fcra class actions in employment on the rise: avoiding and...
TRANSCRIPT
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
©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)
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©2015 Seyfarth Shaw LLP
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
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©2015 Seyfarth Shaw LLP
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
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©2015 Seyfarth Shaw LLP
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
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©2015 Seyfarth Shaw LLP
• 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
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©2015 Seyfarth Shaw LLP
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?
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©2015 Seyfarth Shaw LLP
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
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©2015 Seyfarth Shaw LLP
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
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©2015 Seyfarth Shaw LLP
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
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©2015 Seyfarth Shaw LLP
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.
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©2015 Seyfarth Shaw LLP
For More Information/Questions:
Contact Information:
• Pamela Q. Devata
SEYFARTH SHAW LLP
131 South Dearborn Street, Suite 2400
Chicago, Illinois 60603
(312) 460-5882
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© 2015 Kilpatrick Townsend
FCRA Class Actions in Employment on the Rise: Avoiding and Defending Claims
Cindy D. Hanson
404.815.6470
• 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
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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
– 545,000 class members
– Claims • 1681k (notice to consumers)
• 1681e (procedures to ensure accuracy)
• Many of the largest CRAs have had similar-sized
settlements in the past decade
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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
– 90,633 class members
– 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
– 161,000 class members
– Disclosure allegedly was not part of a “standalone” document
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Employer Settlements - Disclosure
• Dollar General (Oct. 2014) – $4 million
– 112,000 class members
– 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
– 64,506 class members
– Allegedly took adverse action without pre-adverse action notice
• Advanced Auto Parts (June 2013) – $360,000
– 2,571 class members
– Allegedly took adverse action without pre-adverse action notice
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Employer Settlements – Adverse Action
• Food Lion (Feb. 2015) – $2.99 million
– 58,000 class members
– 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
– 193,000 class members
– 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
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Recent FCRA Settlements - Takeaways
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FCRA Class Actions In Employment On The Rise: Avoiding And
Defending Claims
Barry Goheen
King & Spalding
(404) 572-4618
March 18, 2015
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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
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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.
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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
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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
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Taking Adverse Action
• Reasonable period to respond
• Adverse Action Notice
― Contact information for Consumer Reporting Agency
― Notice of right to free consumer report
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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.
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Best Practices
• Strong Contractual Language With CRA
― Require compliance with laws (FCRA, etc.)
― Strong indemnity language
― Other rights, such as audit rights, etc.
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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)
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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