FCRA: Did Employers Just Win New Protection – or Not?

FCRA-logo-300x197Over the last five years, employers have experienced heightened scrutiny of their background check processes. Many states and municipalities have passed “Ban the Box” legislation – limiting when criminal background questions can be asked – and that has drawn considerable attention. Most actual and threatened lawsuits in this sphere of employment law, however, have arisen under a long-standing federal law, the Fair Credit Reporting Act (“FCRA”). The FCRA generally applies when an employer relies upon a third party background check provider. The FCRA is littered with a wide range of very technical notice and disclosure requirements – certain language that must appear, the manner in which it must appear and so on. In short, it is easy for an employer to miss a minor step in the process.

Unlike most employment laws, the FCRA allows recovery of statutory damages without regard to any actual injury suffered by the claimant. With such a damages scheme, a single instance of statutory non-compliance puts an employer at immediate risk of specific damages ($1,000 per violation in many instances). With more employers working with third party background check firms, and with this lower threshold for receipt of damages relative to other laws, plaintiffs (and their attorneys) have increased their attention on employer processes and forms. Making FCRA claims even more inviting, many courts have been willing to certify a large class of claimants in a single class action lawsuit – all applicants over the last two years, for example.

Rise of the FCRA Professional Plaintiff

Perhaps not surprisingly, several “professional plaintiffs” have latched on to FCRA claims as their primary means of income. In Wisconsin, for example, one such “professional plaintiff” was recently profiled on the front page of the Milwaukee Journal. This particular plaintiff, according to the article, has applied for 562 jobs in an 18-month period and has already obtained $230,000 in individual FCRA settlements from just some of those employers. The invitation to obtain quick settlements from employers for technical FCRA violations has also attracted many law firms, including some that have long offered employment law advice and counsel to employers.

Supreme Court to the Rescue – Bare Procedural Violation Not Enough by Itself

In late May 2016, the United States Supreme Court ruled in favor of a company being sued for FCRA violations and clarified the type of injury that a claimant must demonstrate in order to prevail. Spokeo, Inc. v. Robins, 2016 WL 2842447 (May 16, 2016). In its significant Spokeo decision, the Court clarified that standing requires a concrete injury even in the context of a statutory violation. A bare procedural violation of the FCRA without any concrete harm (for example, reporting an incorrect zip code) would not satisfy the “injury-in-fact” requirement. For an injury to be concrete, the Court said “it must actually exist.” An injury actually exists, the Court explained, when a plaintiff can demonstrate that she suffered a tangible “real harm,” a material risk of harm, or a sufficiently concrete intangible harm.

Does Spokeo Mean Employers Can Relax?

While the Spokeo decision is a definite win for employers by virtue of now requiring FCRA plaintiffs to establish concrete harm – and not just a procedural violation, employers still need to ensure their background check forms and processes are compliant. As noted above, the Court did find that concrete harm can be demonstrated by a sufficiently concrete intangible harm. The Supreme Court said little in Spokeo about which “intangible” injuries would be sufficient to establish standing, but did note that historical practice and the judgment of Congress are relevant considerations. As for when the mere “risk of real harm” would suffice, the Court left much unanswered and employers will need to wait and see how lower courts apply this ruling.

Please contact your Clark & Gotzler attorney with any questions or concerns about the FCRA and/or your organization’s background check and screening process.