|What is this about:||The Department of Public Works Bureau of Contract Administration (the “Department”), which bears administrative responsibilities for the Fair Chance Initiative for Hiring (“LAFCIH”) issued its rules and regulations (the “Regs”) to guide covered employers (and city contractors/subcontractors) in meeting compliance requirements. As reported in our previous alert, effective January 22, 2017, the LAFCIH prohibits inquiring about an applicant’s criminal history until a conditional job offer has been extended and imposes significant compliance obligations.|
|Notable amplifications and clarifications:||1) “Applicant” means an individual who submits an application or other documentation for employment to an employer regardless of location.
2) “Employee” means any individual who performs at least two hours of work on average each week within the geographic boundaries of the City for an employer. Average week is determined by the last four complete weeks before the position is advertised.
3) An individual who lives in the City and performs work for an employer from home, including telecommuting, is an employee
4) An individual who works from a home that is outside of the City is not an employee even if he/she works for a Los Angeles-based company unless the individual also works at least two hours on average per week within the geographic boundaries of the City.
5) The LAFCIH applies to employees regardless of an employer’s designation of an employee as an independent contractor and labeling a worker as an independent contractor is not conclusive for the purpose of the LAFCIH.
|Criminal history:||According to the Regs, “a conviction shall include a plea, verdict, or finding of guilt regardless of whether the sentence is imposed by the court. In the State of California, an employer is prohibited from asking about any arrest information, unless it results in a conviction, and otherwise specified.” Note: the definition above cites California Labor Code §432.7(a)(1). The first sentence is correct; however, the second sentence is not, as that statute expressly allows inquiries about pending cases, stating that “nothing [in this section] shall prevent an employer from asking about an arrest for which the employee or applicant is out on bail or on his or her own recognizance pending trial.” Nevertheless, the Regs, in a section titled “Employer Assessment of Criminal History,” go on to remind employers that “arrests cannot be considered in employment decisions.”|
|Other guidance items:||The Regs amplify other definitions and aim to explain the various employer requirements, including, but not limited to, the application and interview procedure, assessment of criminal history, the “Fair Chance” process, notice and posting, recordkeeping, enforcement, and exceptions. See below for some links regarding this new guidance:Read the Regs here
Access the notice to applicants/employees regarding the LAFCIH here
The Department’s sample letter to rescind a job offer here.
As we reported throughout the year, class-actions brought against employers under the Fair Credit Reporting Act (“FCRA”) alleging hyper-technical violations are proliferating, with several resulting in multi-million dollar settlements.
But there appears to be a new development in this area. According to a National Law Review article, phony job applicants who have no intention of being employed with the targeted companies are submitting employment applications solely to position themselves as plaintiffs in class action litigation and potentially get a windfall settlement. The National Law Review article reports that the fake applicants typically fill out an online job application (usually with companies that have nationwide operations), sign the background check authorization, and then, after receiving an offer or rejection letter send a demand letter stating that the employer’s background check disclosure form or process does not comply with the requirements imposed by the FCRA and demand huge payouts to settle their claims and avoid the filing of a class action lawsuit.
The FCRA provides for statutory damages ranging from $100 to $1,000 per violation for non-compliance with the FCRA’s notice and disclosure requirements, even where the plaintiff has suffered no actual harm or damag
Enacted in 1970, the Fair Credit Reporting Act (FCRA) provides federal regulation of consumer reporting agencies that provide consumer reports to third parties.
In the 45 years since the FCRA took effect, several states have passed their own version of the statute to provide additional protections for consumers. Colloquially referred to as “mini” FCRAs, the laws can be found in Arizona, California, Maine, Massachusetts, Minnesota, New Jersey, New York, Oklahoma, and Washington.
Joining the group: Georgia, where House Bill 328 took effect on July 1. The new law applies to consumer reporting agencies (CRAs) that “conduct business” within the state, defined as those entities that “provide information to any individual, partnership, corporation, association, or any other group however organized that is domiciled within this state or whose principal place of business” is located within Georgia’s borders.
A CRA encompasses any person or entity “which, for monetary fees or dues or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties.”
For its part, a consumer report broadly includes “any written, oral, or other communication of any information bearing on a consumer’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer’s eligibility for purposes of credit, insurance, or employment.”
As it closely tracks the federal FCRA, Georgia’s law provides that a CRA that furnishes consumer reports for employment purposes in compliance with the federal statute will be in compliance with the state version.
While Georgia’s new law already took effect, other states have struggled with application of their mini FCRAs.
For example, in 2013, a federal court judge California ruled that one of the state’s two FCRA corrollaries, the Investigative Consumer Reporting Agencies Act (ICRAA), was unconstitutionally vague in Roe v. LexisNexis Risk Solutions, Inc. The case involved an anonymous plaintiff who sued when she failed to obtain employment. She argued she didn’t get the job as a result of an allegedly inaccurate background check furnished by the defendant to her prospective employer in violation of both the FCRA and the ICRAA.
The defendant argued that the ICRAA was unconstitutionally vague as applied and the court agreed. In addition to the FCRA and the ICRAA, California had previously enacted the Consumer Credit Reporting Agencies Act (CCRAA), a law that governs consumer credit checks. The interplay between the CCRAA and ICRAA resulted in confusion for covered entities, the court found, as criminal background information about consumers was regulated by both laws, leaving companies uncertain about which statute’s requirements actually applied.
Although the plaintiff appealed the decision to the Ninth Circuit Court of Appeals, the federal appellate panel dismissed the appeal for procedural reasons; on remand, the federal district court later dismissed the case with prejudice in December 2013. However, the opinion in Roe remains valid law in the state, leaving a shadow of uncertainty hanging over the ICRAA.
Read Georgia’s House Bill 328.
Read Roe v. LexisNexis Risk Solutions, Inc.
Reinforcing the importance of complying with even the most technical FCRA requirements, a federal court in Florida allowed a former employee to move forward with his suit against Whole Foods Market Group.
In the putative class action, the plaintiff, who was terminated in June 2013 after the employer conducted a background check on plaintiff and other existing employees, charges that Whole Foods violated the FCRA, and specifically, points to the forms the plaintiff signed when he applied for employment. A “Disclosure Statement” provided: “By this document [Whole Foods] discloses to you that a consumer report regarding your credit history, criminal history and other background information and/or an investigative consumer report containing information as to your character, general reputation, personal characteristics and/or mode of living may be obtained from personal interviews or other sources in connection with your application for any purpose at any time during your employment.”
The plaintiff was also given a “Consent and Release of Information” form, which stated: “I further understand and authorize [Whole Foods] or those authorized by them to procure a consumer report on me as part of a process of consideration as an employee … I release all parties from liability for any damages which may result from the disclosure of any information outlined herein.”
Although Whole Foods intended for the Disclosure Statement to satisfy Section 1681(b)(2)(A)(i) of the FCRA and each form was a separate single page document, the simultaneous presentation of the consent form rendered the disclosure meaningless, the plaintiff argued. Whole Foods knew that it was required to provide a stand-alone form, the plaintiff added, citing FCRA-related articles posted online by the third-party the company used to run the background checks.
The court agreed. “Based on the allegations, with all inferences drawn in favor of plaintiff, if both the disclosure and the consent forms combined and read as one document with the waiver and release included simultaneously with the disclosure, the complaint states a claim for relief,” the judge said, denying Whole Foods’ motion to dismiss the suit. The court also allowed the plaintiff’s contention that Whole Foods “willfully” violated the FCRA to move forward. Under the statute, reckless and knowing violations constitute willful violations, the court noted, and the plaintiff presented sufficient allegations that the defendant knew it was required to provide a stand-alone form separate from the employment application and yet failed to do so.
“The allegations that defendant had access to legal advice and guidance from the FTC yet it knew that its conduct was inconsistent with that guidance and the plain terms of the statute, are sufficient to withstand attack at this stage of the proceedings on a motion to dismiss,” the judge wrote.
The decision provides an important reminder to employers that class actions alleging technical violations of the FCRA, particularly Section 1681(b)(2)(A)(i), remain popular with plaintiffs with statutory damages from $100 to $1,000 for a willful violation available.
Whole Foods is facing an identical suit in California federal court while other companies have settled similar cases for significant amounts, such as the recent deal Publix Super Markets struck with a class in Tennessee federal court for $6.8 million, a $2.5 million payout by Domino’s Pizza, and a settlement agreement for $3 million between grocery chain Food Lion and job applicants.
Read the court order here.
The U.S. Supreme Court has agreed to hear a closely followed case involving the Fair Credit Reporting Act (the “FCRA”) that will have great significance on privacy law. In connection with this case, the Consumer Financial Protection Bureau (CFPB) offered a glimpse of its stance on the FCRA in an amicus brief recently filed with the U.S. Supreme Court.
In 2012, the Bureau took over the enforcement reins of the FCRA from the Federal Trade Commission (FTC). Since then, the industry has watched for signs on how the Bureau would tackle its new job, with few clues. But in an amicus brief filed jointly with the Solicitor General in Spokeo v. Robins, the CFPB weighed in, taking a consumer-friendly position on the statute.
The dispute began when Robins claimed that Spokeo ran afoul of the FCRA. The spokeo.com site allows users to obtain information about other individuals like address, phone number, employment information, and economic data such as mortgage value and investments. Robins sued after finding incorrect information about himself on the site, alleging that Spokeo was a consumer reporting agency (CRA) under the FCRA and sold “consumer reports” but failed to comply with the various statutory requirements by neglecting to assure the maximum possible accuracy of the information reported on its site and failing to provide notice of statutory responsibilities to purchasers of its reports.
Relying on Section 1681n of the FCRA, which grants consumers a cause of action against an entity that negligently or willfully violates “any requirement imposed [under the FCRA] with respect to [that] consumer,” Robins filed a putative class action. A federal district court dismissed the suit for a lack of standing but the Ninth Circuit Court of Appeals reversed. The federal appellate panel held that Robins sufficiently alleged an injury in fact because Congress created a right of action to enforce a statutory provision, demonstrating intent to create a statutory right.
Spokeo petitioned the U.S. Supreme Court to take the case. The CFPB filed the amicus brief, siding with the plaintiff and arguing that the justices should deny the writ of certiorari. The Bureau argued to the Court that the statutorily created cause of action found in the FCRA satisfied the injury required for Article III standing. While recognizing that Congress does not have unlimited power to define the class of plaintiffs who may sue in federal court, the CFPB said the legislature “may grant individuals statutory rights that, when violated, confer standing, and the clear language of the FCRA did just that.”
“FCRA thus grants an individual consumer a statutory entitlement to be free from a CRA’s actual dissemination of inaccurate information about him when the CRA fails to employ ‘reasonable procedures’ to assure the information’s accuracy,” according to the CFPB’s brief. A CRA’s willful failure to follow reasonable procedures to ensure that an accurate report about a consumer is disseminated violates a ‘requirement imposed under [FCRA] with respect to [that] consumer.’ It is also a concrete and particularized injury to the consumer because it involves the actual, specific, and non-abstract act of disseminating information about the particular consumer.” This reading – recognizing a legally protected interest in consumer privacy – “is particularly salient in modern-day society given the proliferation of large databases and the ease and rapidity with which information about individuals can be transmitted and retransmitted across the Internet,” the CFPB added, as “public dissemination of inaccurate personal information about the plaintiff is a form of ‘concrete harm’ that courts have traditionally acted to redress, whether or not the plaintiff can prove some further consequential injury.”
Read the CFPB’s amicus brief in Spokeo v. Robins here.
Read the opinion of the U.S. Court of Appeals for the Ninth Circuit here.
Credit reports are a part of life, whether applying for a credit card or purchasing a home. But what about specialty consumer reports?
Many people are unaware that dozens of other types of consumer reports exist, filled with information about medical and prescription history, for example, or insurance claims. Specialty consumer reports gather data from a wide variety of sources including information provided by consumers on applications (such as an apartment lease or a wireless phone contract) as well as public documents like criminal records and marriage licenses.
The reports provide information geared for a specific industry. A truck driving company might purchase reports that detail a job applicant’s driving record and motor vehicle insurance claims while an insurer will review a report with claims filed by a homeowner to check an individual’s historic use of insurance policies. Other niche reports provide data on loan balances, information about any bounced checks, and bank account history for lenders; another company tracks consumers’ product returns and will alert large retailers for fraud prevention purposes.
The Fair Credit Reporting Act (the “FCRA”) entitles consumers to one free report per year from any nationwide credit or specialty reporting agency (plus another free report if an adverse action has been taken, or the consumer disputes an item in the report that was corrected).
Recently, consumer rights group Consumer Action focused on the issue of specialty consumer reports in an “Insider’s Guide to Specialty Consumer Reports: A Guide to Obtaining, Understanding and Managing Your Information,” complete with a directory of furnishers. Staffers went through the process of requesting their own reports to help provide information for consumers about the types of reports available and their rights to request reports or correct errors.
Access the Consumer Action guide.