Protecting Your Organization from FCRA Class-Action Lawsuits

If your organization uses a background screening service to screen applicants and employees for hire, reassignment, promotion, or retention, it must comply with the federal Fair Credit Reporting Act (FCRA). FCRA applies equally to for-profit, nonprofit, and public-sector organizations.

Don’t let the word “credit” in the name fool you. FCRA regulates not just credit screening, but also screening of an applicant’s or employee’s “personal characteristics, general reputation, or mode of living.” This means that criminal background checks, motor-vehicle records checks, and even education and reference checks fall under FCRA if conducted by background screening services. However, FCRA does not apply to screens your organization conducts on its own (without a background screening service) from first-hand sources.

Until recently, lawsuits for FCRA violations were infrequent. That has changed. Plaintiff attorneys have realized that many organizations do not perfectly comply with FCRA’s hyper-technical requirements. They also know that if an organization is getting FCRA wrong with one applicant or employee, it is probably getting it wrong with many applicants or employees. While single-plaintiff FCRA lawsuits are not lucrative, class-action lawsuits are. Combine that with no caps or limits on damages for FCRA violations and the result is a growing number of FCRA claims.

The best way to avoid FCRA lawsuits is to ensure compliance. FCRA requires employers who use background screening services to conduct screening for employment purposes to:

  1. Provide a clear and conspicuous disclosure in writing in a document consisting solely of the disclosure to the applicant or employee prior to conducting screening and receive his or her written authorization.

  2. Before taking adverse action based on the contents of a screen, provide the applicant or employee with a free copy of the screen and a copy of the FCRA Summary of Rights document. Organizations must also give the applicant or employee a reasonable period to provide correct or complete information if the information being relied upon is incorrect or incomplete. Typically, five business days is sufficient.  

  3. After taking adverse action based on a screen, provide the applicant or employee a written post-adverse-action notice containing the name, address, and telephone number of the background screening service that conducted the screen. This notice must also inform the applicant or employee of his or her right to dispute the accuracy or completeness of the information with the service and his or her right to obtain a free copy of the screen from the service within 60 days of receiving the adverse-action notice. Lastly, the notice must tell the applicant or employee that the background screening service did not make the decision to take adverse action against him or her and cannot explain the specific reasons for the adverse action.

Sounds simple enough, right? It’s not. What do organizations typically do wrong?

  1. They choose a background screening service that is not compliant with FCRA.

  2. They fail to obtain the applicant’s or employee’s written authorization prior to conducting FCRA-covered screening.

  3. They combine the FCRA authorization and disclosure with another document instead of keeping it separate.

  4. They include extraneous language, like waivers and releases, in their FCRA authorization and disclosure document.

  5. They forget to do the pre-adverse action process and go directly to adverse action.

  6. They fail to provide the written post-adverse action notice.

The more you know, the more you can help your organization avoid FCRA lawsuits. Contact MSEC for assistance with your FCRA questions and see our FYI, Hiring: Fair Credit Reporting Act for more information and sample letters and forms.