FCRA Compliance: Step 4
Adverse Action Notification
Upon completing the Pre Adverse Action process, the EOCC also recommends making an individualized assessment of before carrying out the adverse action. Basically, the adverse action should follow a process in which the employee or applicant has received a notification and had an opportunity submit a dispute.
If upon completing the process, you are still determined to carry out the adverse action, then you have to give the employee/applicant an Adverse Action Notification. This is simply a notification informing the employee/applicant that you have carried out an adverse action basing on information gathered in a background check.
The Adverse Action Notification can be given orally, in writing or electronically. There are certain pieces of information which should be contained in the notification.
Assuming that the adverse action was not hiring an applicant, the notification would include the following:
Employers who fail to provide to provide adequate notification to applicants or employees who face adverse action can suffer severe consequences. The FCRA allows employers who violate the terms of notifications to be sued for damages in a federal court. Anyone who successfully sues is entitled to recover court costs and reasonable legal fees. The court can also award punitive damages for deliberate violations.
A single violation can open an employer up to a host of class action lawsuits. This is what happened in the recent class action against Delhaize America, LLC. One woman brought a suit against the company for a violation of FCRA disclosure requirements by its subsidiary, Food Lion, LLC. The smart attorneys went and gathered 57,000 people – anyone who had applied for employment at the Food Lion and been rejected – and brought a class action against the company their behalf.
However, the attorneys didn’t stop there. They figured out that if Food Lion hadn’t been making disclosures, chances are high that it hadn’t been sending adverse notifications as well. They were right. They soon gathered 2,500 people, anyone who had failed to get through Food Lion’s interview process, and brought an adverse notification class action on their behalf.
In the end, Delhaize America, LLC had to agree to a settlement close to $3 million.
The reputational damage that the company damage suffered was much worse. The plaintiffs didn’t gain much from the settlement either. Each of the members in the disclosure class action received a paltry $31 while those in the adverse notification class action reviewed $61.
The real winners were the attorneys. They bagged one-third of the settlement fee – a cool $1 million. This is why attorneys love it when employers make FCRA violations! The employers lose big (their money and reputation goes), the applicants/employees win moderately (if you can term earning $61 after a year-long court battle as “winning”), but it is they – the attorneys – who win big.
Basically, if you an employer who still needs motivation for FCRA compliance, it is this: attorneys love it when you violate FCRA processes. To them, it is a huge payday. As such, they will pounce on the slightest violation and make a meal out of it. And, if the Delhaize America class action is anything to go by, as soon as you offer them a single opportunity through a small violation, they’ll sniff around and discover more.
Unfortunately, class action attorneys aren’t the only thing employers need to worry about. Another possible source of trouble is the Federal Trade Commission (FTC) or the Consumer Financial Protection Bureau (CFPB). The CFPB is charged with enforcing FCRA compliance. Unlike attorneys, the CFPB isn’t motivated by a huge payday, but more concerned with consumer protection.
To resolve the cases, the companies agreed to pay $24,000 and $53,000 in civil penalties. They also agreed to keep detailed records and periodically submit to FTC monitoring in order to ensure compliance with FCRA in the future.
The bottom line is that failure to comply with FCRA can have severe consequences for an employer. With smart attorneys and the FTC on the watch, an employer cannot be too careful. Fortunately, observing the FCRA regulations isn’t that difficult. It may require some extra input from your staff , but it can be easily done. The last thing you want is to be slapped with a million dollar payout simply because someone on your staff forgot to send a letter.