Class action litigation brought under the Fair Credit Reporting Act (FCRA) is on the rise—particularly in California—after the US Court of Appeals for the Ninth Circuit issued a 2017 decision applying a hypertechnical approach to the FCRA’s disclosure requirements. Background checks are an integral part of the hiring process, but they open employers up to lawsuits for noncompliance with disclosure or adverse action requirements. Plaintiffs’ firms are turning their attention to these cases because of the potential for statutory and actual damages, punitive damages, costs and attorneys’ fees. In our recent webinars, we discussed strategies to help employers avoid and defend these claims.
Class action litigation brought under the Fair Credit Reporting Act (FCRA) is on the rise—particularly in California—after the US Court of Appeals for the Ninth Circuit issued a 2017 decision applying a hypertechnical approach to the FCRA’s disclosure requirements. Background checks are an integral part of the hiring process, but they open employers up to lawsuits for noncompliance with disclosure or adverse action requirements. Plaintiffs’ firms are turning their attention to these cases because of the potential for statutory and actual damages, punitive damages, costs and attorneys’ fees.
Please join us for a complimentary webinar Thursday, July 30 as we discuss strategies to help employers avoid and defend these claims.
In today’s high-stakes environment, in-house counsel and HR professionals are often on the frontlines, responding to headlines that threaten business and reputational objectives.
Join McDermott Will & Emery’s Employment and Employee Benefits practice groups at a half-day forum in our Chicago office on Oct. 10. This forward-looking program is designed to drive conversation around emerging trends to help employers craft their own narrative, instead of being held captive by it.
Last month, the Federal Trade Commission (FTC) and the Equal Employment Opportunity Commission (EEOC) issued joint guidance addressing the use of background checks in employment decisions. The guidance does not offer new requirements related to background checks, but rather serves as a reminder to employers of their obligations under federal law when they use background checks, and creates a user-friendly guide to applicants and employees regarding their rights with respect to background checks.
The guidance consists of two documents – one for employers, “Background Checks: What Employers Need to Know,” and one for applicants and employees, “Background Checks: What Job Applicants and Employees Should Know.” The first document, “What Employers Need to Know,” offers guidance to employers on their existing legal obligations under the Fair Credit Reporting Act (FRCA), a federal law enforced by the FTC, and federal non-discrimination laws enforced by the EEOC. The document reminds employers that under FCRA employers must obtain written permission from job applicants and employees before conducting a background check, and must notify applicants and employees that background reports may be used to make decisions about employment. In addition, the agencies reaffirm that employers must not discriminate based on a person’s race, color, national origin, sex, religion, age (40 or older) or disability when requesting or using background information for employment. Finally, the guidance discusses the requirements related to the retention, preservation and disposal of personnel or employment records.
The second document, “What Job Applicants and Employees Should Know,” describes applicants’ and employees’ rights under federal law when an employer conducts background checks. The agencies remind applicants and employees that it is lawful for potential employers to ask about applicants’ or employees’ backgrounds or require a background check, as long as the employer does not unlawfully discriminate. The guidance also states that employers must not ask for medical information until they offer an applicant a job, and can only ask for genetic information under limited circumstances (for example, when an employer offers health or genetic services as part of a voluntary wellness program, or if the information is required to comply with the Family and Medical Leave Act). Finally, the guidance explains that when applicants have been turned down for a job or denied a promotion based on information in their background reports, they have the right to review the report for accuracy.
This marks the first time the two agencies have jointly issued guidance, which seems to indicate that both agencies have a vested interest in enforcing the laws related to employer use of background checks, and perhaps serves as a signal to employers that both agencies consider this topic a priority. Employers should consider reviewing the new guidance, and ensure that their policies and practices with respect to background checks comply with federal law, as well as applicable state and local law.
FTC: Employers Who Buy Profiles from Data Brokers to Supply Profiles on Applicants or Employees Must Comply with the FCRA
We recently released a Hot Topic that details the Federal Trade Commission’s (FTC) settlement with Spokeo, Inc. Spokeo collected information about individuals from online and offline sources to create profiles that included contact information, marital status, age range and in some cases included a person’s hobbies, ethnicity, religion, participation on social networking sites and photos that Spokeo attributed to a particular individual. Spokeo marketed these profiles to companies in the human resources, background screening and recruiting industries as information to serve as a factor in deciding whether to interview or hire a job candidate. The FTC concluded that Spokeo acted as a consumer reporting agency and thus violated the Fair Credit Reporting Act (FCRA) by: (1) failing to ensure the consumer reports it sold were used for legally permissible purposes; (2) failing to ensure that the information it sold was accurate; and (3) by failing to inform users of Spokeo’s consumer reports of their obligations under the FCRA. Spokeo agreed to pay $800,000, and comply with the FCRA going forward, among other things.
There is an important message for employers in this settlement: If you receive profile information from data brokers and use that information in making employment decisions, the FCRA applies. And while this enforcement action focused on the data broker, the FTC could turn next to offending employers. The FTC has published guidance on how to avoid an enforcement action in these circumstances and comply with the FCRA at: Using Consumer Reports: What Employers Need to Know Employers should also check on the local state laws that may apply, because some states restrict the use of such reports for employment purposes.