Hunton Employment & Labor Perspectives

Employers failing to strictly comply with FCRA requirements in conducting background checks continue to face expensive consequences.  On November 16, 2018, the United States District Court for the Southern District of California approved a $1.2 million settlement of a class action lawsuit alleging violations of the FCRA filed against the popular pet supplies chain Petco.

The FCRA requires employers conducting background checks on job applicants and employees to provide a written disclosure stating that a consumer report may be obtained for employment purposes, and to obtain written authorization from the job applicant or employee to obtain the report.  The disclosure must be made “in a document that consists solely of the disclosure,” which is commonly known as the “stand-alone” disclosure requirement.

If after obtaining a consumer report the employer decides to take an adverse employment action (such as declining to hire a job applicant or firing an employee) because of the report, the employer must, prior to taking any adverse action, provide the person subject to the adverse action with a copy of the consumer report and a written summary of consumer rights.  After the employer gives the person an opportunity to respond, it must, among other things, give notice of the adverse action and the person’s right to dispute the accuracy of the consumer report.

The Petco settlement applied to two categories of employees and prospective employees.  The “Disclosure Class” consisted of more than  37,000 people who completed job applications that allegedly did not comply with the FCRA “stand-alone” disclosure requirement.  The disclosure form on the application contained so-called extraneous information other than the disclosure and was allegedly embedded within the employment application.  Within the Disclosure Class was the “Adverse Action Subclass,” which consisted of approximately 52 people who alleged that Petco took an adverse employment action after obtaining a consumer report without providing the required notice, a copy of the consumer report, and an opportunity to cure any inaccuracies.

Of the $1.2 million Petco agreed to pay to settle the case, about $20 will be paid to each member of the Disclosure Class, an additional $150 will be paid to each member of the Adverse Action Subclass, $10,000 will be paid to the lead plaintiffs as an incentive award, and the remaining amount of approximately $430,000 will cover attorneys’ fees, costs, and payment to the settlement administrator.

Employers should review their background check procedures and ensure compliance with all disclosure, authorization, and notice requirements under the FCRA to avoid significant legal and financial consequences.  An individual bringing a private right of action against an employer may be entitled to actual damages, a fine of up to $1,000 per violation, attorneys’ fees, court costs, and punitive damages.  The FTC or other federal agencies may also bring an action to enforce the FCRA against an employer.  Civil penalties for violations in actions brought by the FTC are currently $3,895 per violation.