The State of FCRA Litigation in 2018
Published by Eric A. Welter on April 18, 2018
FCRA class action litigation has blown up in the last six years, spurred by large awards for uber-technical violations of the statute. Although recent case law establishes defenses to suits where no actual injury has occurred, FCRA litigation will likely continue in spades and employers should take proactive steps to ensure compliance at every step of the process.
FCRA litigation continues to increase steadily since 2011 despite the U.S. Supreme Court’s ruling in Spokeo, Inc. v. Robins that plaintiffs must prove “concrete injury” in class action lawsuits for alleged “bare” violations of the federal statute. This post is a brief summary of the major litigation issues and a prediction of the state of litigation going forward in 2018.
FCRA suits tend to take two forms of general allegations. The first is that the form of the employer’s disclosure and authorization does not comply with the statute. Before an employer obtains a consumer report for employment purposes, it is required to provide the consumer of its intent to do so via a “Disclosure” and obtain the consumer’s authorization to do so via an “Authorization.” The Act proscribes technical requirements for making the disclosure and obtaining the authorization. Specifically, the employer must provide “a clear and conspicuous disclosure” that “a consumer report may be obtained for employment purposes” “in writing” and “in a document that consists solely of the disclosure.” 15 U.S.C. § 1681b(b)(2)(A)(i).
Compliance or failure of the same with the Act’s technical requirements gives rise to most FCRA litigation. For example, plaintiffs have filed suit arguing that any other language additional to the disclosure and authorization—-like a release or waiver of claims, the job application, or state law disclosures—-is noncompliant with the requirements of the Act. Accordingly, employers should ensure that their Disclosure and Authorization is a stand-alone document that contains only the required information.
Other compliance issues frequently raised in litigation include compliance with the adverse action notices required by the Act. Specifically, before an employer takes an adverse employment action based on a consumer report, it must first give the employee or prospective employee who is the subject of the report a copy of the report and notice of his or her rights under the FCRA. 15 U.S.C. § 1681b(b)(3). Issues that may arise include a complete failure to provide the notice as well as the timing of the notice. The notice is required to be sent when an employer decides that the results of an applicant’s consumer report make them ineligible for hire; however, the employer is required to hold off on making a final decision until the applicant has had an opportunity to dispute the accuracy or correct the consumer report. Plaintiffs often take issue with the timing of events or argue that the decision was made prior to receipt of the notice.
It was initially thought that Spokeo would have the impact of significantly reining in class action litigation on the grounds that plaintiffs would have to prove “concrete injury” for alleged violations of the statute. That being said, proof of injury does not take much. For example, on remand to the Ninth Circuit, the Court found that the plaintiff had in fact established a concrete injury when he showed that Spokeo had published incorrect information about him online. The Court stated: “Ensuring the accuracy of this sort of information thus seems directly and substantially related to FCRA’s goals.”
Nevertheless, in August 2017, the Seventh Circuit upheld a motion to dismiss on the grounds that the plaintiff had failed to allege injury in fact. Groshek v. Time Warner Cable, Inc., 865 F.3d 884 (7th Cir. 2017), cert. denied, 138 S. Ct. 740 (2018). The plaintiff in Groshek specifically alleged that he suffered “informational and privacy injuries” but the court did not buy it. Similarly, in October 2017, a U.S. District Court in California granted a motion to dismiss an FCRA class action on the grounds that the plaintiff had failed to allege injury-in-fact. Saltzberg v. Home Depot, U.S.A., Inc., No. CV1705798RGKAKX, 2017 WL 4776969 (C.D. Cal. Oct. 18, 2017).
On the other hand, however, in March 2017, the Ninth Circuit held that an allegation that the defendant failed to provide him with the requisite pre-report notice and obtain his authorization to pull the report was sufficient to establish standing to sue. Syed v. M-I, LLC, 853 F.3d 492 (9th Cir.), cert. denied, 138 S. Ct. 447, 199 L. Ed. 2d 340 (2017). The court reasoned that the FCRA’s disclosure requirement “creates a right to information,” and the FCRA’s authorization requirement “creates a right to privacy,” implying that the defendant’s failure to comply with these requirements resulted in injury to these rights.
Given these recent developments, it does not appear that litigation based on technical violations of the Act will slow anytime soon. Although recent case law has developed defenses to FCRA litigation based on standing and a lack of injury in fact, these defenses are limited on their facts. Employers should continue to take proactive steps to ensure compliance with the FCRA and any other state or local background check legislation.Topics: Class Action, Employee Handbooks, FCRA, Hiring, Performance Reviews, termination