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Target gets rare win in “stand-alone disclosure” class action

June 3, 2016 Leave a comment

For the past few years, plaintiffs’ lawyers have been filing – and winning – class actions against employers who routinely obtain criminal background reports about potential employees.  These suits allege that the employer violated  the FCRA at 15 U.S.C. § 1681b(b)(2)(A), which states that employers can only obtain these reports if “a clear and conspicuous disclosure has been made in writing to the consumer at any time before the report is procured or caused to be procured, in a document that consists solely of the disclosure, that a consumer report may be obtained for employment purposes.”

In the recent past, most companies gave potential employers a disclosure to sign before  obtaining a background report about them.  But these disclosures often contained waivers of liability, which essentially asked the applicant to agree that:  i) the employer could pull a background report; and ii) the applicant could not sue the employer or the background reporter for anything that the report contained, or anything they did in obtaining it.  In the late 1990s, the FTC suggested that waivers like this went too far; and in the past few years, plaintiffs’ lawyers have realized this and begun filing class actions against employers who included these waivers.

These class actions don’t allege that the employer “negligently” violated the FCRA, because then the plaintiffs would only be able to collect “actual damages,” and it is hard to say that a disclosure with a liability waiver that would likely never be enforced will actually damage anyone.  Rather, the plaintiffs allege that the employer “willfully” violated the FCRA, as that entitles each member of the class to statutory damages of $100 to $1,000 – which can add up to millions of dollars in cases against national employers.  Most companies named in these class actions have either settled outright, or else tried to dismiss the lawsuit, failed, and then settled.

A class action against Target – Just v. Target Corp., Case No. 0:15-cv-04117, slip. op. at ECF No. 23 (D. Minn. May 12, 2016) – has ended differently.  Crucially, Target’s disclosure did not contain a liability waiver, so it didn’t contain the one thing that the FTC has said is inappropriate.  Target’s disclosure did say things about the importance of trust and honesty among its employees, the fact that any job that it offered could be terminated at will, and how applicants could get a copy of the report that Target obtained, if they wanted one.  Did these kinds of statements “willfully” violate the FCRA’s stand-alone disclosure provision?

Target argued that they didn’t, and a federal judge agreed:  he dismissed the class action.  (His decision is on appeal).  Following Supreme Court precedent, he judge noted that to “willfully” violate the FCRA, a company must do something that is “objectively unreasonable”in light of the statutory text and of any opinions from the FTC or the federal courts of appeals about that text.

The judge then found that the statutory text isn’t as clear as it seems – while the provision at 15 U.S.C. § 1681b(b)(2)(A)(i) requires a stand-alone disclosure that the employer will pull a background report, the very next provision, at 15 U.S.C. § 1681b(b)(2)(A)(ii), allows the disclosure form to contain a place for the job applicant to consent to a background report. The courts of appeals haven’t said anything about whether adding other language to one of these disclosure forms is or isn’t appropriate, and the FTC has suggested that adding language that explains what the employer is doing and why is probably okay.  For all these reasons, the judge found that Target had not “willfully” violated the FCRA and dismissed the claims that it violated 15 U.S.C. § 1681b(b)(2)(A)(i).

Will this decision stand up on appeal?  It’s an interesting question.  My initial instinct, like the judge’s, is that the language that Target included in its disclosure is appropriate:  the FCRA’s obvious goal here is to put people on notice that an employer is going to look at their criminal record, and Target’s form did not detract from that notice.

Having said that, I would make one caveat.  The objection to the liability waivers is that they don’t enhance or clarify a notice that a background report will be pulled, so the waivers are “objectively unreasonable” under the statute.  But, while Target’s form didn’t contain a liability waiver, it did contain a statement that “You understand if you disagree with the accuracy of any information in the report, you must notify [the company that created the report for Target] within five business days of your receipt of the report.”  This sentence seems to be a bit like the liability waivers in that: i) it does not help clarify that Target is planning to obtain a background report; and ii) it does not have any basis in the FCRA.  [Under the FCRA, a person who gets an inaccurate consumer report can dispute it months or even years later – there is no time limit to dispute a report, per 15 U.S.C. Sec. 1681i].

I can see why Target included this sentence – if a job applicant doesn’t dispute an inaccurate report within a few days, Target will almost certainly have given the job to someone else.  Maybe that’s enough to mean that this sentence is not “objectively unreasonable” either.  But I think it presents a closer question than the other things in Target’s disclosure.
 

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