A federal court in Virginia last week denied an employer’s motion for summary judgment in a class action under the Fair Credit Reporting Act (“FCRA”), finding triable issues on whether the coding of applicants as "ineligible" was an adverse action under the statute and whether the inclusion of a release of liability in the authorization form completed by applicants was a willful violation of the Act. The decision in Manuel v. Wells Fargo Bank, N.A. in the United States District Court for the Eastern District of Virginia underscored the significant risk that the FCRA imposes on employers that conduct background checks.
The plaintiff in the case applied for a loan document specialist position at Wells Fargo and obtained an offer of employment conditioned upon the successful completion of a background check. Pursuant to Wells Fargo's instructions, the plaintiff accessed the website of Wells Fargo's third-party background check vendor and completed a standard application and the "Wells Fargo Standard Consent." The standard consent form contained provisions that advised the plaintiff that a background check may be obtained for employment purposes. It also contained language purporting to release Wells Fargo, its vendor, and third parties from liability arising from retrieving and/or reporting information regarding the applicant and from using the report of employment purposes. These documents initiated the background check process and resulted in the report of two convictions for petit larceny as well as a conviction for aggravated assault with serious bodily injury in the second degree.
Upon receiving the report, Wells Fargo coded the plaintiff as "ineligible" in the background check vendor's system, which triggered the vendor's adverse action protocol. Specifically, the plaintiff received a "Pre-Adverse Action Notice," a copy of the report, and a summary of rights under the FCRA. The plaintiff disputed the report and appealed pursuant to Wells Fargo’s appeal process. The vendor then generated a revised report that still contained the disputed convictions, and Wells Fargo sent an adverse action notice to the plaintiff advising him that Wells Fargo would not consider him further for the employment position.
The plaintiff claimed that Wells Fargo violated the FCRA requirement of a clear and conspicuous disclosure in a document that consists solely of a disclosure that a background check may be obtained. He also claimed that Wells Fargo’s coding of plaintiff as "ineligible" in the vendor's system, which triggered the adverse action protocol, violated the FCRA requirement that the pre-adverse action notice, a copy of the report, and summary of rights be provided to the individual before the adverse action. Wells Fargo argued that the plaintiff had no standing to assert a claim for violation of the FCRA's initial disclosure requirement and that the "ineligible" coding was only a "preliminary" determination.
The court found that the plaintiff had standing to assert a claim based on the provision that the initial disclosure be in a document that consists solely of the disclosure and that a triable issue existed as to whether the "ineligible" coding was an adverse action under the FCRA. The court emphasized that, under Wells Fargo's procedure, its use of the ineligibility code was the only communication that Wells Fargo made to its vendor about the applicant unless the applicant disputed the background check after he received the pre-adverse action notice. The court held that a reasonable jury could find that Wells Fargo’s adverse hiring decision was final when it was first relayed to the vendor because Wells Fargo was comfortable adhering to that decision without reviewing it if the individual did not file a dispute. The court also specifically rejected Wells Fargo’s argument that the FCRA did not apply because the statute excludes background checks in connection with an investigation of compliance with federal banking law restrictions on the type of individuals who may be employed at banking institutions.
Employers Should Plan for Compliance with the FCRA
The Wells Fargo case provides another reminder of the importance of compliance with the FCRA's procedural requirements and how easily employers can be tripped up by the technical aspects of the statute. To reduce the risk of claims and to comply with the FCRA, employers should:
- Give Proper Notice to the Consumer Reporting Agency. Send a certification notice to the background or credit check agency to document each request for consumer and/or investigative reports in accordance with the FCRA. This communication should be sent for every report requested by the employer. It should certify the employer’s compliance with disclosure requirements and that the employer will not use the information provided by the agency to violate equal employment opportunity requirements.
- Get the Individual's Authorization. An employer may not procure a consumer report on an applicant or employee unless the employer has provided clear and conspicuous written disclosure to the applicant or employee that a consumer report may be obtained. The disclosure should be made in a document that is separate from any other documents. In addition, the applicant or employee must give his or her written authorization for obtaining the report. The compliant authorization form may differ from a reporting agency's authorization form, which the agency may require for its own purposes. The employer's form may provide for the applicant or employee to authorize the employer to obtain a consumer report or investigative consumer report at any time during the application process or during the employment if the applicant is hired. The employer may also include with the authorization form a copy of the federal Consumer Financial Protection Bureau's Summary of Rights under the Fair Credit Reporting Act.
- Use Pre-Adverse Action Notices. Before any adverse action is taken against an applicant or employee because of information in a report, the employer is required send to the employee or applicant a pre-adverse action notification, a copy of the consumer report and a copy of the Consumer Financial Protection Bureau’s "A Summary of Your Rights Under the Fair Credit Reporting Act." The notice is designed to provide to the individual an opportunity to explain or correct the information in the report. In order to provide for an individualized assessment with respect to an employee or applicant and thereby address disparate impact issues under Title VII, the pre-adverse action notice should solicit information from the individual on which the individual may base any belief that he or she should not be screened out from employment.
- Use Written Notices of Adverse Action. The FCRA requires the disclosure of the name and contact information of the reporting agency as well as other disclosures, and employers should satisfy these requirements by providing written notice to applicants and employees subjected to an adverse action based on information in a consumer report. The FCRA requires that specific information be included in the various notices required under the statute, and employers should carefully ensure that their documents comply with the FCRA's specific notice requirements.
This article summarizes only some of the FCRA's requirements and does not address any state or local legal requirements relating to background checks. Some states may have additional or different requirements. Employers should consult an attorney prior to obtaining background checks on applicants and employees.
Timothy M. McConville leads the labor and employment group at the law firm of Odin, Feldman & Pittleman, P.C. in Reston, Virginia. Mr. McConville may be reached at 703-218-2119 or firstname.lastname@example.org. Follow him at laborandemploymentlawcocktail.com and on Twitter @worklawguy.