Corrected: 3.8M Settlement for Background Check Claims: Employers, Listen Up!
February 25, 2013
Another large background screening company has agreed to pay a multimillion dollar settlement to end a class action alleging of violations of the Fair Credit Reporting Act (FCRA). We told you about another case resulting in a hefty settlement here. The latest in a series of unfortunate attacks on background screening practices is Henderson v. Verifications Incorporated, and the defendant, a background screening company, has agreed to pay $3.8M to settle a class action filed in federal court in the Eastern District of Virginia. I learned about the settlement from a recent post on the legal blog Law 360. The settlement includes an “incentive” payment of $3.75M and includes a big fat paycheck ($1.125M) for the plaintiff’s legal team, plus court costs and expenses. In my opinion the result is disappointing, with no real upside for anyone involved. Even if a company does everything right, they can still be sued. And in this case, nothing was actually “settled”.
Henderson was filed by a team of plaintiff’s attorneys which include Consumer Litigation Associates, P.C.(CLA), a law firm that targets large companies for FCRA class action claims. CLA’s web site contains the following notice: IF YOU BELIEVE YOU HAVE BEEN A VICTIM OF A BACKGROUND CHECK THAT DID NOT COMPLY WITH FEDERAL LAW, IT IS IMPORTANT THAT YOU SEEK LEGAL HELP FROM US OR ANOTHER CONSUMER ATTORNEY AS SOON AS POSSIBLE. IF THIS IS AN ISSUE YOU ARE FACING, OR HAS ALREADY OCCURRED, PLEASE CONTACT US. If anyone doubts that FCRA-related background screening lawsuits are on the rise, rest assured that this firm and others like them are aggressively pursuing litigation. And employers, don’t kid yourselves into thinking that you are immune–just ask K-Mart (more here). Based on the result in Henderson, I fully expect the trend to continue for employers and background screening companies alike. The trial bar just got the go-ahead to file away without any fear of negative repercussions or sanctions.
The Legal Claims
The settlement comes after “contentious litigation” between the parties. Henderson claims that he was denied a job because of incorrect information on the employment background check. He also claims that he was not provided with adequate disclosures or an opportunity to dispute the accuracy of the report.
The defendant denies liability, and disputes both the facts and the statement of law proposed by Henderson. The vast majority (41,194) of the class members’ claims center specifically on a controversial part of the FCRA—sections 1681k (a) (1) and (2)—which give two alternative means for making sure that an applicant is protected from inaccurate information. This section of the FCRA and its two alternative provisions are often at the heart of disputes about the accuracy of a background check.*
The plaintiff claims that the background screening company had to provide notice to him—the applicant—“at the time” the report was sent to the employer. The defense denies that it violated this section, and further contends that in some instances it was permitted to instead comply with 1681k(a)(2), which allows the background screening company to verify the accuracy of the report by having strict procedures to insure that information is “complete and up to date” at the time of the report.
At the end of the day, if a background screening company is complying with either provision, the job applicant is protected. The candidate either gets a notice, or the background screening company is on the hook for verifying that the information is complete and up to date. In a perfect world, the statute protects the job applicant, and the background screening company is held accountable.
In this case, the parties spent the better part of two years serving extensive discovery, issuing subpoenas, and engaging national experts before finally engaging in mediation. In the end, the class members are getting paid. But sadly, the end result sheds no light on the legal issues at hand. The plaintiff’s Settlement Memorandum concedes: “[I]t is an impossible argument even for Class Counsel to make that consumer reporting agencies should not be able to collect and report information lawfully.” Everyone—even plaintiff’s counsel—agrees that criminal background checks serve a worthy and lawful purpose.
Lessons For Employers
As it stands, this case poses a frightening scenario. The upshot is this: even when a company does everything right to protect job applicants and consumers, sometimes it is still less costly and a better business decision to pay out a huge settlement than to fight it out in court. This result does not serve justice, and unfortunately it gives plaintiffs’ counsel a green light to file more law suits in the hopes that they will be similarly rewarded.
So employers, can you learn anything from all of this?
Once again, in the interest of full disclosure—I am employed by a background screening company. I serve on the board of directors for the National Association of Professional Background Screeners. In truth any company–including my own–could be hit with a law suit much like the defendant in this case. I firmly believe that if you are responsible for hiring in any organization, doing a criminal background check is a must. It’s a sound and responsible practice. In some instances, it might be negligent not to do so, and it may actually be required by law.
Moreover, if your screening partner is being scrutinized, unfortunately it is safe to say that your practices are at risk for a legal challenge as well. It would be wise to be selective—choose your screening partner very carefully. The obvious question then, is this: How do you know if your background company is following the law? Here are a few suggestions.
1. Ask your provider about accuracy: The FCRA requires “reasonable procedures” to ensure “maximum possible accuracy.” Ask your background company about this requirement. They should know what you’re talking about. If they don’t, start looking for a replacement.
2. Does your provider send required notifications to consumers when public record information cannot be verified? In this case the plaintiff alleged that information was not being verified at the source, and proper notification was not sent out in a timely manner. Usually any discrepancies can be resolved or avoided altogether if the information is verified at the source before being reported, but if there is information that cannot be verified, notice should be sent to the job applicant at the same time the report is sent to the employer.
3. How does your provider deal with consumer inquiries? Ask for a copy of their dispute resolution policy and policy for reinvestigation of reports. Take it to your attorney to review. The law says disputes must be responded to within 5 days, resolved within 30 days, and the background screening company must provide a copy of the report upon request. If it seems like they are making your job applicants jump through hoops when they have a question about the report, be on notice. The law exists to help consumers and job seekers, and the background screening companies are a critical part of that process.
4. Does your background firm use databases? I’ve said it before–databases are great when used properly. So if you use them, how does your screening firm confirm that the information is up-to-date? A database is NEVER completely up-to-date—even the FBI and state police databases are full of holes and gaps. Unless a provider is confirming with an on-site or real-time court level check, the information may not be accurate. And the provider’s process for verification is likely to come under scrutiny if a job applicant files a claim.
5. What about expungements? If criminal records are not verified at the county court level, you run the risk of making a decision based on an expunged or sealed record.
6. Does your provider publish duplicate offenses? If a case is reported in multiple places, the right thing to do is only report it once. Courts and regulators agree that reporting duplicates can make an applicant look worse that they really are.
Employers, help yourselves and your job candidates by asking these questions. It’s the best way to avoid being the next target.
*This FCRA provision states:
A consumer reporting agency which furnishes a consumer report for employment purposes and which for that purpose compiles and reports items of information on consumers which are matters of public record and are likely to have an adverse effect upon a consumer’s ability to obtain employment shall—
(1) at the time such public record information is reported to the user of such consumer report, notify the consumer of the fact that public record information is being reported by the consumer reporting agency, together with the name and address of the person to whom such information is being reported; or,
(2) maintain strict procedures designed to insure that whenever public record information which is likely to have an adverse effect on a consumer’s ability to obtain employment is reported it is complete and up to date. For purposes of this paragraph, items of public record relating to arrests, indictments, convictions, suits, tax liens, and outstanding judgments shall be considered up to date if the current public record status of the item at the time of the report is reported.
15 U.S.C. § 1681k(a)(1) and (2).
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