Kmart Agrees to $3 Million Settlement of Fair Credit Reporting Act Class Action

On February 4, a federal judge in Virginia granted preliminary approval to the settlement of a class action lawsuit filed by 64,506 Kmart employees and job applicants. The suit alleged that they did not receive proper notice under the Fair Credit Reporting Act (FCRA) of the company’s use of consumer credit reports for background screening and that they did not receive copies of their reports before adverse action was taken against them.

The suit stemmed from Kmart’s withdrawal of an initial job offer and refusal to hire applicant Eric Pitt. Pitt sued, alleging that Kmart willfully failed to comply with the disclosure and authorization requirements prior to obtaining a consumer report about him for employment purposes and willfully failed to comply with the pre-adverse notification requirements prior to taking adverse employment action against him. Pitt said that he was denied employment on the basis of his background check, but that Kmart did not provide the report and “Summary of Rights” form in a timely manner, and sent an outdated “Summary of Rights” form.

Employers who use background screening services to screen applicants and employees must follow all required steps of the FCRA process or be exposed to potential liability. Before screening, the FCRA requires employers to give certain disclosures and obtain the applicant or employee’s written authorization to screen. Before taking adverse action based on the contents of a report, employers must provide a copy of the report and a “Summary of Rights” form to the applicant or employee. If the applicant or employee indicates that information in the report is either incorrect or incomplete, he or she must be given an opportunity to provide more correct or more complete information. After taking adverse action, employers must send a written post-adverse action notice. See our FYI Reference Checking: Fair Credit Reporting Act – Overview for more information and sample forms. Contact MSEC with questions.