FCRA Class Actions in Employment on the Rise: Avoiding and ...media.straffordpub.com/products/fcra-class-actions...Mar 18, 2015 · the Rise: Avoiding and Defending Claims Drafting

FCRA Class Actions in Employment on the Rise: Avoiding and Defending Claims Drafting Policies and Procedures for FCRA Compliance, Leveraging Class Litigation Defense Strategies

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WEDNESDAY, MARCH 18, 2015

Presenting a live 90-minute webinar with interactive Q&A

Pamela Q. Devata, Partner, Seyfarth Shaw, Chicago

Barry Goheen, Partner, King & Spalding, Atlanta

Cindy D. Hanson, Partner, Kilpatrick Townsend & Stockton, Atlanta

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Fair Credit

Reporting Act

Overview and Best

Practices

Pamela Q. Devata, Seyfarth Shaw LLP

(312) 460-5882

[email protected]

©2015 Seyfarth Shaw LLP

What is the Fair Credit Reporting Act

(FCRA)?

• Federal Consumer protection statute

• Mandates responsibilities of third-parties who collect information about consumers (defined as “Consumer Reporting Agencies”)

• Mandates requirements for users of this information (defined as “End-Users”)

• Mandates requirements for the entities that furnish information to the CRAs (“Furnishers”)

* Only applies when an entity is using a third party consumer reporting agency (CRA)

5


What Is A Consumer Report?

• Any written, oral or other communication of any information made by a CRA concerning a consumer’s: • credit worthiness, credit standing, credit capacity,

• character,

• general reputation,

• personal characteristics, or

• mode of living

• Which is used or expected to be used or collected for one of the “permissible purposes” enumerated in the FCRA (e.g., employment purposes or at the written direction of the consumer, insurance, etc.).

Examples: criminal history, references, education verification, driving records

6


Permissible Purpose

• “Used or expected to be used or collected in whole or

in part for the purpose of serving as a factor in

determining a consumer’s eligibility for:

• Credit or insurance

• employment; or

• any other factor enumerated in the statute (ie: legitimate

business transaction initiated by the consumer; at the written

direction of the consumer)

• FTC interprets employment purposes extremely broadly

7


End-User Responsibility under the

FCRA

• End Users Have Four Duties:

• Permissible Purpose

• Employment (Broad interpretation)

• Written Direction

• Disclosure and Authorization (only if Employment)

• Separate from application and specific state requirements

• Adverse Action

• Two-step process for employment

• One step adverse action for all other permissible purposes

• Certification to CRA

• generally in the agreement with CRA

• No certification required if non-employment purpose

8


• 15 U.S.C. § 1681b(b)(2)(A): a person may not cause procure a

consumer report, or cause a consumer report to be procured, for

employment purposes unless:

• (1) a clear and conspicuous disclosure has been made in

writing to the consumer in a document that “consists solely of

the disclosure, that a consumer report may be obtained for

employment purposes;” and

• (2) the consumer has authorized in writing (which authorization

may be made on the document referred to in clause (1)) the

procurement of the report by that person.

• See FTC Opinion Letter:

http://www.ftc.gov/os/statutes/fcra/hauxwell.shtm

Disclosure Requirement

9


Increased Litigation focused on:

• Disclosure forms not being “solely” or “stand alone”

• Release of liability language (see Reardon v.

Closetmaid and Singleton v. Dominoes and others)

• State law language in forms

• Other “extraneous information”

• Failure to provide Summary of Rights

• Failure to provide Disclosure AND Authorization (if

separate them)

Hot Topics in Background Screening

Disclosure and

Authorization

Challenges

Is the FCRA the

next FLSA from

a litigation

perspective?

10


Consider separating the forms from one

another

State law information on a separate form/

document

Consider timing (reduce the risk of large class

numbers)

Remove criminal history question from

Disclosure forms

Review the forms at least annually

Best Practices for Disclosures

Disclosure and

Authorization Best

Practices

Review your

forms at least

annually

11


FCRA requires 2-step adverse action

process for employment purpose

Overview of 2 step process:

• Pre-Adverse action

• Copy of report

• Copy of Summary of Rights

• Waiting period

• State law attachments

- NJ, WA, MA, NY

• Adverse action

Adverse Action Requirements

Adverse action

processes

No Good Deed

Goes

unpunished

12


Recruiter contacting the candidate before pre-

adverse action is provided

Failure to provide waiting period

Consider how you are sending, i.e. email

• UETA/E-sign concerns

Not having centralized process and failing to

send timely

Failing to provide state law notices/timing

• DC and SFO and Seattle and Chicago requires the

specific action be detailed

• Other state law specifics

Adverse Action

Adverse action

common pitfalls

13


FCRA: Penalties

• Negligent Noncompliance

• Actual damages (back pay sometimes compensatory)

• Attorneys’ fees

• Willful Noncompliance

• Actual OR Statutory

• $100-1000 per person

• Attorneys’ fees

• Punitive damages

• Statute of Limitations is earlier of 2 years from “knew or

should have known” or 5 years from report.

14


For More Information/Questions:

Contact Information:

• Pamela Q. Devata

SEYFARTH SHAW LLP

131 South Dearborn Street, Suite 2400

Chicago, Illinois 60603

(312) 460-5882

[email protected]

15

© 2015 Kilpatrick Townsend

FCRA Class Actions in Employment on the Rise: Avoiding and Defending Claims

Cindy D. Hanson

404.815.6470

[email protected]

• Numerous FCRA cases settle on a class action every

year

• Primarily, cases fall into one of two categories of

settling defendant: – Consumer Reporting Agencies

– Employers

• Settlements show that what might seem to be a

minor issue can result in significant settlement

payments

17

Recent FCRA Settlements

• CRA settlements tend to focus on one or more of a

few reporting obligations: – 1681k: notice to consumers “at the time” that a CRA reports public

record information to an employer

– 1681i: dispute reinvestigation and resolution

– 1681g: full file disclosure • Few (or no) major settlements to date on this, but a frequent claim in litigation

• Settlements with CRAs tend to be larger than in the

employer context – More volume of reports more class members

– History of larger settlements that might allow Plaintiffs to argue for

more money

18

CRA Settlements - Generally

• Acxiom (Feb. 2014) – $20.8 million

– 475,000 class members

– Claims • 1681k (notice to consumers)

• 1681i (dispute resolution)

• 1681b (permissible purpose)

• Intellicorp (Oct. 2013) – $18.6 million


– Claims • 1681k (notice to consumers)

• 1681e (procedures to ensure accuracy)

• Many of the largest CRAs have had similar-sized

settlements in the past decade

19

CRA Settlements - Examples

• Employer settlements tend to focus on two particular

obligations: – 1681b(b)(2): disclosure obligations

• Disclosure must be clear and conspicuous and in a document that “consists solely of the

disclosure.”

• Consumer must authorize, in writing, procurement of a consumer report

– 1681b(b)(3): adverse action • Before taking adverse action, employer must give “pre-adverse action notice” consisting of

report and copy of the consumer’s rights

• Employer must then wait before taking adverse action.

20

Employer Settlements - Generally

• Publix (July 2014) – $6.8 million


– Disclosure allegedly not part of a “standalone” document

– Publix agreed to revise its disclosure into a format acceptable to

Plaintiff’s counsel

• Swift Transportation (April 2014) – $4.4 million


– Disclosure allegedly was not part of a “standalone” document

21

Employer Settlements - Disclosure

• Dollar General (Oct. 2014) – $4 million


– Allegedly took adverse action without either (a) providing pre-

adverse action notice or (b) waiting an appropriate period of time

after sending such notice

• Kmart (May 2013) – $3 million


– Allegedly took adverse action without pre-adverse action notice

• Advanced Auto Parts (June 2013) – $360,000


– Allegedly took adverse action without pre-adverse action notice

22

Employer Settlements – Adverse Action

• Food Lion (Feb. 2015) – $2.99 million


– Disclosure claim is the most significant part of the settlement.

• ClosetMaid (Jan. 2014) – $632,000

– 1600 class members

– Disclosure claim has more class members but both classes receive

same payment

• Dominos (March 2013) – $2.5 million


– Disclosure claim is the more significant part of the settlement

– Also included a claim based on timeliness of consumer’s

authorization 23

Employer Settlements – Mixed (Disclosure & Adverse Action)

• Putting the disclosure in a document consisting of

nothing else may seem trivial but it costs major

companies millions.

• Disclosures and adverse action are the major targets

for suits against employers

• Settlements with CRAs tend to be comparatively

larger, but there are many more employer targets

24

Recent FCRA Settlements - Takeaways

25

FCRA Class Actions In Employment On The Rise: Avoiding And

Defending Claims

Barry Goheen

King & Spalding

(404) 572-4618

[email protected]

March 18, 2015

26

Background Checks Are Universally Used

“Nearly all retailers (97%) utilize

background screening in some form

during the application, hiring and

employment process.”

July 2011 Survey, National Retail Foundation

27

The Stakes Are High

• Hunter v. First Transit (2011) - $5.9 million class action settlement for alleged failure to comply with FCRA requirements involving criminal background reports.

• Hall v. Vitran Express (2011) - $2.6 million settlement in FCRA class action.

• Beverly v. Wal-Mart (2009) - $6.89 million settlement in FCRA class action related to adverse action letters.

28

Potential Background Check FCRA Class Action Defendants

• Employers

• Perform Background Checks

• Uniform Policies

• Anyone you know?

29

What Is Covered By the FCRA?

• Any report obtained from a consumer reporting agency (entities that provide consumer reports to third parties for a fee)

• Broader than credit reports or background checks; could include:

― Criminal records

― Driving records

― Reference checks

30

Pre-Adverse Action Notice

• Copy of background check or report

• Written description of rights under the FCRA

― Summary of rights available from FTC

• Purpose - provide employee/applicant with opportunity to dispute inaccurate information in the report

31

Taking Adverse Action

• Reasonable period to respond

• Adverse Action Notice

― Contact information for Consumer Reporting Agency

― Notice of right to free consumer report

32

Consequences Of Failure To Comply With The FCRA

• Statutory remedies

―Statutory damages - $100 to $1000 per violation

―Punitive damages - low threshold

―Attorneys’ fees

• FTC Enforcement

33

Remedies Under FCRA

• Claims for negligent violations: actual damages

• Claims for willful violations: actual or statutory damages in range of $100 or $1,000; punitive damages

• No injunctive relief in private actions

• Reasonable attorneys’ fees for successful plaintiff

• No cap on damages in class actions certified under FCRA

34

Plaintiff’s Lawyers Like The FCRA

• Wide range of potential violations

• No actual injury necessary

• Punitive damages available

• Attorney’s fees recoverable

• Many potential clients

35

Background Check FCRA Class Actions On the Rise

• Form notices are common

• Willfulness allows focus on Defendants’ conduct

• Statutory damages

• Class members often identifiable

36

Best Practices

• Do Business With Reputable CRA

― Should require site inspection

― Should have database of relevant forms/documents (applications, disclosure/authorization forms, adverse action notices, etc.

37

Best Practices

• Strong Contractual Language With CRA

― Require compliance with laws (FCRA, etc.)

― Strong indemnity language

― Other rights, such as audit rights, etc.

38

Best Practices

• Provide Written Notice Of Adverse Action And CFPB Summary Of Rights

― FCRA allows for verbal notification

― Written notice documents fulfillment of FCRA duties

39

Best Practices

• Understand And Comply With State Screening Laws

― Many states prohibit use of credit information for employment screening purposes except when the information is “substantially job related”

― State laws often override FCRA

40

Best Practices

• Understand And Comply With State Screening Laws (cont.)

― What is “substantially related”? Connecticut statute:

― Managerial position that involves setting the direction or control of business

― Involves access to customers’, employees’, or employer’s personal or financial information other than information customarily provided in retail transaction

― Involves fiduciary responsibility to employer (i.e., authority to issue payments, collect debts, transfer money, enter into contracts)

41

Best Practices

• Understand And Comply With State Screening Laws (cont.)

― What is “substantially related”? Connecticut statute (cont.):

― Provides expense account or corporate debit/credit card

― Provides access to (i) confidential business information; or (ii) information, such as a formula or trade secret that (a) derives independent economic value and (b) is subject of efforts that are reasonable under the circumstances to maintain secrecy

― Involves access to employer’s nonfinancial assets valued at $2,500 or more

42

Best Practices

• Immediately Address Any Potential Or Alleged Violations

― If no litigation, could prevent lawsuit; at a minimum, correction will cut off statute of limitations

― If litigation, could facilitate quick resolution; if class action, could significantly reduce exposure

Documents

FCRA Class Actions in Employment on the Rise: Avoiding and ...media.straffordpub.com/products/fcra-class-actions...Mar 18, 2015 · the Rise: Avoiding and Defending Claims Drafting