On September 6, 2018, the Eighth Circuit Court of Appeals ruled that an employee who consents to a background check cannot pursue a claim in federal court based on a violation of the Fair Credit Reporting Act’s (FCRA) disclosure and authorization requirement. This decision is a game-changer for employers defending FCRA claims in the Eighth Circuit, which encompasses Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota.
The FCRA requires employers to provide a clear, conspicuous, and standalone disclosure before procuring background checks from consumer reporting agencies. The FCRA also enables aggrieved plaintiffs to recover statutory damages of between $100 to $1000 for each violation of the statute plus punitive damages. Therefore, a few too many words or a misplaced release on a standardized disclosure form distributed to all applicants and employees could expose an employer to class litigation and six- or seven-figure damages. As a result, FCRA class actions are one of the latest fads for plaintiff’s firms, who are bringing large class claims and demanding (and, in many cases, receiving) huge damages from employers.
The Eighth Circuit’s decision presents a substantial barrier to the continued pursuit of these claims. The court concluded that an employee who consents to a background check cannot show the type of “intangible injury” necessary to establish standing, which is a Constitutional prerequisite for a claim to be pursued in federal court. Significantly, the court reached this conclusion despite the fact that the disclosure form at issue included release language which other courts have found violative of FCRA.
So, what does this mean as a practical matter for employers?
- If you receive a FCRA lawsuit, you should consider an immediate motion to dismiss on this basis.
- If you are currently defending against FCRA disclosure claims in the Eighth Circuit, this decision may provide a basis for an immediate dismissal. Significantly, the issue of standing goes to the federal court’s subject matter jurisdiction and can be raised at any time during litigation, including on appeal.
- If you are using consumer reporting agencies to conduct background checks, don’t abandon your clear, conspicuous, and standalone disclosures! These are still required by FCRA. Plus, the Federal Trade Commission, which is responsible for enforcing the FCRA, could still take action, and the Ninth Circuit Court of Appeals has concluded that employees have standing to assert FCRA disclosure claims even where they have consented to the background check. Therefore, it’s a good idea to ensure that your forms are compliant with FCRA.
- This decision is not the last word outside the Eighth Circuit and may not be the last word within the Eighth Circuit. Both the Eighth Circuit and the Seventh Circuit have issued decisions that indicate that applicants and employees will rarely—if ever—be able to show standing to pursue FCRA disclosure claim in federal court when a disclosure (albeit infirm) is provided and consent obtained. As discussed above, the Ninth Circuit reached the opposite conclusion. In light of this circuit split, there is a real possibility that the Supreme Court takes up an appeal from the Eighth Circuit’s decision.