Hunton Employment & Labor Perspectives

On October 24, 2024, the Consumer Financial Protection Bureau (CFPB) issued a policy statement (known as a Circular) to explain the link between the Fair Credit Reporting Act (“FCRA”) and employers’ growing use of artificial intelligence to evaluate, rank, and score applicants and employees. 

“Ban-the-Box” legislation has seen steady growth throughout the country for more than two decades.  Currently, there is no federal legislation on the topic for private employers but a good number of states have limited their ability to inquire about or make decisions based on a prospective employee’s criminal background history.

When there is a willful violation to the Fair Credit Reporting Act (”FCRA”) consumers can recover either actual damages sustained by the consumer or statutory damages of no less than $100 and not more than $1000. (Punitive damages and attorney fees also are available).  There has been a trend in the district courts examining whether plaintiffs must prove that they suffered actual damage in order to recover statutory damages. Since 2007 several Circuits have reviewed this argument and each has explained that the provision for statutory damages does not require a showing of “actual damages.” The Eleventh Circuit is the most recent to weigh in on this question in Santos v. Healthcare Revenue Recovery Grp., and agrees with its sister Circuits.

Employers who conduct background checks on applicants or employees must comply with the Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681 et seq.  Among other things, the FCRA requires employers who procure criminal background reports (“consumer reports”) to provide applicants and employees with a Summary of Rights form as prepared by the Consumer Financial Protection Bureau (CFPB) when providing them with the FCRA-required pre-adverse action notices. See 15 U.S.C. § 1681b(b)(3)(A)(ii).

Uber Technologies, Inc. has been sued in a class action lawsuit alleging the company’s use of criminal background checks discriminates against Black and Latinx drivers. The complaint, filed in the U.S. District Court for the Southern District of New York on April 8, challenges Uber’s “unlawful use of criminal history to discriminate against its drivers in New York City as well as its brazen noncompliance with human rights and fair credit laws.”

Named plaintiff Job Golightly, a Black resident of Bronx County, New York, drove for Uber from 2014 through August 2020. Golightly claims that his criminal history consists of a single 2013 misdemeanor speeding violation from Virginia. According to the lawsuit, until 2017 Uber had relied solely on background checks conducted by the New York City Taxi and Limousine Commission (TLC). Plaintiffs allege that in mid-2017, in response to negative news coverage on assaults committed by drivers, Uber began using the credit reporting agency Checkr to conduct additional background checks on current and prospective drivers. As a result, in August 2020 Uber allegedly conducted a background check on Golightly that revealed his 2013 speeding violation. One day later, Golightly claims that Uber deactivated him from its platform, preventing him from driving for the company.

The Federal Reserve anticipates an approximate two percent reduction in unemployment by June 2021, envisioning rapid mass-hiring by employers once governments lift the more stifling COVID-19 restrictions.  Businesses requiring pre-employment background checks may be uniquely exposed to liability under the Fair Credit Reporting Act (“FCRA”) if minor mistakes are amplified by mass-hiring events.

An employer’s obligations under the Fair Credit Reporting Act (“FCRA”) are triggered when it obtains a “consumer report” from a “consumer reporting agency” for use in making an employment decision. A federal court in the Middle District of Florida is set to rule on a summary judgment motion clarifying whether a business that transmits public records unaltered to a prospective employer is a “consumer reporting agency”.

A hotly contested ruling in a Fair Credit Reporting Act (“FCRA”) class action case will soon be appealed to the Supreme Court of the United States.  The Ninth Circuit in Ramirez v. TransUnion LLC, Case No. 17-17244, recently granted the parties’ Joint Motion to Stay the Mandate, seeking to stay the Ninth Circuit’s mandate pending TransUnion’s filing of a petition for writ of certiorari in the Supreme Court.  The Motion to Stay comes soon after the court denied TransUnion’s Petition for Rehearing or Rehearing En Banc regarding the Ninth Circuit’s decision in Ramirez v. TransUnion LLC, 951 F.3d 1008 (9th Cir. 2020).

For the first time in the Ninth Circuit, the Court of Appeals addressed the issue of whether every class member in a class action lawsuit needs “standing” to recover damages at the final judgment stage, and found in the affirmative.  In Ramirez v. TransUnion LLC, No. 17-17244, 2020 WL 946973 (9th Cir. Feb. 27, 2020), a class of 8,185 consumers brought a class action against the credit reporting agency TransUnion LLC (“TransUnion”) pursuant to the Fair Credit Reporting Act (“FCRA”), alleging that TransUnion, knowing that its practice was unlawful, incorrectly placed terrorist alerts on the front page of consumers’ credit reports and later sent the consumers misleading and incomplete disclosures about the alerts and how to remove them.

On November 22, 2019, the federal Consumer Financial Protection Bureau (CFPB) filed a complaint in the U.S. District Court for the Southern District of New York against Sterling Infosystems, Inc. (“Sterling”) regarding allegations that it violated the Fair Credit Reporting Act (FCRA) in providing criminal background checks to employers.  Sterling is a “consumer reporting agency” as defined by the FCRA, which provides background check results to employers when requested.  The CFPB is an independent federal agency tasked with regulating and enforcing a host of consumer protection and financial protection statutes, including the FCRA.

On July 11, 2019, the House Financial Services Committee, led by Chairwoman Maxine Waters (D-CA), considered The Restricting Use of Credit Checks For Employment Decisions Act (the “Act”) as one of four bills designed to reform the Fair Credit Reporting Act (FCRA) and the credit reporting system.

The Federal Trade Commission (“FTC”) recently rescinded several Model Forms and Disclosures related to the Fair Credit Reporting Act (“FCRA”), determining they are no longer necessary.  As we wrote about last Fall, [“Fall” hyperlink to CEJ and RTQ HELP blog article dated September 21, 2018] this change is the result of the Consumer Financial Protection Bureau (“CFPB”) issuing its own model forms and disclosures.  The FTC forms that have been rescinded and the corresponding CFPB forms that now apply are as follows:

In a positive development for employers, the California Court of Appeals affirmed summary judgment for an employer in a class action alleging willful violations of the Federal Fair Credit Reporting Act (“FCRA” or “Act”).  In Culberson v. Walt Disney Parks and Resorts, the plaintiffs alleged Disney willfully violated two provisions of the FCRA: (1) plaintiffs alleged Disney’s disclosures letting job applicants know they may be subject to a consumer report were not contained in a standalone document; and (2) plaintiffs alleged Disney rejected some applicants based on information in their consumer reports without first providing the notice required by the FCRA.  In affirming summary judgment, the court concluded that it need not decide whether Disney violated the FCRA, because the court found that any such violation was not willful. 

If your background check forms include too much information about rights under state law, or even grammatical errors, you might be in trouble according to the Ninth Circuit.  In Gilberg v. California Check Cashing Stores, the appeals court recently ruled against an employer for using background check disclosure forms that violate both the federal Fair Credit Reporting Act (FCRA), and California’s Investigative Consumer Reporting Agencies Act (ICRAA).

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.

A magistrate judge in the U.S. District Court for the District of Oregon recently made findings and recommendations to dismiss a purported class action against Kroger subsidiary Fred Meyer.  The suit alleges that the retailer’s background check process for prospective employees violates the Fair Credit Reporting Act by both failing to properly disclose that a report will be run, and failing to comply with the statute’s procedural requirements before taking adverse action against an applicant.

On April 23, 2018, the U.S. District Court for the Northern District of Illinois in Ratliff v. Celadon Trucking Servs., 1:17-cv-07163, dismissed a putative class action lawsuit alleging a violation of the pre-adverse action notice requirements in section 1681b(b)(3) of the Fair Credit Reporting Act (“FCRA”).  Ratliff is significant in the body of background check precedent because it is a part of an emerging trend of § 1681b(b)(3) claims (as opposed to the more commonly challenged § 1681b(b)(2)Disclosure claims) challenged and dismissed for lack of Article III standing.

In the opinion, Judge Manish S. Shah found plaintiff Ratliff could not show that he suffered an injury-in-fact after defendant Celadon allegedly did not properly provide him with an FCRA mandated notice before declining his employment due to the results of his criminal background check.

On December 21, 2017, the U.S. District Court for the Eastern District of Pennsylvania in Moore v. Rite Aid Headquarters Corp., 2:13-cv-01515, dismissed a class action lawsuit alleging a violation of the pre-adverse action notice requirements in section 1681b(b)(3) of the Fair Credit Reporting Act (“FCRA”).  Moore is significant in the body of criminal background check precedent because it is a post-Spokeo ruling dismissing a pre-adverse action notice claim (as opposed to a 1681b(b)(2) Disclosure claim) on standing grounds after the parties participated in discovery and developed a factual record.

Effective March 17, 2017, the District of Columbia will join a dozen other jurisdictions across the country that prohibit an employer’s use of “credit information” in employment decisions.  The new law, D.C. Act 21-673, amends the District of Columbia’s existing human rights law by adding credit information as a prohibited basis for discrimination for any employment decision (not just hiring), and applies to employers of any size.  See D.C. Code § 2-1402.11(a)(1) and (a)(1)(4)(D), as amended.

Retailer Big Lots Stores, Inc. is facing a putative class action in Philadelphia, wherein the plaintiff alleges that the company “systematically” violated the Fair Credit Reporting Act’s (“FCRA”) “standalone disclosure requirement” by making prospective employees sign a document used as a background check consent form that contained extraneous information. Among other things, the plaintiff alleges that Big Lots’ form violates the FCRA because it includes the following three categories of extraneous information: (1) an “implied liability waiver” (specifically, a statement that the applicant “fully understand[s] that all employment decisions are based on legitimate nondiscriminatory reasons”); (2) state-specific notices; and (3) information on how background information will be gathered and from which sources, statements pertaining to disputing any information, and the name and contact information of the consumer reporting agency.

Discover how the use of criminal background checks in the hiring process is creating an increasing exposure to liability. The Equal Employment Opportunity Commission (EEOC) is aggressively pursuing this issue to ensure the practice does not have a disparate impact on minority applicants. Additionally, plaintiffs' class action attorneys are pursuing employers nationwide for failing to conform their background check process with the dictates and protections of the federal Fair Credit Reporting Act. This webinar will highlight lessons learned in the trenches, and give insights on how to properly handle the sensitive use of criminal background check information.

While much attention has been paid this year to the EEOC’s agenda and litigation over criminal background checks (the agency asserts such background checks have a disparate impact on minority groups), a parallel challenge kept pace in the form of private class action litigation under the Fair Credit Reporting Act (“FCRA”). 2013 saw a number of significant class action settlements against both employers and consumer reporting agencies (“CRAs”) for alleged violations of the Act in the use of criminal background checks:

Employers' use of criminal background checks in the hiring process is creating growing exposure to liability on several fronts.

Please join us for a complimentary webinar on this topic:

Thursday, January 16, 2014

10:00 a.m. - 11:00 a.m. PT
(1:00 p.m. - 2:00 p.m. ET)

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As reported on Hunton & Williams’ Privacy and Information Security Law Blog, on January 25, 2013, Kmart Corporation (“Kmart”) agreed to a $3 million settlement stemming from allegations that it violated the Fair Credit Reporting Act (“FCRA”) when using background checks to make employment decisions. The FCRA addresses adverse actions taken against consumers based on information in consumer reports and includes numerous requirements relating to the use of such reports in the employment context.

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Beginning January 1, 2013, employers must issue an updated notice form to applicants and employees when using criminal background information under the federal Fair Credit Reporting Act.

The U.S. Department of Justice has moved to intervene to defend the constitutionality of the Fair Credit Reporting Act (“Act”) against a consumer reporting agency accused of violating § 605 of the Act.

On November 23, 2010, Shamara T. King filed suit against General Information Services, Inc. (“GIS”) in Pennsylvania federal court claiming violations of the Act.  (See, King v. General Information Services., No. 2:10-CV-06850 (E.D. Pa. Nov. 23, 2010).  Specifically, King claims that when she applied for a job with the United States Postal Service, GIS performed a background check that included details about a car theft arrest that occurred more than seven years prior to the requested background check.  According to § 605(a)(5) of the Act, consumer reporting agencies cannot provide adverse information, except for criminal convictions, “which antedates the report by more than seven years.”

A commonly used pre-employment screening method--conducting credit checks--has drawn increased scrutiny in recent months. Legislatures at the state and federal levels are considering bills that would limit employer use of credit checks. Moreover, two recently-filed lawsuits, one of which was filed by the EEOC, seek to challenge the use of pre-employment credit checks in hiring decisions. 

Only four states--Hawaii, Illinois, Oregon, and Washington--currently have laws regulating employer use of credit history data. Sparked by the downturn in the economy, fourteen additional states--California, Colorado, Connecticut, Indiana, Kentucky, Maryland, Missouri, Nebraska, New Jersey, New Mexico, New York, Pennsylvania, Texas, Vermont--are considering similar measures.

As reported on Hunton and Williams LLP’s Privacy and Information Security Law Blog, on August 10, 2010, Illinois Governor Pat Quinn signed the Employee Credit Privacy Act, which prohibits most Illinois employers from inquiring about an applicant’s or employee’s credit history or using an individual’s credit history as a basis for an employment decision. The definition of “employer” under the Act exempts banks, insurance companies, law enforcement agencies, debt collectors and state and local government agencies that require the use of credit history.