The FCRA in the Human Resources Industry
As the unemployment rates remain high, companies are increasingly relying on background checks to ensure filtering of “corn from the chaff”. The consumer reporting agencies (CRAs) provide quick and easy means to provide accurate and up-to-date information about the potential employee.
The Fair Credit Reporting Act (FCRA) has, for the past forty years, employed regulatory policies that govern primarily who have access to your information and how that information might be used. It basically requires that the CRAs:
- Limit access to your information
- Give your consent before providing your information to the employer
- Investigate disputed information
- Correct/delete inaccurate information
- Delete outdated information
- Disclose your credit file and information upon request
Rise in errors by some of the biggest CRAs, the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) have tightened rules over the human resource industry. The past two years alone have seen LexisNexis, HireRight, Sterling Infosystems and General Information Systems reporting inaccurate candidate information and violating FCRA:
The Real World Impact – King v. General Information System
For the average citizen, what tangible ways could the FCRA violations by CRAs do to your daily life? It is instructive to look at a recent case of King v. General Information Services Inc. to see the potential problems that may arise.
When Ms. King was 19, she was in her motor vehicle with her cousin and her cousin’s friend when a policeman stopped there. Ms. King’s cousin and his friend were charged and convicted for motor vehicle theft arising from a series of car thefts from area automobile dealers. Ms. King had no knowledge of the alleged motor vehicle thefts, but because she was in the presence of the men at the time of the vehicle stop, she was charged with eleven counts of motor vehicle theft. Without the benefit of a lawyer beside her, Ms. King pled guilty to one count of criminal conspiracy engaging theft by un-lawful taking of movable property and was sentenced to three years probation.
A decade later, Ms. King applied for employment with the U.S. Postal Service. The Postal Service ordered a background check on Ms. King from GIS, who improperly disclosed the ten tossed charges. Any preparer of a background check consumer report that maintained strict procedures designed to omit outdated adverse information and assure complete and up to date information would have been aware that it was no longer appropriate to report the outdated arrest record. Nonetheless GIS disclosed it anyway.
Gezahegne v. Whole Foods California Inc., U.S. District Court for the Northern District of California
Issue: On February 7, 2014, Esayas Gezahegne sued Whole Foods in the California District Court for violating the FCRA for allegedly using invalid forms in the background verification process. The complaint also challenges the company’s application process stating that Whole Foods requested routine background checks prior to obtaining consent.
Facts: The plaintiff had submitted an online application on or before April 7, 2011, that required him to sign a form labelled “consent” to release of liability for companies receiving or providing information about the candidate.
“I hereby authorize Whole Foods Market to thoroughly investigate my references, work record, education and other matters related to my suitability for employment and, further, authorize the references I have listed to disclose to the company any and all letters, reports, and other information related to my work records, without giving me prior notice of such disclosure. In addition, I hereby release the company, my former employers and all other persons, corporations, partnerships and associations from any and all claims, demands or liabilities arising out of or in any way related to such investigation or disclosure.”
The document also contained several other questionable paragraphs such as admittance that the applicant has not knowingly withheld any information, an acknowledgment that the application for employment does not create an employment contract in addition to a statement that the applicant waives the receipt of a copy of any public record. The plaintiff was asked to sign a different and seemingly valid consent form later in the process, but that wasn’t signed until after the background process had already begun.
Damages: Gezahegnes alleges violation of the FCRA where the damages could range between $100 and $1000 per violation, punitive damages and standard remedies
Aggressive FTC Legal Enforcement
Instant Checkmate – Was liable for $525,000 when it failed to maintain reasonable procedures to ensure that those using its reports had permissible purposes for accessing them and failing to follow reasonable procedures to assure that its reports were as accurate as possible, and failing to provide FCRA-mandated “User Notices” outlining several important consumer protection it allowed users to search public records for information about anyone, including a person’s current and previous address, arrest and conviction records, and birth, marriage and divorce.
InfoTrack – Liable for $1,000,000 for failing to maintain reasonable procedures to limit the furnishing of reports to people with permissible purposes and failing to use reasonable procedures to assure maximum possible accuracy of consumer report information obtained from sex offender registry records; and failing to provide written notices to consumers of the fact that InfoTrack reported public record information to prospective employers, when that information was likely to adversely affect consumers’ ability to obtain employment.
HireRight – Was liable for $2.6 million to those candidates who were misrepresented on the consumer reports. They failed to maintain accurate records, to provide the customers with a copy of the reports and to thoroughly investigate the customer records, thereby violating the FRCA. On behalf of the FTC, the DOJ filed a complaint against HireRight requiring them to discontinue the illegal practices.
LexisNexis – Shortly after a similar litigation, LexisNexis paid $13.5 million to settle a lawsuit involving 31,000 people when their consumer reports were sold to debt collectors, violating the FCRA and their consumer rights.
Sterling Infosystems – Has been found liable for FCRA violation and misrepresentation of the candidates’ information that led to their loss of jobs on several occasion.
Impact of FCRA violations on the HR Industry
The statistics of the human resources on the HireRight website states that 53% of the job applicants provide false information, more than 75% of the substance abusers are hired and that in 2008, the retail shrinkages due to employee theft was $15.9 billion and that negligent hires costs the industry about $40 million. Considering the above figures are not inflated an employer would definitely be tempted to obtain a holistic background check of a prospective employee for as less as $15.
What the employers fail to realize is that on several occasions the information recorded on CRA’s local databases isn’t always consistent on a state/national level. This results in several instances where the employers make wrong hiring decisions and several deserving candidates are left jobless.