The swelling tide of class action litigation against employers under the Fair Credit Reporting Act (FCRA) is unmistakable. It cuts across all industries, including retailers, restaurant chains, theatre chains, manufacturers, financial institutions and transportation companies. To illustrate how the threat to employers is concrete, not merely hypothetical, close to a dozen nationwide class actions were filed in plaintiff-friendly venues during just June and July 2014. Three suits were filed by one firm on the same day in July.
These lawsuits can be frustrating for employers because typically they allege hyper-technical non-compliance with the FCRA (e.g., supposed defects in the employer's pre-employment forms and template notices). That is, the lawsuits appear to be lawyer-contrived cash grabs because no job applicant or employee possibly could have suffered any real harm. Nonetheless, prudent employers should be mindful of recent developments, including: (1) wide-spread publication of several significant seven-figure class action settlements; (2) the entry into the market of firms versed in wage and hour class actions; (3) pro-plaintiff outcomes in some federal courts; and (4) the lure of statutory damages awards to the plaintiff's bar when the U.S. Supreme Court has demonstrated a healthy measure of hostility towards class actions.
To be clear, the FCRA is widely known as the federal law that regulates the exchange of consumer credit information between the credit bureaus (e.g., Experian, Trans Union and Equifax) and creditors in connection with mortgage lending and other consumer credit transactions (e.g., credit reports). By its terms, however, the FCRA regulates also the exchange of information between employers and "consumer reporting agencies" (CRAs) that provide "consumer reports" (i.e., background reports). Further, the obligations that the FCRA imposes on employers are not only triggered when an employer orders a credit report from a CRA. Generally speaking, employers must comply with the FCRA when they order virtually any type of report from a CRA, including criminal and motor vehicle records checks.
For decades, it was uncommon to see lawsuits or government enforcement actions against employers under the FCRA. The plaintiff's bar and Federal Trade Commission (FTC) instead targeted the credit bureaus. Now, times have changed. Compliance with the FCRA is indispensable for all employers that use background reports to make hiring and employment decisions. This Littler Report summarizes litigation trends and provides practical insights for mitigating class action risk.
To read the Littler Report, please click here.
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