Class Action Risks for Employers Under FCRA

A recent employment class action filed against the Five Guys restaurant franchise and one of its franchisees highlights – again – the need for employers to strictly comply with the Fair Credit Reporting Act in obtaining and using background check information on job applicants and employees. In Lusk v. Five Guys Enterprises, LLC (which was removed to the U.S. District Court for the Eastern District of California, Case No. 1:17-cv-00762), the specific FCRA issue was the employer’s inclusion of an authorization for a background report in the employment application, along with other extraneous information such as an acknowledgment of at-will employment and an agreement to arbitrate disputes. While Five Guys has not been found liable for anything yet, the case shines a spotlight on what can happen even when inadvertent potential mistakes are incorporated into an employment process or routine that just gets used over and over.

General FCRA Compliance for Employers

To comply with FCRA, employers need to secure authorization for background reports from job applicants or employees in a standalone document; the standalone document can contain FCRA disclosures as well as authorization for background reports, but it cannot be a part of a larger job application or include other types of disclosures or authorizations. There is a split of authority on whether a lawful authorization under FCRA can include a release of claims related to obtaining the background information—an employer’s best practice, given this split, is to have separate documentation for any release of claims. Further, before relying on any information contained in a background report to make an adverse employment decision, the employer must provide a copy of the report and make certain “pre-adverse action” disclosures designed to allow the applicant or employee to dispute the accuracy of the underlying report or provide mitigating or other contextual information in connection with the background information.

As advised by the EEOC, employers should carefully consider mitigating information to reduce discrimination, particularly with regards to criminal background information. It is easy for employers to get FCRA’s technical requirements “wrong,” perhaps because employers often do not realize that job applicants and employees are “consumers” under FCRA or because they are focused on streamlining the onboarding documentation process and want fewer pieces of paper and signatures to track.^[1]

FCRA Class Actions Against Employers

Generally, FCRA employment class action cases are attractive for potential plaintiffs and their lawyers.^[2] FCRA provides for statutory damages without any showing of actual damages, attorneys’ fees and the potential for punitive damages. Moreover, class certification requirements, such as commonality and typicality, are relatively easy to meet when based on noncompliant forms or procedures. In the Five Guys case, the putative class for FCRA claims is large: all “current, former and prospective applicants for employment in the United States who applied for a job with Defendants” during a five-year period. The case also alleges violations of California-specific statutory protections and wage and hour concerns with the franchisee’s payment practices, with correspondingly smaller putative classes. Even small (or at least smaller) class action cases, however, can produce high settlements and awards, once attorneys’ fees are factored in.

Similar cases are being filed across the country, including within the Fourth Circuit, which covers both North Carolina and South Carolina among other states. For example, in Milbourne v. JRK Residential America, LLC, a class of job applicants and employees survived summary judgment when their background check authorizations were contained in a larger “standard disclosure form” document with extraneous information in violation of FCRA. The case later settled on the eve of trial, and the settlement was approved at the beginning of this year. In another case, Thomas v. FTC USA, LLC, a subclass of employees, who were terminated without first receiving a copy of their background reports and a copy of their rights under FCRA, survived summary judgment. Again, the case settled on the eve of trial, and the settlement was approved on March 27, 2017.

Businesses should carefully review their documentation and practices around obtaining and using background reports to ensure strict compliance with FCRA. The FTC and EEOC have published joint guidance for employers, which is well worth reviewing with your legal counsel and human resources professionals.^[3] Absent best practices and careful attention to complying with all of FCRA’s details, employers run the risk of being ensnared in costly class action litigation in which a single, simple mistake can be multiplied over and over by a potentially large class of employees.

For more information regarding FCRA’s requirements or class actions generally in the employment area, please contact a member of Robinson Bradshaw’s Employment and Labor Practice Group.

[1] See www.eeoc.gov/eeoc/publications/background_checks_employers.cfm

[2] See www.law.cornell.edu/uscode/text/15/1681n

[3] See www.ftc.gov/tips-advice/business-center/guidance/background-checks-what-employers-need-know.