On August 9, a court in the United States District Court for the Northern District of Georgia joined several other district courts in finding consumer reports obtained for independent contractors do not trigger the protections applicable for consumer reports obtained for “employment purposes” under the Fair Credit Reporting Act. Although the issue remains unsettled, this decision adds to the recent emerging trend in favor of not extending the protections of the FCRA to independent contractors.
Requirements for Reports Used for “Employment Purposes”
The FCRA provides for certain protections when a consumer report is obtained for “employment purposes.” 15 U.S.C. § 1681b(b). 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. These have become heavily litigated under the FCRA, as the plaintiffs’ bar searches for technical violations that may give rise to suits. Importantly, however, these requirements only apply if the report is obtained for “employment purposes,” which 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.” 15 U.S.C. § 1681a(h). But what “as an employee” encompasses has caused some confusion.
The Court’s Decision
Plaintiff John Walker, Jr. sought a position with defendant RealHome Services and Solutions, Inc. as a real estate agent. Although he was initially offered a position, that offer was later rescinded allegedly based on RealHome’s review of Walker’s background check. As part of the application process, Walker signed an Independent Contractor Agreement, which explicitly described him as an independent contractor. Walker also signed a background check consent form, but he alleged RealHome violated the FCRA’s “stand-alone disclosure” requirement by including a liability waiver in the authorization form. Further, Walker alleged RealHome violated the FCRA’s pre-adverse action requirements by failing to provide him with a copy of his report or summary of his rights before rescinding his job offer. RealHome moved to dismiss, arguing Walker lacked standing to bring his “stand-alone” claim, and that both of his claims failed because his position was that of an independent contractor and thus not subject to the FCRA’s protections at issue.
The magistrate judge first issued a Report and Recommendation dismissing the complaint and agreeing with all of RealHome’s arguments. In finding both claims failed, the magistrate judge concluded that “it is clear that the provisions of the FCRA urged by plaintiff here do not apply when consumer reports are obtained on persons seeking positions as independent contractors.”
The district court adopted the R&R, agreeing the FCRA provisions do not apply to consumer reports obtained for independent contractors. Specifically, the Court found it was “required to apply the common law meaning of employment, which does not include independent contractors.” Likewise, the court cited other published district court decisions holding the FCRA does not apply to independent contractors, including the Eastern District of Wisconsin in Lamson v. EMS Energy Mktg. Serv., Inc., 868 F. Supp. 2d 804 (E.D. Wis. 2012) and the Northern District of Ohio in Johnson v. Sherwin-Williams Co., 152 F. Supp. 3d 1021 (N.D. Ohio 2015).
The magistrate judge had also found Walker lacked standing to bring his “stand-alone” claim, but the district court did not reach that decision after concluding the FCRA did not apply.
The district court here took a similar approach to the question as the Southern District of Iowa did in Smith v. Mutual of Omaha Insurance Company, and cited to that opinion, which we wrote about here. There, the Court ordered limited discovery on whether the plaintiff was an employee or independent contractor. Conversely, in Walker, the Court found it was “undisputed that Plaintiff applied for an independent contractor position with Defendant.” Nevertheless, both courts conclusively determined the FCRA’s “employment purposes” protections do not apply to independent contractors.
Although all companies should welcome this emerging trend, they should be mindful that other courts may read “employment purposes” broadly and apply the protections to independent contractors. Indeed, there is some authority for this position, even if some courts are rejecting it. Likewise, companies should be mindful that simply calling someone an “individual contractor” may not shield them from FCRA liability, as the Court may conduct an inquiry into the relationship, like in Smith. Until the issue is ultimately decided, companies may consider complying with the FCRA’s authorization and pre-adverse action requirements for independent contractors to limit potential lawsuits.
The case is Walker v. RealHome Services and Solutions, Inc., No. 1:18-cv-03044 (N.D. Ga. Aug. 9, 2019). A copy of the district court opinion can be found here. A copy of the magistrate judge’s opinion can be found here.