Recent Background Check Lawsuit is Reminder of the Importance of Strictly Following the Fair Credit Reporting Act Disclosure Requirements

March 20, 2014

Many institutions of higher education, like employers in many industries, use background checks as an integral part of their hiring process.  A recently filed class action lawsuit serves as a reminder to institutions of the importance of strict compliance with the Fair Credit Reporting Act (FCRA). The FCRA limits the purposes for which a background check (including a credit check or criminal background check) can be obtained.  One of the permissible purposes is for employment, including hiring decisions.  However, the Act imposes strict requirements in order to lawfully obtain and use a report.  One of those requirements is that the employer must provide applicants with a stand-alone disclosure and authorization form prior to obtaining a background check.  15 U.S.C. § 1681b(b)(2)(A).  This form must be separate from the employment application, and cannot include any type of language attempting to release the institution from liability associated with obtaining the background check.  Unfortunately, many institutions still fail to comply with this law by relying solely on a disclosure located on employment application to inform applicants that they will be subject to a background check, or by attempting to include additional language on the disclosure. This particular requirement is the focus of a recent class action lawsuit filed against Whole Foods Market California.  Whole Foods is accused of using a legally invalid form to obtain consent to conduct backgrounds checks during their employment application process.  In this case, it is alleged that the employer relied on a background check consent that was included alongside several other consent paragraphs on an online employment application.  Additionally, that consent included a release of claims related to obtaining the background check.  If the employer is found to have used an invalid form the consequences are significant, including invalidation of the consent, statutory damages in the amount of up to $1,000 for each applicant, costs and attorneys’ fees and, potentially, punitive damages. This lawsuit is a reminder that FCRA compliance makes good business sense, and that institutions should periodically review their application and hiring forms and processes to ensure strict compliance.