New Jersey and other states are seeing an incredible increase in class action lawsuits over employers’ compliance in performing background checks of applicants and current employees under the Fair Credit Reporting Act (“FCRA”).  Because the FCRA contains hyper-technical requirements, the pitfalls for employers are many.  However, for the sake of brevity since we all only have so much time in a particular day to read blog posts, this will be an introduction to a multi-part series . . .

THE BASICS:  In a nutshell, the FCRA requires tripartite procedures that an employer must follow before obtaining a background check from a consumer reporting agency.  Employers who rely upon a “consumer report” for purposes of making an “employment decision” concerning an applicant/employee must:

  1. first, disclose in writing that the employer will obtain a background check and obtain written consent from a job applicant prior to obtaining a background check, which I refer to as the “Disclosure and Consent Notice”;
  2. then, where a potential employer intends to take any adverse action based on the information in the consumer report, the employer must provide notice to the applicant that the employer intends to take an adverse action prior to taking such action, which is the “Pre-Adverse Action Notice”; and
  3. where an employer takes an adverse action, the employer must provide notice of the adverse action taken – also known as the “Adverse Action Notice”.

Pretty straight forward right?  What appears simple can in fact be challenging as Plaintiff’s counsel for applicants, and even the Federal Trade Commission, the agency who previously administered the FCRA, have imputed many traps for the unwary employer.

Pitfall No. 1:   An employment decision can include a host of different actions taken by an employer.  While the decision not to hire an applicant or the decision to terminate an employee are obvious “employment decisions” under the FCRA, the Act does not succinctly define other “employment decisions”  which trigger the FCRA mandate.  The legislature intended to cast a wide net but failed to provide clear guidance as to what employment decisions are included under the FCRA.

Pitfall No. 2:   The name of the FCRA also leads to the misconception that it only applies to “consumer reports,” in the traditional sense, i.e., credit reports.  However, “consumer reports” encompass background checks, including motor vehicle and criminal records.  On the flip side, the FCRA applies only when an employer obtains a consumer report from a “consumer reporting agency,” not when the employer obtains the information directly from public records.  Therefore, where an employer has direct access to public records – such as, a trucking company obtaining motor vehicle records directly from a state department of motor vehicles, the FCRA requirements are not triggered.

Pitfall No. 3:   There is also trucking company exception, but it is not a blanket exemption from the FCRA.  First, it only applies to employees that are regulated by the Department of Transportation, i.e., truck drivers, not office workers.  Second, the exception is limited to situations where a company does not have direct contact with the applicant prior to performing the background check.

Pitfall No. 4:   Case after case discusses the Disclosure and Consent Notice an employer must provide to and obtain from an applicant prior to obtaining a background check.  However, again even this requirement is not so straight-forward.  Plaintiffs and defense counsel are split as to whether the Notice must be a “stand-alone” document without any other information on the document or whether the Notice must follow the language of the statute, which requires a “document that consists solely of the disclosure,” which has been interpreted by some Federal courts and non-binding FTC opinion letters to allow other additional information provided the disclosure is clear and conspicuous and does not confuse the applicant.

So why the explosion in FCRA court filings, you ask?  Good question . . . Stay tuned – further dissection of the FCRA to come next week.