|March 19, 2014|
Previously published on March 12, 2014
Employers who use third party firms to conduct background and reference checks need to carefully review their disclosure and authorization forms in light of recent litigation concerning the inclusion of additional provisions and waiver language. The Fair Credit Reporting Act (“FCRA”) requires an employer to provide an applicant with written notice that a consumer report may be obtained for employment purposes and must obtain a written authorization from the applicant before doing so. Although FCRA requires that the disclosure be contained within a document which “consists solely of the disclosure,” both FCRA and the Federal Trade Commission, the agency previously charged with enforcing FCRA, permit employers to combine the disclosure and authorization within the same document.
However, the U.S. District Court for the Western District of Pennsylvania recently issued an opinion strictly interpreting the disclosure requirements of FCRA. In Reardon v. Closetmaid Corporation, No. 2:08-CV-01730 (W.D. Pa. 2013), the Court granted summary judgment to a class of approximately 1,800 applicants, ruling that inclusion of a commonplace waiver of liability in Closetmaid’s combined disclosure and authorization form violated FCRA. The Court emphasized that the required FCRA language in an authorization form is “the only other provision FCRA allows in a valid disclosure form.” The Court found that inclusion of any additional provision in the disclosure form, but for the required authorization, constitutes a “willful” violation of the act, thereby subjecting the employer to statutory damages of $100 to $1,000 per consumer, punitive damages and attorneys’ fees and costs.
In the last few years, technical violations of FCRA have become a feeding ground for class action plaintiffs’ lawyers in light of the substantial damages available where it is determined that an employer willfully violates FCRA as in Reardon. On February 7, 2014, a nationwide class action lawsuit was filed against Whole Foods in California alleging that Whole Foods violated FCRA by including a waiver provision in the disclosure form. This litigation should serve as a reminder to employers to be vigilant in reviewing their practices and procedures for obtaining consumer reports to ensure compliance with all requirements of FCRA.