Compliance and Legal
By now, most employers know that the Fair Credit Reporting Act (“FCRA”)1 covers background checks and that the applicant or employee must authorize the employer to obtain a background report (a “permissible purpose”). Abiding by this law seems easy, most likely because third-party vendors who sell background reports
routinely provide employers with the requisite forms for obtaining the authorization.
But, if your company takes adverse action against an applicant or employee based upon information in the authorized background report, will it handle the other FCRA requirements correctly? If an employer is going to take adverse action, the FCRA requires it to provide two adverse action notices – a pre-decision notice and a post-decision notice. To complicate things, these two notice requirements are found in different sections of the FCRA. Some prominent employers, such as Walmart and Northrop Grumman, have had to re-examine their policies after being sued for allegedly failing to give these pre- and post-decision adverse action notices.
The Pre-Decision Adverse Action Notice
FCRA section 1681b requires an employer, before taking any adverse action, to provide the employee with “notice” comprised of:
(i) a copy of the report; and
(ii) a written description of their rights under the FCRA.
While the content of the required notice seems pretty clear, the timing of the notice is not. The FCRA does not prescribe a window of time between giving the notice and taking the action. Judicial and administrative interpretation of the FCRA has produced different standards. Courts have held that the notice must be given “a sufficient amount of time before it takes adverse action so that the [employee] may rectify any inaccuracies in the report” or that the employer must “provide the [employee] with a reasonable period to respond” after the employee receives the report.2 The Federal Trade Commission (“FTC”)3 states that the amount of notice may vary from case to case but, on the other hand, providing the notice five business days before taking the adverse action was reasonable.4
The one certainty to take away from these conflicting views is this: Any employer who chooses to provide the pre-decision notice at the same time it relays the adverse action to the employee will violate the FCRA.5
The Post-Decision Adverse Action Notice
Once provided with the pre-decision adverse action notice, the applicant or employee may explain or dispute any inaccurate or incomplete information on the background report. If the employer still takes adverse action, based in whole or in part on the background report, then it must give notice after taking such action. Section 1681m of the FCRA requires this post-decision adverse action notice to include:
(i) oral, written, or electronic notice of the adverse action,
(ii) the contact information for the consumer reporting agency that furnished the background report and a statement that the consumer reporting agency did not make the decision to take the adverse action, and
(iii) notice of the employee’s right to obtain a free copy of a consumer report and right to dispute the accuracy or completeness of any information in the background report.
The Consequences of Not Doing it Right
While these rules appear fairly straightforward, some employers overlook them or move too quickly in making employment decisions based on background reports. Such oversight can lead to FCRA violations which, in turn, can lead to costly litigation. FCRA cases are very attractive to class action lawyers because: (1) the potential class members rarely have individualized actual damages; (2) the FCRA provides for statutory and punitive damages; and (3) the FCRA provides for the recovery of attorneys fees by a successful plaintiff. To this point, Walmart recently settled a class action suit alleging failure to provide FCRA notices for $4 million. ChoicePoint, the consumer reporting agency that sold the reports to Walmart and contracted to provide the required notices on behalf of Walmart, agreed to settle for $2.89 million.6 A proactive review of your policies and compliance with those policies can help keep your company from being the next target of an FCRA class action lawsuit.
115 U.S.C. §1681, et seq.
2 See Beverly v. Wal-Mart Stores, Inc., 2008 U.S. Dist. LEXIS 2266, *10 (E.D. Va. Jan. 11, 2008) and the cases cited therein.
3 The FTC is the federal agency responsible for enforcing the FCRA.
4Brinckerhoff-Weisberg, FTC Staff Opinion Letter (June 27, 1997).
5 See Beverly, 2008 U.S. Dist. LEXIS 2266 at *11.
6 Beverly, No. 3:07-cv-00469, Dkt. 83 (E.D. Va. May 1, 2009).
Paul Myers represents clients of Strasburger Attorneys at Law, in complex business litigation matters, including antitrust, class action, contract, Fair Credit Reporting Act, Deceptive Trade Practice Act (DTPA), debt collection, fraud, non-competition and trade secrets, qui tam, tortious interference and shareholder/partner disputes. He is licensed to practice in state and federal courts in Texas and other states.
Paul also represents public and private employers in employer-employee disputes, including labor-management relations and employment litigation. His practice includes the representation of clients before the National Labor Relations Board, as well as state and federal courts. Paul is Board Certified in labor and employment law by the Texas Board of Legal Specialization.
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US investment in the Netherlands from 2000 to 2010 was nine times more than US investment in China during the same period. US investment in the UK was more than seven times more, and in Ireland nearly three times more, than in China. (Source: Transatlantic Economy 2011
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