United States: Avoid Becoming The Next Target Of A Class Action Taking Aim At Employers' Background Screening Forms

Last week, a Florida district court approved a class action settlement between Whole Foods Market Group Inc. and an employee class related to Whole Foods' inclusion of a waiver and liability release in its Fair Credit Reporting Act (FCRA) disclosure form. This settlement, as well as other recent lawsuits and decisions, are reminders to employers that rely on background screening that plaintiffs' lawyers are ready to pounce on their processes with FCRA class action lawsuits. In light of this risk, employers should take a close look at their forms and background screening processes.

The FCRA requires employers who obtain a consumer report for employment purposes to provide a clear and conspicuous disclosure, in a document that consists "solely" of the disclosure, that a consumer report may be obtained for employment purposes. In addition, the FCRA requires employers using reports for adverse actions to send "preadverse" and "final" adverse action notices. Over the past few years, as employers have been improving the quality of these disclosure forms, plaintiffs' attorneys have been asserting new and creative theories as to the FCRA's requirements and restrictions pertaining to these forms. Running afoul of these requirements and restrictions can create significant exposure for an employer.

New lawsuits against employers are surfacing nearly every week. For example, as recently as last week, a national restaurant chain was sued in a class action alleging its background check disclosure form included extraneous information, including alleged false information provisions, a post-employment authorization and an at-will employment provision, allegedly in violation of the FCRA's "solely of the disclosure" requirement.

Because class action lawsuits often create large theoretical exposure, they often end in settlement, such as for Whole Foods. Class action settlements related to allegedly noncompliant disclosure forms can range from hundreds of thousands to multi-million dollars. Recent court approved settlements include $2.99 million and $4 million against two major employers based on disclosure form allegations. Last year a regional grocer settled similar claims for nearly $6.8 million. In the Whole Foods case, the plaintiff alleged that putative class members were not provided with a stand-alone FCRA document because Whole Foods presented the disclosure statement at the same time it presented a consent form that forced employees to release their rights. The court denied Whole Foods' motion to dismiss finding that "if both the disclosure and the consent forms combined and read as one document with the waiver and release included simultaneously with the disclosure, the complaint states a claim for relief." Speer v. Whole Foods Market Group, Inc., Case No. 8:14-cv-3035-T-26TBM (ECF 35) (M.D. Fl. March 30, 2015). The Whole Foods class consists of approximately 20,000 class members who are expected to receive approximately $24 each from the settlement.

FCRA lawsuits in the employment context frequently turn on very technical issues of liability. In fact, many of the disclosure forms at issue in these lawsuits undoubtedly convey to an applicant or employee that the employer will obtain a consumer report. Whether or not the applicant was aware a consumer report was being procured, however, is not typically the operative issue. Instead, plaintiffs' attorneys and courts often focus on whether the form is legally "clear and conspicuous" and on technical theories of what information can be included on the form before it no longer consists "solely of the disclosure."

For example, courts have found the inclusion of extraneous information in a disclosure form can violate the FCRA's "solely" requirement, even when there is no misconception as to whether the applicant understood the employer would obtain a background check. According to some courts, extraneous information can include, among other things, liability releases and employment information unrelated to the procurement of a background check.

In addition to the substance of the form, employers should also review the presentation of the form as part of the overall application process. At least one court has found that a plaintiff stated an FCRA claim by alleging the disclosure form at issue was presented as part of a 12-page package of information titled "Consumer Disclosure and Authorization Form," even though the package included separate pages with separate subheadings. As another example, in another case, the plaintiff alleged the company's disclosure violated the FCRA because it was "embedded within one long continuous web page that applicants fill out" that included application information and a liability release.

Because these lawsuits are premised on evolving technical theories of liability, employers should consult legal counsel experienced in FCRA matters who are uptospeed on the latest plaintiffs' theory when reviewing their disclosure forms. Troutman Sanders is well-equipped to assist with the review of disclosure forms and employers' electronic application processes to ensure FCRA compliance. Troutman Sanders has a team of seasoned litigation and compliance lawyers. We have advised numerous Fortune 500 employers on strategies to comply with the FCRA and specifically how to ensure background screening forms comply with FCRA requirements.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Alan D. Wingfield
David N. Anthony
Meagan Mihalko
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