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Beware of Online Applications and Background Check Authorizations

November 1, 2011

An increasing number of employers have been recipients of proposed class actions alleging that the way they conduct background checks on prospective employees violates the Fair Credit Reporting Act 15 U.S.C. §1681 (“FCRA”).

A recent example is a claim filed in Virginia, which focuses on the employer’s online job application. The process asks potential employees whether they are willing to allow the company to obtain a consumer report or criminal background check on them. Applicants must then click a button labeled either “Accept” or “Decline.” The claim alleges that for purposes of the FCRA, an electronic disclosure is not one made “in writing” and that an electronic signature (Accept/Decline) does not satisfy the requirements of the act.

As it relates to employers conducting background checks on prospective employees, the FCRA requires that a person may not procure a consumer report for employment purposes with respect to any consumer, unless (1) a clear and conspicuous disclosure has been made in writing to the applicant at any time before the report is procured, 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 the procurement of the report by that person.

Electronic disclosures of this sort have traditionally been viewed as falling under the Electronic Signatures in Global and National Commerce Act (“E-Sign”). However, this claim challenges this understanding of E-Sign by alleging that the law does not apply to job applicants, but instead only to consumers, which it defines as an individual who obtains products or services.

Under the FCRA, employers may be liable to each class member for up to $1,000.00 or actual damages, plus punitive damages and attorneys’ fees and costs. So far this year, two companies have agreed to multimillion-dollar settlements in similar cases.

We strongly recommend that employers review their online job application process to ensure that it does not run afoul of the FCRA and obtain competent labor counsel to address any concerns.

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