Proposed Class Action Lawsuit Underscores Legal Risks to Employers Using Background Checks

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A putative nationwide class action alleging violations of the Fair Credit Reporting Act (“FCRA”) was recently filed against Toll Brothers Real Estate Inc. (“Employer”) in the United States District Court for the Eastern District of Pennsylvania. The Complaint challenges Employer’s employment practices and procedures in rejecting job applicants based on a negative background check and report. Specifically, the Complaint alleges that the Employer obtains and uses background checks in determining an applicant’s eligibility for employment, and after denying employment based on these background checks, it violates the FCRA by failing to provide the applicant a copy of the adverse background report and/or by failing to provide the required consumer notices under FCRA. Plaintiff is seeking to certify a nationwide class of similarly situated individuals and obtain actual damages, statutory damages, punitive damages and attorneys’ fees and costs.

In general, FCRA requires employers using background checks to, among other things, notify and obtain the applicant’s authorization for the background check, provide a copy of the report obtained by the employer, as well as a description of the applicant’s rights under FCRA. If the employer takes an adverse employment action based on the information obtained in the background check, the employer should notify the applicant that such action was taken, identify the credit reporting agency that supplied the report, and furnish the applicant with the required disclosures under FCRA. On January 1, 2013, certain changes to the required notices and disclosures under FCRA took effect and responsibility for interpreting and enforcing FCRA was transferred from the Federal Trade Commission to the Consumer Financial Protection Bureau.

This case against Toll Brothers is just the latest in a number of class action suits that have been filed against large employers alleging that their hiring practices fail to comply with FCRA’s background check requirements and procedures. In light of the potential for statutory damages and attorneys’ fees, such cases are becoming the focus of many plaintiffs’ attorneys’ across the country and employers must ensure that their application and hiring practices fully comply with FCRA’s requirements. Employers also need to be mindful of other federal and state regulations that may limit or impair their ability to utilize background checks in connection with their hiring decisions. The EEOC recently has issued a Guidance instructing that employers may not rely upon an applicant’s criminal history except to the extent it relates directly to their suitability for the position sought. Several states, including Pennsylvania, have statutes which impose similar constraints upon employers, while other states, including New Jersey, are considering legislation that would bar employers from even inquiring about an applicant’s criminal history until after an initial interview has been conducted.

These overlapping federal and state requirements present a confusing maze for employers wishing to conduct background checks upon applicants for employment. On May 23, Saul Ewing LLP is presenting a free webinar to clients and friends to help identify – and navigate – these requirements. If you would like to register for this program, please click here.

For more information, please contact the authors at rdiclemente@saul.com or rnagle@saul.com.