United States: SCOTUS Fair Credit Reporting Act Background Check Standing Case Remanded To Lower Court

Executive Summary: On May 16, 2016, in a 6-2 decision, the U.S. Supreme Court remanded the closely watched Spokeo Inc. v. Robins case back to the Ninth Circuit for further analysis. The issue is whether the plaintiff, Robins, has standing to sue Spokeo under the Fair Credit Reporting Act (FCRA) for injuries allegedly caused by Spokeo's dissemination of incorrect information about Robins. Standing requires the plaintiff to show (1) injury (2) that is fairly traceable to the defendant's conduct, and (3) that is likely to be redressed by a favorable judicial decision. The appeals court held that Robins had standing. The Supreme Court, however, vacated the appeals court's decision and remanded the case back to it to consider whether Robins' complaint sufficiently alleged that his claimed injuries were "concrete." The case is still alive. Employers had hoped that the Supreme Court's decision would prevent plaintiffs from establishing standing by alleging mere statutory violations.

Spokeo: Do Class Action Plaintiffs Have Standing for Technical Violations?

Spokeo operates a "people search engine" that allows users to search a person's name in a wide variety of databases. Spokeo performed a search for information about Robins, which returned some incorrect information. When Robins learned of the inaccurate information, he filed a class action lawsuit.

The issue in Spokeo in the FCRA context is whether a plaintiff who has not suffered concrete harm has federal standing based on a minor or technical statutory violation. Employers had hoped the Court's decision would definitively resolve this question and find that such plaintiffs do not have standing.

The Court's decision, however, punted this question back to the lower court for an analysis of whether the plaintiff had established a sufficiently concrete injury. The Court's opinion included some favorable language for employers, recognizing that a plaintiff cannot satisfy standing by alleging a bare procedural violation. The Court further noted that violation of one of the FCRA's procedural requirements might not result in harm. 

The Court's decision does not resolve the standing issue, however, and the case remains alive. The Ninth Circuit previously held that Robins had standing, so it is likely its decision on remand will confirm its previous analysis.

Million Dollar Settlements for Technical Violations

Many employers utilize some form of background or credit check during their hiring process. Employers may not realize, however, that if they seek this information in the form of consumer reports or investigative consumer reports from a third-party consumer reporting agency (CRA), the FCRA comes into play. In addition, many states have their own laws that govern background checks. Under the FCRA, consumer reports include primarily objective information, such as basic identifying and biographical information, a summary of a person's credit standing, criminal records, and job and education verification, whereas investigative consumer reports contain primarily subjective information regarding a person's character, general reputation, and personal characteristics based upon personal interviews. The FCRA sets forth specific requirements with which employers must comply when obtaining either of these reports. The Act provides that willful violations can result in either actual damages or statutory damages, ranging from $100 to $1,000 per violation, which quickly adds up in class action litigation. Additionally, there is the possibility that employers may be hit with punitive damages, as determined by the court, for willful violations.

Several recent lawsuits against well-known national employers claiming only technical violations of the FCRA have resulted in million dollar class action settlements. In Ellis v. Swift Transp. Co. of Ariz., LLC, a federal judge in Virginia approved a $5.053 million settlement for the claims of approximately 181,000 truck drivers for alleged violations of the FCRA's disclosure and authorization provisions. Case No. 3:130-cv-00473 (E.D. Va. 10/7/14). Likewise, in Singleton v. Domino's Pizza, LLC, the parties agreed to settle allegations of FCRA violations with a $2.5 million total payout for approximately 42,000 class members. Case No. 8:11-cv-01823 (D. Md. 7/1/11). 

Much of the recent class action litigation has involved violations of the so-called "stand-alone" disclosure requirement in the FCRA. This provision requires that the disclosure provided to an individual before obtaining a consumer or investigative report be in a separate document that consists solely of the disclosure. The Act further provides that the authorization may also be included in the disclosure document. Employers must ensure that their disclosure and authorization forms do not include any extraneous information that could result in a violation of this provision.

Bottom Line:

The Supreme Court's decision in Spokeo does not resolve the issue of standing for class action plaintiffs who allege technical violations of the FCRA. Employers who obtain background checks from consumer reporting agencies must ensure their forms comply with the federal Fair Credit Reporting Act, as well as various state laws. Employers cannot rely on the disclosure and authorization forms provided to them by third-party vendors and must be aware that violations of the technical provisions of the FCRA have the potential to cause huge problems. In addition to the federal FCRA, employers must also comply with state equivalents, many of which impose additional requirements.  

The recent increase in FCRA litigation, the technical nature of the violations, and the potential for class action litigation with huge damages make this an extremely important issue for employers. Employers who conduct background checks would be well served to review their hiring forms to ensure they comply with the FCRA. 

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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