What Does the Rise of FCRA Lawsuits Mean for Staffing Firms?
Amazon, Whole Foods, Home Depot… These household names are just a few of the big organizations that have been hit with class-action lawsuits in recent years over compliance with the Fair Credit Reporting Act (FCRA). If even the big guys are at risk, what does the rise of FCRA lawsuits mean for staffing firms?
Mega-corporations aren’t the only target. Many attorneys seek out potentially huge settlements that reside in large pools of claimants; and with massive pools of applicants, staffing companies are potentially at high risk.
What Are the FCRA Requirements on Background Checks?
Running background checks on applicants is an essential practice for every staffing firm to ensure the competence, safety and honesty of the people they send to their clients. But in order to protect consumers in the background check process, the Federal Trade Commission enforces the FCRA. Essentially, the FCRA ensures that any personal information collected will be treated with fairness, accuracy and privacy.
FCRA requirements include the following:
The applicant must receive a “clear and conspicuous disclosure” in writing before a report is procured.
The disclosure document must include only the disclosure information (any other information must be included in a separate document unless it’s just a signature authorizing the check).
The applicant must authorize the procurement of the report in writing.
For staffing firms and employers who choose to make a hiring decision against the applicant because of information provided in the background report, the FCRA has further compliance requirements, including:
Notifying the applicant, in writing (“Pre-Adverse Action Letter”), of the intent to take adverse action and giving the applicant reasonable time to review.
The staffing firm or employer must provide a copy of the report to the applicant.
The staffing firm or employer must provide a written description of the applicant’s rights.
Final employment decisions adverse to the applicant must be followed up with an Adverse Action Letter that includes a copy of the report and the summary of rights.
Examples of FCRA Compliance Lawsuits
Common violations include problems with disclosure and adverse action notification. These seemingly straightforward errors have often resulted in settlements of hundreds of thousands, if not millions, of dollars. Here are some examples.
Amazon: In 2015, Amazon withdrew an employment offer based upon information in the background check. The candidate filed a class action lawsuit against Amazon due to allegedly not receiving notice of adverse action. Furthermore, Amazon did not allow him the opportunity to review and contest inaccurate information on the record.
Whole Foods: In 2014, an employee of Whole Foods filed a class action lawsuit, claiming improper disclosure. In particular, the disclosure statement was not “clear and conspicuous” and included a liability waiver in the same document. In 2015, a settlement was agreed upon for $803,000.
Domino’s Pizza: A $2.5 million settlement was the result of an FCRA violation for Dominos in 2013. They allegedly included a liability release in the same document as the disclosure statement, in violation of the FCRA disclosure requirements. Additionally, they did not provide adverse action notice or copies of the background check report to a number of applicants who were not hired as a result of the report.
Home Depot: The Home Depot must pay a $3 million class-action lawsuit for violating the FCRA disclosure requirements. Their forms did not include a separate document for disclosure, but was combined with a release of liability.
How to Minimize Your Risk of FCRA Compliance Violations
Staffing firms have massive pools of contractors, temporary employees and full‑time employees whose backgrounds are checked before deploying them to client sites. If these firms fail to pay close attention to FCRA compliance, they’re looking at a lawsuit that’s just waiting to happen. Fortunately, you can future-proof your workforce by choosing the right employee background screening company. The right partner can help you ensure you’re taking these simple steps:
Provide disclosure and authorization statements to candidates before a background check is run. These statements must be separate documents with separate titles, even if presented in electronic format.
The disclosure statement should only include language pertaining to the disclosure. Avoid language that refers to indemnification of your company and clients, reservations of rights, warranties, collection of personal information beyond name and signature, or anything else outside of background check/consumer report disclosure.
In the case of adverse action, a Pre-Adverse Action Letter must be provided to the applicant, and must include a copy of the report and summary of rights. Furthermore, you must provide the applicant with “reasonable time” (best practices allow for a minimum of 5 to 7 days) to review the letter and report. After adverse action is officially taken, an Adverse Action Letter must be provided with a copy of the report and the summary of rights.
So what does the rise of FCRA lawsuits mean for staffing firms? It means you need all eyes on compliance when it comes to background screening your candidates. At easyBackgrounds, we’ve got you covered. Compliance and accuracy are the cornerstones of our service. Just let us know how we can help you today.