Courts have been jammed in recent years with class action cases alleging that employers have violated the Fair Credit Reporting Act (FCRA) when conducting background checks. A recent federal case in Minnesota may however be the turning point in avoiding these very expensive and bothersome lawsuits.
Stand Alone Disclosures
Employers who use a third party to conduct background checks on applicants or employees must comply with the requirements of the federal Fair Credit Reporting Act (“FCRA”). The FCRA mandates, among other things, that individuals subject to background checks be given a disclosure informing them that the employer intends to obtain a consumer report and requesting their authorization. Such disclosures must “stand alone”, meaning that the disclosure must be in a separate document that does not seek any additional information nor contain extraneous information.
The rationale for the stand-alone requirement is to ensure that individuals are not misled or confused by the inclusion of unnecessary text in the disclosure.
Time and again, employers have been frustrated by the courts’ unwillingness to dismiss these class action lawsuits based on this very technical provision of the law. They then are faced with the prospect of having to settle these claims because the cost of defending, plus the prospect of paying huge attorneys fees to the plaintiffs who prevail on this technicality, make it too daunting to proceed with the defense of the case.
Reasonable Interpretation Prevents Willful Violation
In the recent case of Thomas Just et al. v. Target Corp., Civ. No. 15-4117 (DWF/TNL), Target got sued because their disclosure form was alleged to contain improper extraneous information, including a basic “employment at will” statement. Since the case did not seek any actual monetary damages arising from the faulty document, however, Federal District Judge Donovan Frank here in Minnesota ruled that the aggrieved individual had to prove that Target willfully (meaning knowingly and recklessly) violated the FCRA’s stand-alone disclosure requirement.
Judge Frank then concluded that Target could not be found to have willfully violated the FCRA because their reading of the FCRA was not objectively unreasonable. With an absence of conclusive case law in the appellate courts and little guidance from the Federal Trade Commission on the meaning the stand-alone disclosure requirement, the true intent of the provision is far from settled. Therefore, Judge Frank was unwilling to rule that Target was intentionally ignoring the FCRA when they interpreted the “stand-alone” requirement to permit some extraneous information on the disclosure form.
Bottom Line
This is a significant development since it gives employers some hope that courts will begin disallowing these big class-based lawsuits that allege only a very technical violation of the law. After all, if there are no actual damages to be claimed, why should employers be subject to such extensive litigation and penalties?
Still, until this becomes more of a trend, employers should strive to make sure that their forms pass muster. In doing so, do not rely on the disclosure and authorization forms provided by third-party vendors, especially because employers often must also comply with equivalent state laws, many of which impose additional requirements.
This case could be appealed and there is definitely more to this story down the road. Still, it is good to see that at least one federal court is willing to stand alone to help employers resist expensive and aggravating litigation.