In April 2015, the staffing industry and others were rocked by the news that retail giant Amazon had been hit with a proposed class action lawsuit. The class action was brought against the company under the Fair Credit Reporting Act (FCRA). The company was accused of wrongly using background checks when making hiring decisions.
The fact which captivated the staffing industry was the allegation that Amazon’s staffing company, Staff Management Solutions, was to “blame” for the lawsuit. It is alleged that it was actually Staff Management which violated FCRA guidelines by failing to provide “pre-adverse action notifications” to an applicant. It was co-accused in the class action.
What most people didn’t realize is the fact that Staff Management isn’t the first staffing company to face an FCRA class action. In December 2014, Aerotek Inc. – another staffing firm – was slapped with a similar class action lawsuit for improper criminal background checks.
According to the lawsuit, Aerotek conducted a criminal background check on an employee, Craig Mitchell. When the background check returned a criminal record, the company fired him. The only problem is that the company did not furnish Mitchell with a “pre-adverse action notice” until after making the decision. When he finally received the notice together with a copy of the background check, he realised that the check had been conducted improperly. The criminal records weren’t his. So, he contacted a lawyer, and sued Aerotek.
The point here is that staffing companies are beginning to face lawsuits over improperly conducting background checks. This comes against a backdrop of an overall rise in FCRA lawsuits and class actions. This happens many times when you are using an “Instant Check Database” background check company and the records are not vetted.
Thankfully, no staffing company has faced the financial consequences.
Previous FCRA background check lawsuits have led to settlements of up to $6.8 million.
Given that the cases against Aerotek and Staff Management are still in court, the staffing industry could see its first examples of background check-related settlements.
For anyone involved in applicant/temp screening for a staffing company, the take home is this:
Improperly conducting background checks can lead to a costly lawsuit. Therefore, you have to make sure that whatever background checks you use are carried out properly.
In this context, “properly” means “according to the relevant legislations”. The main legislation in this case is the FCRA. This law spells out the process by which a background check should be used when making hiring decisions.
In a nutshell, the main conditions under which a background check can be considered “proper” under the FCRA are when you:
- Inform an applicant/employee of your intention to conduct a background check on them
- Get a written consent from the applicant/employee prior to ordering a background check
- Send A Pre-Adverse Action Notice before deciding to not hire or fire them basing on the information from the background check.
- Send to them a copy of the background check report, and give them time to dispute the contents
- Send the applicant an Adverse Action Notification once you decide not to hire or fire them
Each of these conditions has its own minute details which can be ground for lawsuits. For instance, in FCRA jargon, informing an applicant is called “disclosure”. Its minute detail is that the disclosure has to be written, and must be a “stand-alone document”. Many companies have been sued even after giving disclosures for not giving them as stand-alone documents.
Background Screening Do’s And Don’ts For Staffing Companies (or any industry)
Pre-Adverse Action Notice
Similarly, the Pre-Adverse Action Notice has its own minute details. It is supposed to be sent along with a copy of the background check report, and a document which spells out the applicant’s FCRA rights. That document should include, among others, the address of the Federal Trade Commission (FTC). A few companies have been sued for sending documents which have an erroneous address of the FTC.
The point here is that FCRA requirements have copious minute details. The simplest mistake can lead to a lawsuit which could potentially cost your company millions of dollars. As such, you just cannot conduct background checks haphazardly.
When the checks are criminal background checks, the FCRA isn’t the only legislation. The Equal Employment Opportunity Commission (EEOC) has its own guidelines under which criminal background information should be used in recruitment. The guidelines give the EEOC the mandate to sue anyone who misuses criminal background checks under Title VII of the Civil Rights Act.
The bottom line is that the use of background checks can be a potential legal tripwire for staffing companies. Any mistake can get you slapped with a lawsuit. This can not only lead to expensive financial settlements, it can also do irreparable damage to your brand. As such, it is important for every staffing company to take every measure to avoid running afoul of the law.
The easiest way to achieve legal compliance is by hiring a reputable company to carry out background checks on your behalf. The best screening companies fully understand the various federal and state legislations which govern background checks. They are usually more than willing to help their clients navigate the various legal complexities.
Therefore, if you don’t want to be the next staffing company slapped with a lawsuit for carrying out improper background checks, simply hire a reputable screening company. Such a company will not only help you with legal compliance, it will actually provide you with the best service. Talk about hitting two birds with one stone!
Staffing Companies Begin To Feel The Financial Pinch
Earlier, we stated that “no staffing company has faced the financial consequences” of FCRA violations. Well, not any more. Staffing companies have started feeling the financial pinch for FCRA violations. Two companies have so far agreed to settle FCRA background check lawsuits.
The first is Employer Plus Inc – a staffing company based in Bloomington – Illinois. In 2013, Employer Plus became the first staffing company ever to be sued for FCRA violations. The plaintiff, Nicholas Guzman accused the staffing company of conducting background checks in violation of FCRA guidelines.
The lawsuit later turned into a class action – after Guzman’s attorney identified a number of systemic flaws in Employer Plus’ background checking mechanism. As such, the class action was filed on behalf of all applicants who had undergone Employer Plus’ background checks between 2003 and 2014.
To avoid a lengthy litigation process, Employer Plus Inc. opted to settle. After protracted negotiations, in June 2015, it proposed a $1.55 million payment to settle the class action. 20% of the settlement was proposed for FCRA violations (the class action alleged other wage-related violations). This means that the staffing agency would have to pay $300,000 to settle the FCRA class action.
On September 2nd, 2015, US Magistrate Judge Daniel D. Martin approved the $1.55 million settlement. This entered Employment Plus Inc into the history books as the first staffing company to ever make a payout to settle a class action lawsuit.
The Second Settlement
The second staffing agency to settle a class action is Infinity Staffing Solutions Inc. The lawsuit was initially filed by John Giddens – a former applicant with Infinity Staffing. The lawsuit alleged that the staffing company committed FCRA violations by forcing applicants to sign a waiver of rights, while authorizing background checks.
The lawsuit turned into a class action on behalf of everyone who had applied for employment with Infinity Staffing solutions from Dec. 6, 2011 through Aug. 21, 2015. In October 2015, Infinity Staffing Solutions Inc agreed to settle the class action, rather than go through the trial process.
The amount which Infinity Staffing will pay to settle the class action is yet to be revealed. Negotiations are still going on. However, employers who have settled similar class actions (i.e. for embedding a waiver in their background authorization forms) have paid varying amounts. For instance, Whole Foods Inc paid 803,000 but Dollar Tree paid $4.08 million. As soon as the figures are released, we shall update this page.
Implications of the Settlements
The fact that staffing companies have started settling FCRA lawsuits carries dire implications. First of all, it is a clear indication to attorneys that suing staffing companies can provide financial benefits. And, as any keen observer of the legal system knows, one of the greatest drivers of lawsuits is a financial motive.
Basically, class action attorneys are now realizing that suing staffing companies for FCRA violations is potentially lucrative. Also, given that most companies would rather settle, it provides attorneys an opportunity to make quick money without having to fight for it in court.
Secondly, the settlements provide good lessons for attorneys who are planning background check lawsuits. It provides them with case files to study even as they prepare their own lawsuits. All this makes attorneys more likely to sue.
Ultimately, the settlements should warn every staffing company to be triple careful with background checks. Class action attorneys are now sniffing around, looking for the slightest FCRA violation so that they can sue. Those who are sloppy may easily find themselves in court.
J & J Sued For FCRA Violations
The trend of companies being sued for FCRA violations committed by staffing agencies seems to be picking up. The latest victim to face such a lawsuit is the well-known cosmetic brand Johnson & Johnson. In December 2015, J&J was sued along with the staffing agency Kelly Services.
The problem arose when J & J hired the plaintiff, Jason Noye through Kelly Services. Noye had already been offered accepted a position with J & J when Kelly Services presented a background check revealing criminal records. After that, Noye was informed by Kelly Services that the offer had been withdrawn.
Noye contacted an attorney who decided to sue both Kelly Services and J & J. The lawsuit is now being turned into a class action. As more details unfold, we shall be updating this page. Even then, this is just the latest manifestation of background check mistakes made by staffing companies getting their clients sued.
Industrial Staffing Services, Inc. Settles An FCRA Lawsuit
Yet another staffing agency has felt the financial pinch of improper background checks. This time it is the turn of Industrial Staffing Services Inc. (ISSI). This New Jersey – based company recently agreed to pay nearly $60,000 to settle a Fair Credit Reporting Act (FCRA) class action lawsuit.
Granted, compared to other FCRA payouts, the ISSI settlement amount is peanuts. However, the reason for this relatively low amount is because a District Court judge in Missouri initially threw the case on jurisdictional grounds. Sensing an opportunity, ISSI decided to negotiate a settlement before the plaintiff could file the lawsuit in another court.
The case arose early in 2014 when the plaintiff – Cortez Cordy – applied for a position with ISSI. He went through the interview process and he was subjected to a background check. Following the results, he wasn’t offered the position.
The only problem is the background check disclosure and authorization forms issued by Industrial Staffing did not comply with FCRA regulations. The exact details of the FCRA violations are unclear.
However, in the past, companies have been sued over two common disclosure and authorization violations. The first is failing to provide the FCRA disclosure as a “stand-alone” document. The second is attaching a waiver to the authorization forms – requiring applicants to waive their right to sue the company in case FCRA violations occur.
The exact nature of the violation is unclear in the case of Industrial Staffing. Whatever, the violation was, it must have been strong. This is because once Cortez Cordy contacted his attorney, they immediately filed an FCRA lawsuit in the District Court of the Western District of Missouri.
Initially, the lawyers for the plaintiff managed to get the District Court judge to throw out the case. They did this by challenging the court’s jurisdiction. They said that since the FCRA is a federal law, a district court has no jurisdiction to try it. The judge agreed with their assertion and threw out the case.
Instead of letting the case go, Mr. Cortez’s lawyers upped their ante. They decided to put together a class action, and refile the case. They contacted people who had applied for positions with Industrial Staffing starting from December 29, 2012. They proposed a class action on their behalf.
Realizing that the next lawsuit could be potentially costly, Industrial Staffing decided to reach out to Cortez and his attorneys. They proposed a settlement. After months of negotiation, they reached one in March 2016.
In the settlement, ISSI agreed to pay $57,750. Of this amount, $6,000 would go to the Named Plaintiff (i.e. Cortez Cody) and the rest would be split up between the attorneys and the rest of the class action plaintiffs.
Critically, as part of the settlement, ISSI ensured that Mr. Cortez was permanently enjoined and barred from pursuing further legal action against the company on the basis of the said FCRA violations. This settlement was approved on March 3rd, 2016 and the matter was resolved. Ironically, the same court which threw out the initial lawsuit is the one which approved the settlement.
The one thing which Industrial Staffing Services Inc. should be well aware of is that they got of lightly. Given that FCRA settlements typically range in millions of dollars, getting off with an amount just short of $60,000 is tantamount to getting away with it.
Not A Single FCRA Lawsuit In Almost One Year (Is It Time For Staffing Agencies To Relax?)
This will come as a surprise (and possible source of relief) for staffing agencies. There hasn’t been a single FCRA lawsuit filed against a staffing agency in almost one year. The last known lawsuit was the one filed against J & J back in December 2015.
Since then, nothing. Not even one. Perhaps, this shouldn’t come as much of a surprise. In June 2016, ACA International published statistics which showed a general decline in the rate of FCRA lawsuits. This decline, according to ACA International, was being experienced across all industries.
It seems the staffing industry is enjoying the benefits of the overall decline in FCRA lawsuits. The ultimate question which most staffing agencies are possibly asking is this: what is leading to the sudden drop in FCRA background check lawsuits?
As of now, there is no clear-cut answer. No study has been conducted to investigate the reasons why few FCRA lawsuits are being filed overall (or none has been filed against a staffing agency in almost one year). However, there are a number of factors which could be coming into play.
The simple fact is that there are few employers who would willfully violate laws – especially if the know that the violations can lead to dire consequences. This is certainly true of the Fair Credit Reporting Act (FCRA). The largest number of violations of the FCRA background check guidelines have done so as a result of misunderstanding the law’s provisions.
The Federal Trade Commission (FTC), which is responsible for enforcing the FCRA, figured this out a couple of years back. As such, rather than focusing on seeking out and punishing violators, the FTC started out a massive employer education campaign.
The FTC organized seminars, workshops and other activities aimed at educating employers on FCRA compliance. It also published guidelines to help both employers and background check companies on how to comply with the FCRA. An example of the compliance guidance (published in April 2016) can be found here.
The deliberate efforts by the FTC to educate employers means that most of them are now more knowledgeable about the FCRA. As such, they can no longer commit violations due to ignorance. Only carelessness or blatant rebellion can lead an employer to violate FCRA background check guidelines.
The greatest motivator for employers stepping up their compliance efforts must have been the steep financial penalties levied against FCRA violators. Over the last few years, employers have made huge payouts to settle FCRA lawsuits. Examples include Publix Supermarkets ($6.8 million), Food Lion ($3 million) and BMW ($1.6 million), among others.
For a long time, staffing agencies weren’t facing the financial consequences. However, when a few of them started facing the financial pinch (see above), this was a wake-up call. The potential financial costs became an extra motivator for staffing agencies to step up their compliance efforts.
A Serial Plaintiff On the Prowl
In June 2016, it emerged that a “professional plaintiff” was on the prowl, looking for employers to sue for FCRA violations. Over an 18-month period, this individual had applied for over 560 jobs. His intention wasn’t to get hired. Oh no! His intention was to have a background check run on him (in violation of FCRA guidelines) so that he could sue the employer.
Actually, this serial plaintiff’s intention wasn’t to sue. He would simply threaten to sue the employer and then ask for a financial settlement in order to drop the lawsuit. Even if he was offered the job (and the FCRA violations had occurred), he’d still threaten to sue. Using this scheme he’d racked up over $230,000 in settlements from scared employers, (Source: click here to read more).
When this story broke, almost every employer was jolted to action. Previously, most employers had assumed (and rightly so) that if they didn’t have deep pockets, most attorneys would leave them alone. However, this story demonstrated to them that applicants could actually be looking for violations to use as a basis to sue them. This caused employers to step up their compliance efforts.
A Staffing Agency’s Worst Nightmare
For staffing agencies, perhaps the greatest motivator was when clients started getting sued for FCRA violations committed by staffing agencies. The best-publicized example of this was the case of Amazon. Another was that of Johnson & Johnson.
When staffing agencies realized that their FCRA violations could backfire on their clients, they were forced to act. As every staffing agency knows, no client will hire an agency which can easily get them sued. Basically, getting a client sued is the quickest way for losing both current and potential clients.
Employers Challenging FCRA Lawsuits Using Landmark Supreme Court Ruling
It seems employers are now turning to a landmark US Supreme Court ruling in their never-ending fight against FCRA lawsuits. Lawyers representing employers have started using the ruling to challenge lawsuits which allege technical violations of the FCRA. A “technical violation” is basically failing to meet all the technical requirements of the FCRA while conducting background checks.
Examples of technical violations include: not obtaining a written permission before conducting a background check, failing to send pre-adverse and adverse action notices and notifications or even failing to send the right documents along with the adverse action notices.
In the past, these technical violations have been grounds for culpability. The slightest mistake would lead courts to rule in favor of plaintiffs – with the result that employers often had to pay large sums of money to settle. A good example is the case (referenced above) of Industrial Staffing Services Inc. (ISSI) which was forced to pay $60,000 to settle a lawsuit over using improper disclosure and authorization forms.
However, boosted by the US Supreme Court ruling in Spokeo Inc. v Robins, lawyers have started pushing back against lawsuits over technical violations of FCRA. In Spokeo v. Robins, the Supreme Court ruled that for an employer to be liable for legal violations, the plaintiff must (1) allege real world injury, and (2) demonstrate that Congress offers protections against that injury.
In the context of FCRA, Spokeo v. Robins means that technical violations of the act alone may not be enough. The plaintiff may have to prove that the violation has actually led to a real world injury and that the said injury is a violation of existing laws. This is the argument which lawyers representing employers are currently making.
The example of an employer to using this argument was UPS – which is currently facing an FCRA class action in Florida. The class action alleges that UPS failed to issue the adverse action notifications, before denying an applicant employment due to the information in their background. UPS has argued that the plaintiff could not allege real-world injury since he hadn’t proved that the information in the background check report was false.
A similar argument was used in M-I LLC vs Sarmad Sayed. In this lawsuit, Sayed sued M-I LLC for violating the FCRA by including a waiver among the authorization documents. The lawyer’s arguments that the violations did not constitute a real-world injury to Sayed, were initially accepted by a lower court before being rejected by the Ninth Circuit.
The UPS request for the lawsuit against them to be tossed out for lacking merit hasn’t yet been ruled upon. A few courts have already ruled in favor of employers who have raised a similar argument. Others, like the Ninth Circuit, have ruled that the argument isn’t valid.
Ultimately, the Spokeo vs Robins ruling has offered employers more ammunition to fight back against FCRA lawsuits. However, the fight hasn’t been entirely successful so far. So, the smartest thing all employers can do is ensuring that they meet all the technical requirements of FCRA. The best remedy for lawsuits is avoiding them altogether.
No Need For Complacency Yet
The bottom line is that there hasn’t been a single lawsuit filed against a staffing agency for FCRA background check violations in almost one year. This probably means that staffing agencies have become increasingly vigilant in complying with the FCRA – perhaps spurred by the factors mentioned above.
Even then, there is no need for complacency. Every staffing agency needs to remain vigilant. Otherwise, the slightest mistake could mean that you are the first staffing agency to get slapped with an FCRA lawsuit in almost a year.
SHRM (08/05/2015) Amazon, Staffing Company Sued Under FCRA.
JD Supra Business Advisor (12/16/2014) Staffing Companies Hit with Class Action Alleging Violation of Fair Credit Reporting Act.
(Source: Read more here.)
(Source: Read more here.)