On Oct. 4, 2018, in Smith v. Mutual of Omaha Insurance Company,[1] the United States District Court for the Southern District of Iowa ruled the plaintiff could not advance his putative class action under the Fair Credit Reporting Act if he qualified as an independent contractor rather than an employee. The decision presents another helpful reading of the “employment purposes” provision in the FCRA and becomes part of a small but growing body of law providing clarity on this recurring issue of importance. The decision highlights a limitation on the FCRA’s reach, but the issue has been unsettled and companies who utilize a large number of independent contractors may still find themselves defending against FCRA class actions.

Requirements for Reports Used for “Employment Purposes”

Some of the FCRA’s most litigated protections apply when a consumer report is obtained by an employer for “employment purposes.”[2] This includes obtaining the consumer’s written authorization in a “stand-alone disclosure” and providing a pre-adverse action notice and summary of rights if the consumer report will be used to make an adverse employment decision. Likewise, a consumer reporting agency furnishing a consumer report for employment purposes must follow certain certification requirements and provide a summary of rights with the report. Importantly, these steps are only required if the report is obtained for employment purposes. “Employment purposes” is defined by the FCRA as “a report used for the purpose of evaluating a consumer for employment, promotion, reassignment or retention as an employee.”[3] It’s these last three words that have caused confusion.

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[1] Smith v. Mutual of Omaha Insurance Company , No. 4:17-cv-00443 (S.D. Iowa Oct. 4, 2018).

[2] 15 U.S.C. § 1681b(b).

[3] 15 U.S.C. § 1681a(h).