Employers that obtain background checks from third party providers on applicants and/or existing employees had better review their procedures because costly class action lawsuits for even technical errors are now being filed regularly by rejected applicants and terminated employees.
The Fair Credit Reporting Act (“FCRA”) is the federal law that governs an employer’s use of criminal and other forms of background checks obtained through a third party known as a Credit Reporting Agency (“CRA”). CRAs investigate criminal, credit, education and employment histories and provide employers with detailed reports.
In 2012, the EEOC issued extensive guidelines regarding employers’ use of criminal background checks, contending that the exclusion of convicted felons from employment because of their crimes has a disparate impact on minorities and therefore may violate Title VII of the Civil Rights Act of 1964. More specifically, the guidelines require employers to establish a nexus between the crime committed and the job sought as well as the time between conviction (and release from prison if applicable) and application for the position. Absent a strong nexus, the EEOC claims that refusing to hire based on criminal convictions is a violation of Title VII.
Under the FCRA, employers that use criminal and other forms of background checks must provide the subjects of the investigation with a notice disclosing that the company may obtain a background report from a CRA. The FCRA requires that the notice be a stand-alone document. Many employers, however, include the disclosure within the job application or in a more complex document that includes waiver language that releases the employer from liability for any decisions made based on the reports obtained. Last year, the Publix grocery chain settled a class action for $6.8 million because its disclosure document was not stand-alone and included a one sentence release. The only extra language permitted in the disclosure is an authorization for the employee to sign permitting the employer to obtain the report.
When an employer decides not to hire an applicant (or to terminate an existing employee) based on the content of a background check obtained from a CRA, the FCRA requires the employer to send the subject a “Pre-Adverse Action Notice” which informs the individual of the intended action (not hiring or firing) based on the information obtained together with a copy of the report and A Summary of Your Rights under the Fair Credit Reporting Act (a document published by the federal government) attached. The employer must give the subject a “reasonable amount of time” to dispute or explain the content of the report. Neither the law nor the regulations indicate how much time is reasonable. If the individual does not respond or the employer is not swayed by the explanation, the employer must send the subject an Adverse Action Notice finalizing the termination of the application process or of employment. Failure to follow these steps is a violation of the FCRA that will subject an employer to liability.
Class actions for such FCRA violations seem to be trending in New Jersey. On September 3, 2015, a class filed suit against Uber in federal District Court alleging that Uber’s disclosure form included wavier language and that the company did not use Pre-Adverse Action Notices before denying employment to applicants with criminal histories. Likewise, in Feldstein v. Amazon, filed on October 3, 2015 in federal court in New Jersey, a class of rejected applicants claims that the online fulfillment giant does not use Pre-Adverse Action Notices or provide A Summary of Your Rights Under the Fair Credit Reporting Act when rejecting applicants who have criminal convictions in their background. Although these cases were just filed, the procedural requirements under the FCRA are relatively clear and the likely outcome for employers who fail to comply is no mystery.
Given this new wave of litigation, it is critical for employers that obtain background checks to review the policies and procedures used to ensure that they comply with all aspects of the FCRA and follow EEOC guidelines before rejecting an applicant or terminating an employee based on the content of a background check report.
 In 2013, the EEOC brought its first case against an employer claiming that BMW could not establish a nexus between the criminal convictions of job applicants and the jobs sought (refusal to hire based on crime committed was not job related or consistent with business necessity). Last month, BMW settled that case for $1.6 million, and by hiring of most of the applicants and providing training for hiring managers.
 The Dollar General Stores also recently paid a $4 million dollar settlement to a class of applicants because it provided an outdated version of A Summary of Your Rights Under the Fair Credit Reporting Act which stated that the Federal Trade Commission enforced the FCRA rather than the new Consumer Financial Protection Bureau although the rest of the document was identical.