DISH Network, LLC and DISH Network Service, LLC have agreed to pay $1.75 million to settle class action claims that they violated certain provisions of the Fair Credit Reporting Act related to ordering consumer reports for employment purposes.  The December 4, 2012 complaint alleged that DISH required companies contracted to install DISH products to obtain consumer reports on its technicians from Sterling Infosystems, Inc.  Based on parameters pre-determined by DISH, technicians were classified by Sterling as either “high-risk” or “low-risk.”  The “high-risk” technicians were deemed ineligible to work on DISH projects.      

As such, there are two classes identified with respect to claims against DISH.  The authorization class consists of technicians who were the subject of a consumer report obtained by DISH without providing proper notice to or obtaining consent from techniciansa requirement of Section 604(b)(2)(A) of the FCRA if considered an employment purpose.  The adverse action class consists of technicians who were not provided with what is typically referred to in the industry as a pre-adverse action notice as required by Section 604(b)(3)(A) if the use is for employment purposes. 

The proposed settlement agreement comes after almost two years of negotiations between the two parties.  It is evident from the agreement that the parties desire, at least in part, to settle the action at this time to avoid any further “expense, risks, difficulties, delay, and uncertainties of continued litigation,” even in light of the Spokeo decision.  The parties also acknowledged the inherent difficulty in proving that DISH willfully violated the FCRA employment purposes requirements, a question that must be proven in the affirmative to obtain relief under the FCRA.  Each named plaintiff will receive $5,000 as part of the settlement.  Each of the approximately 9,000 members of the adverse action class stand to receive around $425, and each of the approximately 38,000 members of the authorization class stand to receive around $80.  Members of both classes will receive the adverse action class award only. 

Earlier in the case, Judge Schofield ruled that the reports provided by Sterling to DISH were considered consumer reports even though they only provided a summary of the background report information.  The summary reports included the technician’s first and last name, the last four digits of the technician’s Social Security number, the contract company’s name, an order number, the date the order was opened and closed, the type of report ordered, the technician’s status in DISH’s work order management system, and the technician’s risk rating.  Judge Schofield reasoned that “because [the summary report] communicated information bearing on Plaintiff’s character, general reputation, or mode of living, and the information was collected and expected to be used for employment purposes,” the summary report was in fact a consumer report under the FCRA. 

In November 2015, Sterling settled for $4.75 million claims related to reporting non-conviction criminal records older than seven years, issuance of summary reports to DISH, and reporting motor vehicle records older than seven years.  

While Judge Schofield’s order did not approve or opine on the merits of the settlement agreement, courts are split on the issue of whether information obtained on independent contractors could be considered consumer reports obtained for employment purposes and thus subject to FCRA requirements at issue.  For example, the Fourth Circuit held in Hoke v. Retail Credit Corp. that information obtained by the Texas Board of Medical Examiners regarding a physician’s licensures in other states was considered a consumer report used for employment purposes under the FCRA, even though the physician was practicing medicine as an independent contractor.  The court reasoned that without a license the physician could not be employed as a physician, either through himself or a medical partnership, and thus the information was used for employment purposes.   

Since Hoke was decided in 1976, several courts have taken a more conservative approach to defining the employer-employee relationship.  For example, in Johnson v. Sherwin Williams Co., the defendant obtained a consumer report on the plaintiff who had applied to install the defendant’s floor coverings and required the plaintiff to obtain criminal background checks and motor vehicle reports on his employees.  The court, relying on Lamson v. EMS Energy Marketing Service, Inc., held that the reports were not subject to the FCRA’s requirements for consumer reports used for employment purposes because the application paperwork clearly set the plaintiff out to be an independent contractor, rather than an employee. 

These cases highlight the potential FCRA issues faced by consumer reporting agencies and companies that rely on contractors, that relate to the acquisition of consumer reports on independent contractors and their employees.  Troutman Sanders’ background screening team provides advice to clients on compliance with FCRA and state law requirements.