Presenting a live 90-minute webinar with interactive Q&A FCRA Class Actions in Employment on the Rise: Avoiding and Defending Claims Drafting Policies and Procedures for FCRA Compliance, Leveraging Class Litigation Defense Strategies WEDNESDAY, JANUARY 20, 2016 1pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: Pamela Q. Devata, Partner, Seyfarth Shaw, Chicago Barry Goheen, Partner, King & Spalding, Atlanta Cindy D. Hanson, Partner, Kilpatrick Townsend & Stockton, Atlanta The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10.
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Fair Credit Reporting Act Overview and Best Practices Pamela Q. Devata, Seyfarth Shaw LLP (312) 460-5882 pdevata@seyfarth.com
What is the Fair Credit Reporting Act (FCRA)? Federal Consumer protection statute Mandates responsibilities of third-parties who collect information about consumers (defined as Consumer Reporting Agencies ) Mandates requirements for users of this information (defined as End-Users ) Mandates requirements for the entities that furnish information to the CRAs ( Furnishers ) * Only applies when an entity is using a third party consumer reporting agency (CRA) 2015 Seyfarth Shaw LLP 5
What Is A Consumer Report? Any written, oral or other communication of any information made by a CRA concerning 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 for one of the permissible purposes enumerated in the FCRA (e.g., employment purposes or at the written direction of the consumer, insurance, etc.). Examples: criminal history, references, education verification, driving records 2015 Seyfarth Shaw LLP 6
Permissible Purpose Used or expected to be used or collected in whole or in part for the purpose of serving as a factor in determining a consumer s eligibility for: Credit or insurance employment; or any other factor enumerated in the statute (ie: legitimate business transaction initiated by the consumer; at the written direction of the consumer) FTC interprets employment purposes extremely broadly 2015 Seyfarth Shaw LLP 7
End-User Responsibility under the FCRA Employers Have Four Duties: Permissible Purpose Employment (Broad interpretation) Written Direction Disclosure and Authorization (only if Employment) Separate from application and specific state requirements Adverse Action Two-step process for employment One step adverse action for all other permissible purposes Certification to CRA generally in the agreement with CRA No certification required if non-employment purpose 2015 Seyfarth Shaw LLP 8
Disclosure Requirement 15 U.S.C. 1681b(b)(2)(A): a person may not cause procure a consumer report, or cause a consumer report to be procured, for employment purposes unless: (1) a clear and conspicuous disclosure has been made in writing to the consumer in a document that consists solely of the disclosure, that a consumer report may be obtained for employment purposes; and (2) the consumer has authorized in writing (which authorization may be made on the document referred to in clause (1)) the procurement of the report by that person. See FTC Opinion Letter: http://www.ftc.gov/os/statutes/fcra/hauxwell.shtm 2015 Seyfarth Shaw LLP 9
Hot Topics in Background Screening Disclosure and Authorization Challenges Is the FCRA the next FLSA from a litigation perspective? Increased Litigation focused on: Disclosure forms not being solely or stand alone Release of liability language (see Reardon v. Closetmaid and Singleton v. Dominoes and others) State law language in forms Other extraneous information Investigative consumer reports Failure to provide Summary of Rights Failure to provide Disclosure AND Authorization (if separate them) 2015 Seyfarth Shaw LLP 10
Best Practices for Disclosures Disclosure and Authorization Best Practices Review your forms at least annually Consider separating the forms from one another State law information on a separate form/ document Consider timing of presenting forms (reduce the risk of large class numbers) Remove criminal history question from Disclosure forms Review the forms at least annually 2015 Seyfarth Shaw LLP 11
Adverse Action Requirements Adverse action processes FCRA requires 2-step adverse action process for employment purpose No Good Deed Goes unpunished Overview of 2 step process: Pre-Adverse action Copy of report Copy of Summary of Rights Waiting period State law attachments/issues Adverse action - NJ, WA, MA, NY, NYC, SFO, Maryland counties, Chicago 2015 Seyfarth Shaw LLP 12
Adverse Action Adverse action common pitfalls Recruiter contacting the candidate before preadverse action is provided Failure to provide waiting period Consider how you are sending, i.e. email UETA/E-sign concerns Not having centralized process and failing to send timely Failing to provide state law notices/timing NYC, SFO, MD counties, Seattle and Chicago requires the specific action be detailed Other state law specifics 2015 Seyfarth Shaw LLP 13
FCRA: Penalties Negligent Noncompliance Actual damages (back pay sometimes compensatory) Attorneys fees Willful Noncompliance Actual OR Statutory $100-1000 per person Attorneys fees Punitive damages Statute of Limitations is earlier of 2 years from knew or should have known or 5 years from report. 2015 Seyfarth Shaw LLP 14
For More Information/Questions: Contact Information: Pamela Q. Devata SEYFARTH SHAW LLP 131 South Dearborn Street, Suite 2400 Chicago, Illinois 60603 (312) 460-5882 pdevata@seyfarth.com 2015 Seyfarth Shaw LLP 15
FCRA Class Actions in Employment on the Rise: Avoiding and Defending Claims Cindy D. Hanson 404.815.6470 chanson@kilpatricktownsend.com 2015 Kilpatrick Townsend
Recent FCRA Settlements Numerous FCRA cases settle on a class action every year Primarily, cases fall into one of two categories of settling defendant: Consumer Reporting Agencies Employers Settlements show that what might seem to be a minor issue can result in significant settlement payments 17
CRA Settlements - Generally CRA settlements tend to focus on one or more of a few reporting obligations: 1681k: notice to consumers at the time that a CRA reports public record information to an employer 1681i: dispute reinvestigation and resolution 1681g: full file disclosure Few (or no) major settlements to date on this, but a frequent claim in litigation Settlements with CRAs tend to be larger than in the employer context More volume of reports more class members History of larger settlements that might allow Plaintiffs to argue for more money 18
CRA Settlements - Examples Acxiom (Feb. 2014) $20.8 million 475,000 class members Claims 1681k (notice to consumers) 1681i (dispute resolution) 1681b (permissible purpose) Intellicorp (Oct. 2013) $18.6 million 545,000 class members Claims 1681k (notice to consumers) 1681e (procedures to ensure accuracy) Many of the largest CRAs have had similar-sized settlements in the past decade 19
Employer Settlements - Generally Employer settlements tend to focus on two particular obligations: 1681b(b)(2): disclosure obligations Disclosure must be clear and conspicuous and in a document that consists solely of the disclosure. Consumer must authorize, in writing, procurement of a consumer report 1681b(b)(3): adverse action Before taking adverse action, employer must give pre-adverse action notice consisting of report and copy of the consumer s rights Employer must then wait before taking adverse action. 20
Employer Settlements - Disclosure Publix (July 2014) $6.8 million 90,633 class members Disclosure allegedly not part of a standalone document Publix agreed to revise its disclosure into a format acceptable to Plaintiff s counsel Swift Transportation (April 2014) $4.4 million 161,000 class members Disclosure allegedly was not part of a standalone document 21
Employer Settlements Adverse Action Calvin Klein (Oct. 2015) $1 million 842 class members Allegedly took adverse action without providing pre-adverse action notice and a copy of the report Dollar General (Oct. 2014) $4 million 112,000 class members Allegedly took adverse action without either (a) providing preadverse action notice or (b) waiting an appropriate period of time after sending such notice Kmart (May 2013) $3 million 64,506 class members Allegedly took adverse action without pre-adverse action notice 22
Employer Settlements Mixed (Disclosure & Adverse Action) Food Lion (Feb. 2015) $2.99 million 58,000 class members Disclosure claim is the most significant part of the settlement. ClosetMaid (Jan. 2014) $632,000 1600 class members Disclosure claim has more class members but both classes receive same payment Dominos (March 2013) $2.5 million 193,000 class members Disclosure claim is the more significant part of the settlement Also included a claim based on timeliness of consumer s authorization 23
Recent FCRA Settlements - Takeaways Putting the disclosure in a document consisting of nothing else may seem trivial but it costs major companies millions. Disclosures and adverse action are the major targets for suits against employers Settlements with CRAs tend to be comparatively larger, but there are many more employer targets 24
FCRA Class Actions In Employment On The Rise: Avoiding And Defending Claims Barry Goheen King & Spalding bgoheen@kslaw.com January 20, 2016 25
Background Checks Are Universally Used Nearly all retailers (97%) utilize background screening in some form during the application, hiring and employment process. July 2011 Survey, National Retail Foundation 26
What Is Covered By the FCRA? Any report obtained from a consumer reporting agency (entities that provide consumer reports to third parties for a fee) Broader than credit reports or background checks; could include: Criminal records Driving records Reference checks 27
Pre-Adverse Action Notice Copy of background check or report Written description of rights under the FCRA Summary of rights available from FTC Purpose - provide employee/applicant with opportunity to dispute inaccurate information in the report 28
Taking Adverse Action Reasonable period to respond Adverse Action Notice Contact information for Consumer Reporting Agency Notice of right to free consumer report 29
Remedies Under FCRA Claims for negligent violations: actual damages Claims for willful violations: actual or statutory damages in range of $100 or $1,000; punitive damages No injunctive relief in private actions Reasonable attorneys fees for successful plaintiff No cap on damages in class actions certified under FCRA 30
Plaintiff s Lawyers Like The FCRA Wide range of potential violations No actual injury necessary Punitive damages available Attorney s fees recoverable Many potential clients 31
Background Check FCRA Class Actions On the Rise Form notices are common Willfulness allows focus on Defendants conduct Statutory damages Class members often identifiable 32
Potential Impact of Pending Supreme Court Decisions Robins v. Spokeo, Inc.: Whether Congress may confer Article III standing upon a plaintiff who suffers no concrete harm, and who therefore could not otherwise invoke the jurisdiction of a federal court, by authorizing a private right of action based on a bare violation of a federal statute. Gomez v. Campbell-Ewald: (1) Whether a case becomes moot, and thus beyond the judicial power of Article III, when the plaintiff receives an offer of complete relief on his claim; (2) whether the answer to the first question is any different when the plaintiff has asserted a class claim under Federal Rule of Civil Procedure 23, but receives an offer of complete relief before any class is certified; and (3) whether the doctrine of derivative sovereign immunity recognized in Yearsley v. W. A. Ross Const. Co., for government contractors is restricted to claims arising out of property damage caused public works projects. 33
Potential Impact of Pending Supreme Court Decisions (cont.) Spokeo facts: Plaintiff alleged that defendant CRA violated the FCRA by publishing false and inaccurate information about plaintiff on its website Plaintiff sought only statutory damages for alleged willful FCRA violations; no actual injury alleged District court dismissed complaint, holding that plaintiff failed to allege standing sufficient to maintain lawsuit; Ninth Circuit reversed, holding that [w]hen, as here, the statutory cause of action does not require proof of actual damages, a plaintiff can suffer a violation of the statutory right without suffering actual damages. (Robins v. Spokeo, Inc., 742 F.3d 409, 413 (9th Cir. 2014)) 34
Potential Impact of Pending Supreme Court Decisions (cont.) Relevant cases to Spokeo decision: Several courts of appeals have expressly or implicitly held that failure to allege or seek recovery for actual injury is not fatal to Article III standing in FCRA cases: Murray v. GMAC Mortgage Corp., 434 F.3d 948 (7th Cir. 2006); Beaudry v. TeleCheck Services, Inc., 579 F.3d 703 (6th Cir. 2009); Hammer v. Sam s East, Inc., 754 F.3d 492 (8th Cir. 2014). Clapper v. Amnesty International USA, 133 S. Ct. 1138 (2013): Supreme Court affirmed dismissal, on lack of Article III standing grounds, holding that the theory of future injury is too speculative to satisfy the well-established requirement that threatened injury must be certainly impending and holding that plaintiffs cannot manufacture standing based on hypothetical future harm that is not certainly impending. 35
Potential Impact of Pending Supreme Court Decisions (cont.) Potential impact of Spokeo: If Ninth Circuit decision is affirmed, class action plaintiffs bar likely will be more aggressive in identifying and filing class action complaints based on statutory violations, particularly FCRA violations, which likely would ease certification of class actions If Ninth Circuit is reversed, plaintiffs ability to obtain class certification under such statutes as FCRA and others (e.g., RESPA, TCPA, etc.), may be severely limited; plaintiffs may seek to remand existing federal cases based on the theory that the federal court would lack subject matter jurisdiction if there is no standing Oral argument held on November 2, 2015; decision expected later in 2015-16 term 36
Potential Impact of Pending Supreme Court Decisions Campbell-Ewald facts: Plaintiff received an unsolicited text message in 2006 advertising the U. S. Navy; text message was the result of a partnership between the Navy and the Campbell-Ewald company, a marketing consultant that the Navy hired to help with a recruiting campaign Gomez sued Campbell-Ewald under the TCPA Campbell-Ewald s motion to dismiss was denied, then the company served offer of judgment to plaintiff, which was rejected 37
Potential Impact of Pending Supreme Court Decisions Potential impact of Campbell-Ewald: If lower court is affirmed, offers of judgment of complete relief will not moot a plaintiff s case and, more importantly, will not moot a potential class action If lower court is reversed, defendants may be able to extinguish individual cases and, more importantly, class actions by immediately tendering an offer of judgment for all relief to which the plaintiff would be entitled Oral argument held on October 14, 2015; decision expected later in 2015-16 term 38
Best Practices Do Business With Reputable CRA Should require site inspection Should have database of relevant forms/documents (applications, disclosure/authorization forms, adverse action notices, etc. 39
Best Practices Strong Contractual Language With CRA Require compliance with laws (FCRA, etc.) Strong indemnity language Other rights, such as audit rights, etc. 40
Best Practices Provide Written Notice Of Adverse Action And CFPB Summary Of Rights FCRA allows for verbal notification Written notice documents fulfillment of FCRA duties 41
Best Practices Understand And Comply With State Screening Laws Many states prohibit use of credit information for employment screening purposes except when the information is substantially job related State laws often override FCRA 42
Best Practices Understand And Comply With State Screening Laws (cont.) What is substantially related? Connecticut statute: Managerial position that involves setting the direction or control of business Involves access to customers, employees, or employer s personal or financial information other than information customarily provided in retail transaction Involves fiduciary responsibility to employer (i.e., authority to issue payments, collect debts, transfer money, enter into contracts) 43
Best Practices Understand And Comply With State Screening Laws (cont.) What is substantially related? Connecticut statute (cont.): Provides expense account or corporate debit/credit card Provides access to (i) confidential business information; or (ii) information, such as a formula or trade secret that (a) derives independent economic value and (b) is subject of efforts that are reasonable under the circumstances to maintain secrecy Involves access to employer s nonfinancial assets valued at $2,500 or more 44
Best Practices Immediately Address Any Potential Or Alleged Violations If no litigation, could prevent lawsuit; at a minimum, correction will cut off statute of limitations If litigation, could facilitate quick resolution; if class action, could significantly reduce exposure 45