January 13, 2023

Lack of Training/Compliance Oversight Leads to FCRA Violation

Many employers find it worthwhile to check the references, job history, personal character, criminal conviction history or credit history of an individual prior to making the decision to hire or promote. This can be done through an in-house investigation using public records or by an outside third-party consumer-reporting agency (CRA).

Initiating background checks and calling an applicant’s references are typical screening methods. However, if not performed in accordance with state and federal laws they can expose an employer to legal and financial risk. The recent case of Hebert v. Barnes & Noble, Inc.[i] provides a cautionary tale.

Under the federal Fair Credit Reporting Act (FCRA) an employer is required to provide a job applicant or employee with a specific standalone disclosure notifying the individual that the prospective or current employer may obtain a consumer report when making hiring or promotional decisions. [ii]  In the Herbert case, it was alleged that Barnes & Noble willfully failed to provide job applicants adequate notice of their consumer rights because it provided a disclosure that included extraneous unrelated information. In overturning an initial verdict in the employer’s favor, the 9th Circuit Court of Appeal citied an overall lack of training and compliance efforts as evidence of a willful failure to comply with FCRA mandates.

Barnes & Noble argued the extraneous language in its disclosure was included inadvertently due to a drafting error. The Court considered this inadvertence to be part of a larger problem; that the company had either failed to properly train its employees on FRCA compliance or lacked sufficient compliance controls to help avoid such mistakes.

The Herbert cases drives home a very important point about how seriously all employers should abide by FCRA mandates. California employers using a CRA to conduct a background check that includes job, personal or credit history, must follow both state and federal rules concerning notice, disclosure, and consent requirements such as:

  • Providing a clear and conspicuous written disclosure (in a separate, standalone document) to the applicant or employee that includes:
    • The purpose of the investigation
    • Identity of the CRA conducting the investigation or providing the report and a box for the individual to check to receive a copy of the report
    • Statement that defines the nature and scope of the investigation
    • The identifying basis for the report under Cal. Lab. Code Section 1024.5
  • Providing the applicant or employee with a summary of rights under federal and state law
  • Obtaining written authorization from the applicant or employee prior to procuring the report
  • Providing a copy of the report to the applicant or employee upon request[iii]
  • Certify to the CRA all required disclosures have been made (e.g., that the employer will comply with procedures by which an applicant or employee can obtain or be provided with a copy of the report; and that the employer will not use the report in violation of any applicable federal or state law or regulation)

[i] 78 Cal. App. 5th 791 (2022)

[ii] The term ‘consumer report’ is broad and includes all types of consumer reporting such as information about an individual’s credit, character, personal attributes, lifestyle, and reputation.

[iii] If credit information is obtained, the employer must request that the CRA send a copy of the report to the applicant/employee at the same time it is sent to the employer.