Lawsuits in the background screening industry have become increasingly prevalent, posing significant challenges for both employers and screening companies. When lawsuits occur, they typically arise from alleged violations of the Fair Credit Reporting Act (FCRA) or other similar regulations, which govern the use and dissemination of consumer reports for employment purposes.
Common Causes of Background Screening Lawsuits
- Improper Disclosure and Authorization: The FCRA mandates that employers must provide a clear and conspicuous disclosure, in writing, informing the applicant or employee that a consumer report may be obtained for employment purposes. This disclosure must be in a standalone document, separate from the application or other paperwork. Failure to comply with these requirements can lead to a lawsuit.
- Incorrect Information in Reports: Inaccurate information in background checks can lead to significant harm for individuals and potential legal consequences for employers and screening companies. The FCRA requires that consumer reporting agencies follow reasonable procedures to ensure maximum possible accuracy of the information reported. Failure to do so can result in litigation.
- Inadequate Adverse Action Notices: When an employer decides to take adverse action (e.g., not hiring, firing, or demoting an employee) based on information in a background check, they must follow a specific process. This includes providing the individual with a pre-adverse action notice, a copy of the consumer report, a summary of their rights under the FCRA, and a final adverse action notice if the decision is upheld. Non-compliance with these steps is a common basis for lawsuits.
Implications for Employers and Screening Companies
The financial and reputational impacts of a lawsuit can be severe. Employers and background screening companies found in violation of the FCRA may face hefty fines, legal fees, and settlement costs. Fines can range from approximately $1,000 in individual cases to millions of dollars in class action lawsuits, depending on the severity of the case. Additionally, lawsuits can damage the trust and credibility of the organizations involved.
Best Practices to Mitigate Risk
- Stay Informed on Legislation: Employers and screening companies should stay up-to-date on federal, state, and local laws governing background checks and ensure their practices are compliant.
- Review and Update Policies: Regularly review and update disclosure and authorization forms, information accuracy protocols, and adverse action procedures to align with current legal requirements.
- Educate and Train Staff: Ensure that HR personnel and other relevant staff are well-versed in FCRA requirements and best practices for conducting and managing background checks.
- Partner with a Reputable Screening Company: Choose a background screening provider with a proven track record of compliance and accuracy.
By adhering to these practices, employers and screening companies can minimize the risk of lawsuits and maintain a fair, compliant, and effective background screening process.
