Beyond Credit Reporting: The Extension of Potential Class Action Liability to Employers under the Fair Credit Reporting Act

By: Brian M. Forbes, Mark D. Pomfret, Robert W. Sparkes, III

Do not be fooled by its title: the Fair Credit Reporting Act (“FCRA”) reaches far beyond the realm of credit reporting and governs a broad spectrum of industries. Indeed, the provisions of FCRA apply to any business entity that seeks to use a “consumer report” – which broadly includes anything from a credit report to a criminal or even motor vehicle background check – for any “employment purposes” (among other purposes). This includes the use of such reports to evaluate an individual for potential employment, as well as to evaluate a current employee for promotion or termination. The consequences of a FCRA violation can be substantial; the statute provides for a civil private right of action and permits recovery of actual damages, statutory damages, punitive damages, and attorneys’ fees and costs.

As with many federal consumer protection statutes, the stakes are even higher in a putative class action. This risk includes potential class liability for damages, which could include up to $1,000 in statutory damages per class member for “willful” violations, in addition to potential punitive damages. And, unlike other federal consumer protection statutes, there is no cap on the recovery of statutory damages in a FCRA class action. Add to the mix the costs of defending a putative class action lawsuit and the potential reputational harm that may result from such lawsuits. Not surprisingly, there has been an increase in the number of FCRA putative class actions filed against employers for their purported use of consumer reports. These include suits filed against employers, both large and small, some of which have resulted in substantial class-based settlements.

For these reasons, any business entity that collects background information for prospective or current employees must be aware of the requirements of FCRA and should design its employment practices in compliance with those requirements.

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