HR Hero Line

What every employer needs to know before seeking background checks

by Kevin J. Skelly

The federal Fair Credit Reporting Act (FCRA) and corresponding state laws impose obligations on employers that rely on certain background checks to make employment decisions. A recent class action lawsuit filed in New Jersey federal court should serve as a wakeup call for employers on the many pitfalls associated with conducting background checks on job applicants and employees. 

Job applicants sue trucking company for FCRA violations
In April 2016, a class of former job applicants sued trucking company J.B. Hunt Transport Inc., alleging it violated the FCRA by obtaining credit reports on job applicants without their authorization and without providing the necessary disclosures. According to the complaint, Stanley Napier applied for a truck driver position through J.B. Hunt’s website. The application didn’t contain any notice informing applicants that the company would obtain a background check as part of the application process.

The company allegedly failed to obtain Napier’s consent before obtaining a background report on him. He alleges that the background report J.B. Hunt received contained incorrect information and the company disqualified him from further consideration based on the inaccurate information in his background report.

The putative class includes thousands of other individuals who applied for jobs with J.B. Hunt over the past few years. The attorneys for the putative class members are seeking damages of $100 to $1,000 per class member per violation, along with other damages.

Protections under the FCRA
The FCRA applies to employers that acquire background checks (called “consumer reports”) through third-party companies that are in the business of compiling background information (referred to as “consumer reporting agencies”). Consumer reports typically include information about an individual’s creditworthiness, character, reputation, criminal background, driving record, and any civil lawsuits he has been involved in, among other information. The FCRA and state laws contain various notification and consent requirements, which employers often overlook.

First, before requesting a consumer report on an applicant or employee, an employer is required to provide him written notice that it might use information in the consumer report to make employment decisions. The notice must be in a stand-alone document that consists solely of the notification that a consumer report may be obtained. The notice cannot be included in an employment application. Employers must also get the applicant’s or employee’s written authorization to obtain the consumer report.

If the employer decides to take an adverse action based on negative information contained in the consumer report (such as denying an applicant a job or discharging an employee), the FCRA and the state laws impose additional notification requirements. Under the FCRA, before the employer takes the adverse employment action, it must give the applicant or employee (1) a copy of the consumer report and (2) a written description of his rights. The “preadverse action” notice is designed to give the applicant or employee an opportunity to review the report and notify the employer if any information is inaccurate.

If the employer decides to take adverse action based on information in the consumer report, it must give the applicant or employee notice of that decision. The FCRA provides that the notice must include:

  1. The name, address, and phone number of the consumer reporting agency that supplied the report;
  2. A statement that the consumer reporting agency did not make the adverse action decision and cannot give specific reasons for it; and
  3. A notice of the individual’s right to dispute the accuracy of the information contained in the consumer report and his right to obtain, upon request, an additional free report from the consumer reporting agency within 60 days.

An employer that violates the FCRA’s requirements is subject to actual damages suffered by the applicant or employee, along with attorneys’ fees and costs. For willful violations, an employer is also subject to fines up to $1,000, plus punitive damages, attorneys’ fees, and costs.

Bottom line
The FCRA and many state laws contain many technical and procedural requirements that employers can easily overlook. Although the penalties associated with a single violation of the laws aren’t substantial, violations typically involve a large number of individuals. Moreover, FCRA claims are often brought as class actions, like the class action recently filed against J.B. Hunt.

The number of FCRA class actions has increased dramatically in recent years. Carefully review your hiring procedures to ensure compliance with both the FCRA and your state’s laws.

Kevin J. Skelly is an attorney with Day Pitney LLP in Parsippany, New Jersey. He may be contacted at kskelly@daypitney.com.

Need to learn more? On October 20, BLR will be presenting  Background Checks Demystified: How to Screen Applicants and Employees in Compliance with Federal Law. Join us to learn how to legally conduct employee background checks under federal law. The attorney leading the session will cover the information you need to know about your next potential employee, how to go about the background check process, which investigations are necessary for the particular job slot, and the limitations imposed by federal law. To learn more, click here.