Background Screening

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On October 1, the State of Michigan will join more than 150 cities and counties as well as over 32 states in enacting a ban-the-box policy that prohibits asking job applicants if they have been convicted of a felony in an initial application. The policy applies to Michigan state positions and public employees, not private employers. The question will remain on applications where state law does not allow former felons from being licensed, such as in the healthcare field.

Michigan Governor Rick Snyder is encouraging private employers to follow suit.  Currently, eleven states require the removal of criminal history questions from job applications for private employers.

Troutman Sanders will continue to monitor related legislative developments concerning employment background screening and employee hiring.

Clarity on Overlapping Background Check Laws in California

By Timothy St. George, David Anthony, Ronald Raether, Jonathan Yee and Sadia Mirza

On Aug. 20, 2018, the California Supreme Court issued its long-awaited order in Connor v. First Student Inc., finding the state’s Investigative Consumer Reporting Agencies Act, or ICRAA, was not unconstitutionally vague as applied to employer background checks, despite overlap with the Consumer Credit Reporting Agencies Act, or CCRAA.[1]

The Supreme Court resolved a conflict between two courts of appeal which had left many consumer reporting agencies, or CRAs, wondering whether the ICRAA applied even if they did not obtain the information from personal interviews — the definition of “investigative consumer report” used under the Fair Credit Reporting Act to impose additional requirements under 15 U.S.C. §1681l similar to those included in the ICRAA. With this decision, CRAs providing consumer reports for employment and tenant screening will need to carefully review their products to assure compliance with the ICRAA and the CCRAA.

View full article published on Law360.

 

On August 16, seven Democrat senators proposed a bill (S.3351, named the “Medical Debt Relief Act of 2018”) to amend the Fair Credit Reporting Act and Fair Debt Collection Practices Act to cover certain provisions related to the collection of medical-related debt. The proposed act would institute a 180-day waiting period under the FCRA before medical debt could be reported on a person’s credit report. Further, medical debt that has been settled or paid off would be required to be removed from a person’s credit report within 45 days of payment or settlement.

The bill has been referred to the Senate Banking Committee for consideration. The senators introducing the bill were Jeff Merkley (D-Ore.), Richard Blumenthal (D-Conn.), Dianne Feinstein (D-Calif.), Elizabeth Warren (D-Mass.), Dick Durbin (D-Ill.), Bob Menendez (D-N.J.), and Maggie Hassan (D-N.H.).

The bill targeted Section 1692(g) of the FDCPA specifically and would require debt collectors to send a statement to individuals that includes a notification that:

(1) the debt may not be reported to a credit bureau for 180 days from the date in which the statement is sent, and

(2) if the debt is settled or paid by the individual or an insurance agency during the 180-day period, the debt may not be reported to a consumer reporting agency.

Troutman Sanders will continue to monitor these developments and provide any further updates as they are available.

 Under the Fair Credit Reporting Act, a potential employer generally may not procure a consumer report on an applicant unless the employer provides a disclosure, in a document that consists “solely of the disclosure,” informing the applicant that a consumer report may be obtained.  In Williams v. TLC Casino Enters., the District Court for the District of Nevada has joined a growing chorus of courts finding that a plaintiff cannot bring a “solely of the disclosure” claim in federal court when he or she has suffered no actual harm separate from the perceived failure to properly format the disclosure.

Specifically, in Williams, the plaintiff alleged (on a class basis) that TLC Casino Enterprises violated the FCRA by obtaining a consumer report on her without providing her with a “stand-alone document of a legal disclosure.” According to Williams, TLC only provided her “with a written conditional offer to hire that included, inter alia, the following statement: ‘Continuation of this position and your employment is dependent upon your passing any Background Check or Drug Screen that may be required for your position.’” This document, in Williams’ view, was not a disclosure that consisted “solely of the disclosure” that a consumer report may be obtained for employment purposes.

TLC Casino Enterprises moved to dismiss Williams’ complaint for lack of standing, arguing that her claim amounted to nothing more than a bare procedural violation of the FCRA. According to the defendant, Williams could not state a claim in federal court because the bare procedural violation of a statute alone does not satisfy the injury-in-fact requirement for Constitutional standing.

The Court agreed with TLC Casino Enterprises. In its decision, it drew on the Supreme Court’s decision in Spokeo, Inc. v. Robins to conclude that Williams must allege a “concrete injury in fact” separate from the procedural violation of a statute in order to demonstrate standing.  Williams could not do that here. According to the Court, Williams framed TLC Casino Enterprises’ alleged FCRA violation as having “failed to provide the disclosure in a format required by the FCRA.” But “[a] formatting error such as this is a procedural issue that does not satisfy the requirement that plaintiff demonstrate a concrete, particularized injury.”

Although plaintiffs’ counsel often argue that disclosure claims are straightforward and easily certifiable as a purported class action, the Williams decision demonstrates that this is not the case. Indeed, courts are increasingly dismissing disclosure claims when plaintiffs allege nothing more than the violation of a procedural FCRA requirement.

We will continue to track this and other developments regarding the intersection of FCRA claims and standing to sue in federal court.

 

On June 21, 2018, the U.S. District Court for the District of Oregon dismissed a putative class action complaint alleging that a potential employer violated the disclosure and pre-adverse action notification requirements of the Fair Credit Reporting Act in Walker v. Fred Meyer Inc.[1] The Walker decision highlights several key lessons associated with FCRA class actions, particularly related to the disclosures employers must provide to prospective employees.

Background

Daniel Walker applied for a job with Fred Meyer Inc. As part of the application process, Fred Meyer provided Walker with separate disclosure and authorization forms regarding its intent to procure a background report on Walker. Fred Meyer presented the disclosure and authorization forms together, each in separate documents. The disclosure form mentioned both a general consumer report and an investigative consumer report.

View full article published on Law360.

On July 17, the Missouri Court of Appeals affirmed a ruling of the Cole County Circuit Court dismissing a putative class action under the Fair Credit Reporting Act against multinational staffing company, Kelly Services, Inc.

A three-judge panel of the Missouri Court of Appeals issued a one-page order and eleven-page memorandum opinion upholding the lower court’s ruling that the plaintiff lacked standing to pursue his claim since he alleged only bare procedural violations without the requisite concrete injury.

The panel held: “Not even the most liberal construction of his pleading would support a construction favorable to finding that Mr. Boergert pleaded a concrete and actual injury. …  Because Mr. Boergert did not plead an invasion of a legally protected interest that is concrete and particularized and actual or imminent, not conjectural or hypothetical, the trial court did not err in dismissing his complaint for lack of standing.”

Plaintiff Cott Boergert claimed Kelly Services violated the FCRA when it fired him from a job placement based on information in his consumer report indicating that he had been on probation in 2009 for commission of a felony. Boergert had previously indicated that he had not been on probation for a felony in the preceding seven years when he filled out the employment application.

He then filed the class action in Cole County Circuit Court, claiming that Kelly Services violated the FCRA by including more information in its disclosure form than was allowed and by not providing him with either the report or a summary of his rights. Interestingly, the case was removed to federal court but was dismissed in 2016 under the U.S. Supreme Court’s Spokeo v. Robins decision. That federal district court, however, rethought its decision and the case was remanded back to state court.

The panel’s ruling added: “While alleging that Kelly Services knowingly violated the FCRA by using a disclosure form that contained extraneous information – a bare procedural violation – and that he was therefore entitled to statutory damages for these violations, Mr. Boergert did not plead any concrete or actual injury. … Although he testified during a deposition that the form confused him, he did not plead that it did so or that he did not see the disclosure or authorize Kelly Services to obtain a consumer report.”

Troutman Sanders will continue to monitor these developments and provide further updates as they are available.

On June 21, the United States District Court in Oregon dismissed a plaintiff’s class action complaint alleging his potential employer violated the disclosure and pre-adverse action notification requirements of the Fair Credit Reporting Act (“FCRA”).            

Plaintiff Daniel Walker applied for employment with defendant Fred Meyer, Inc.  As part of the application process, Fred Meyer provided Walker with a disclosure form and an authorization form regarding its intent to procure a background report on Walker.  Thereafter, Fred Meyer obtained from a background screening company a report that contained negative information on Walker.  Fred Meyer provided a pre-adverse action notice to Walker, explaining that he could contact the background screening company about issues regarding the report.  

The Court’s well-reasoned opinion laid out Walker’s baseless arguments and then systematically dismantled them.  Walker claimed the consumer report disclosure language was overshadowed by information about investigative consumer reports, which differ from general consumer reports.  Fred Meyer’s disclosure mentioned both reports in the single initial disclosure without distinguishing between the two.  However, the disclosure then set out a consumer report disclosure and did not mention a potential investigative report until the final paragraph, which stated “If [the background screening company] obtains any information by interview, you have the right to obtain a complete and accurate disclosure of the scope and nature of the investigation performed.”  Contrary to Walker’s argument, the Court found this sentence in fact emphasized that the disclosure was not itself an investigative report disclosure.

Likewise, the Court rejected Walker’s claim that the authorization form was unlawful because it was “riddled with extraneous information.”  The Court differentiated the requirements for the authorization and the disclosure, noting that the statute does not require the authorization to consist solely of the authorization.  The Court also found presenting the disclosure as a separate document along with the authorization “did not destroy the stand-alone character of the disclosure.” 

Walker’s pre-adverse action notice claims did not fare any better.  Walker claimed Fred Meyer violated the statute by only directing him to discuss his report with the background screening company.  Although the Court found he had Article III standing to bring this claim, it rejected the argument on the merits.  The Court found no support suggesting that Fred Meyer’s notice violated the FCRA because it did not inform Walker he could contact the employer directly, or the date by which he must do so.

This opinion highlights the importance of carefully following the requirements of the FCRA when obtaining a background report on prospective employees.  Fred Meyer defeated Walker’s claim because it provided disclosure and authorization notices in separate documents, apart from a job application or employee manual.  

On June 11, St. Louis County officials signed an executive order, effective immediately, that would “ban the box” and ensure that St. Louis County will no longer ask job applicants for criminal histories in their initial employment applications.  Other jurisdictions in Missouri with ban-the-box laws include Jackson County, Columbia, and Kansas City.

“A parolee’s failure to find full-time employment becomes, quite frankly, a serious public safety issue for every county resident,” St. Louis County Executive Steve Stenger told the St. Louis Post-Dispatch. “Without a decent job, ex-prisoners are far more likely to struggle with substance abuse. And they are far more likely to engage in criminal activity.”

The executive order provides that “employment decisions will not be based on the criminal history of a job applicant unless demonstrably job-related and consistent with business necessity, or unless state or federal law prohibits hiring an applicant with certain convictions for a particular position.”

Currently, more than 150 cities and counties nationwide as well as 32 states have passed ban-the-box legislation that delays questions about criminal records of job applicants until later in the hiring process. Eleven of those states have required the removal of criminal history questions from job applications for private employers.

Troutman Sanders will continue to monitor related legislative developments concerning employment background screening and employee hiring.

On May 31, the Fourth Circuit Court of Appeals affirmed a $150,000 sanctions award against three consumer attorneys and their law firms for bad faith conduct and misrepresentations.

The opinion reads like a detective story and lays out, in the Court’s own words, “a mosaic of half-truths, inconsistencies, mischaracterizations, exaggerations, omissions, evasions, and failures to correct known misimpressions created by [consumer attorneys’] own conduct that, in their totality, evince lack of candor to the court and disrespect for the judicial process.”

The litigation arose from a payday loan that plaintiff James Dillon obtained from online lender Western Sky.  Later, Dillon engaged attorneys Stephen Six and Austin Moore of Stueve Siegel Hanson LLP and Darren Kaplan of Kaplan Law Firm, PC who filed a putative class action against several non-lender banks that processed loan-related transactions through the Automatic Clearing House network.  Defendant Generations Community Federal Credit Union promptly moved to dismiss Dillon’s lawsuit on the basis of the loan agreement’s arbitration clause.  In response, Dillon challenged authenticity of the loan agreement and a two-year-long dispute ensued during which the district court refused to send the case to arbitration based on Dillon’s authenticity challenge; Generations appealed the district court’s decision; and the Fourth Circuit vacated it and remanded the case for further proceedings on the arbitration issue.  Significantly, when questioned by both the district court and the Fourth Circuit, Six maintained authenticity challenge and represented that he had drafted the complaint without the loan agreement and that Dillon’s claims do not rely on the loan agreement.

Six’s representations regarding the contents of the complaint were problematic given the complaint specifically referenced the loan agreement and its terms.  Evidence uncovered during arbitration-related discovery showed that Dillon possessed the loan agreement all along and, crucially, that he supplied his counsel with a copy of the agreement a week before the complaint was filed.  The latter piece of evidence was discovered only as a result of forensic examination of Dillon’s computer.  Once this evidence came to light, Dillon responded to Generations’ requests for admissions that the loan agreement was authentic.

Generations moved for sanctions against Dillon’s attorneys.  Instead of admitting their wrongdoing, Kaplan argued that there was never any challenge to authenticity, and Six argued that he still doubted authenticity even though he signed Dillon’s admissions that the loan agreement was authentic.  Invoking its inherent authority to punish bad faith behavior, the district court sanctioned Six, Kaplan, and their law firms jointly, ordering them to pay the defendants $150,000 in attorneys’ fees.  Moore was held liable jointly for only $100,000 of the total amount due to his lesser role in the bad-faith conduct.  The lawyers appealed.

The Fourth Circuit summarily rejected their arguments that neither the rules of ethics nor the Federal Rules of Civil Procedure required them to disclose the copy of the loan agreement before discovery commenced.  “These arguments miss the point.  Counsel are not being sanctioned for their failure to disclose the Dillon copy of the Western Sky loan agreement.  Rather, counsel are being sanctioned for raising objections in bad faith—simultaneously questioning (and encouraging the district court to question) the authenticity of a loan agreement without disclosing that the Plaintiff provided them a copy of that loan agreement before the complaint was filed.”

Discovery in consumer litigation is often asymmetrical and focuses on defendants’ obligations.  This opinion is a good reminder that the rules apply to plaintiffs too and that the courts will not condone a “crusade to suppress the truth to gain a tactical advantage.”

On Wednesday, May 23, from 3 – 4 pm ET, Troutman Sanders attorneys, Alan Wingfield, Wendy Sugg, and Meagan Mihalko presented a webinar discussing employment-purpose background screening laws. The federal Fair Credit Reporting Act imposes technical paperwork requirements on employers desiring to obtain background screenings, and many millions of dollars have been paid in individual and class actions based on alleged failures to comply. State analog laws to the FCRA impose their own procedural requirements. State and local “ban the box” laws regulate when and how an employer can request and use background reports on potential hires. The federal Equal Employment Opportunity Act has been used by regulators to attack employer screening policies that allegedly have a discriminatory effect against protected groups. Some states and localities regulate the type of background information, particularly criminal history, that can be collected and used. Meanwhile, tort law remains ready to impose large damages on an employer who is found, after the fact, to have not conducted an adequate background check on employees. Rather than digging deeply into a single legal aspect of background screening, this webinar is designed to give a holistic overview of the entire legal landscape affecting employment-purpose background screening. Companies and professionals who are charged with developing effective compliance strategies for their background screening activities need to have the entire legal context in mind, and our webinar is designed to survey that context and provide guidance for compliance.

To access the recording, click here.