorney finds a technically deficient Notice in their client’s personnel file, you can be sure that an FCRA class action is soon to follow.