Under a recent Massachusetts appellate court ruling, an employer who conducts background checks may be liable under the federal Fair Credit Reporting Act (FCRA) for violations of that law – even if those violations caused no harm. To minimize the risk of future claims, employers should verify that their forms and processes are legally compliant.
FCRA Application to Employment
The FCRA is triggered when an employer uses a third party, known as a “consumer reporting agency,” to conduct background checks. In these cases, the FCRA requires employers to adhere to certain procedures.
First, employers must obtain signed authorizations from applicants and employees before conducting background checks. These authorizations must be in a stand-alone document that “consists solely of disclosure that the report may be obtained for employment purposes.”
Second, employers must provide notice to applicants or employees before taking adverse action based on information received from the consumer reporting agencies. This notice must include certain specified information, including information about enforcing rights under the FCRA.
Third, if an employer decides to take adverse action, the employer must provide additional notice to the applicants or employees, including information about the right to obtain a complete disclosure of their report from the consumer reporting agency.
In the case of willful violations, the FCRA authorizes recovery of actual damages or, in the alternative, nominal damages of between $100 and $1,000.
The Massachusetts Appellate Court Decision
In Kenn v. Eascare, LLC, the plaintiff filed a multi-count complaint, which included putative class action claims alleging that her former employer willfully violated the FCRA because the background check authorization form, which she signed when applying for a job, did not comply with the FCRA. Among other things, the form included a waiver on the reverse side, where an applicant was asked to release the employer, the consumer reporting agency, and anyone providing information to the consumer reporting agency from any liability.
The employer removed the case from state to federal court and then moved to dismiss the FCRA counts, arguing that the United States Constitution prohibited federal courts from adjudicating cases where a plaintiff failed to allege a concrete injury – and plaintiff failed to meet this threshold requirement. The court agreed and dismissed the claims.
On remand to state court, the Massachusetts Appeals Court held, in January 2024, that Massachusetts courts are not bound by the limits that apply in federal courts and that a plaintiff in a Massachusetts state court did not need to allege a concrete injury but only an injury that is cognizable under the underlying statute. The Appeals Court held that the plaintiff met this standard since the FCRA provides for a cause of action to enforce “any liability created” under the FCRA and includes language that a willful violator “is liable” for actual or nominal damages. As a result, the court rejected the employer’s attempt to dismiss the claims.
Practical Considerations
Under Kenn, a plaintiff does not need to show actual harm. As a result, this ruling lowers the threshold for bringing FCRA claims. Accordingly, it is now more likely that disgruntled former employees will add FCRA claims to their arsenal when filing other claims arising out of their employment. There are some significant risks for employers, even though the imposition of a fine, ranging from $100 to $1,000, is not a large concern for most employers. The damages can quickly escalate, however, if a plaintiff tries to bring the concerns as a class action.
To avoid potential liability, employers should audit their practices to make sure that they are complying with the FCRA and, for Massachusetts employers, with Massachusetts laws. Employers should not rely on forms that a consumer reporting agency may provide; instead, employers should independently verify legal compliance.
For questions about how your business may be impacted by these recent developments, please reach out to Kenneth W. Prince ([email protected]), Laurie F. Rubin ([email protected]), or other members of Prince Lobel’s Employment Law Practice Group.