Earlier this week, the arts and crafts retailer Michael’s Stores, Inc. received notice of a new class action lawsuit challenging its use of applicant background checks. The lawsuit alleges that the retailer failed to provide applicants with adequate advance notice of the criminal and other checks as required under the federal Fair Credit Reporting Act (FCRA). FCRA requires any party that uses a consumer reporting agency to obtain a background report to provide certain advance notices and receive consent from the party subject to the search. If the applicant is rejected based on the search, the employer must provide additional notices and opportunities to challenge the report. In the employment context, this includes applicant and employee criminal background and credit histories.

The FCRA class action lawsuits seek fines, punitive damages and attorneys’ fees. As with many class actions, the damages to any one individual may be small, but can be cumulatively significant when the full class of potential plaintiffs is included. The attorneys’ fee remedy provides plaintiffs’ class action law firms with a significant incentive to investigate and bring such claims. The Michael’s claim adds to a rapidly growing list of employers facing these class action claims.

Employers that use outside agencies (including commercial on-line databases) to conduct background checks of employees and applicants should take several measures to avoid these claims. First, they should ask the credit reporting service for detailed information regarding its FCRA compliance measures. This should include reviewing and maintaining copies of disclosure and consent forms used in the review process. In some cases, the employer may use its own FCRA forms. These should be periodically reviewed by legal counsel, and audited by human resource staff to make certain that the FCRA consent information is provided and maintained as required under law.

Plaintiffs' law firms with experience in FLSA and other areas have clearly identified FCRA lawsuits as a new frontier for large class action claims. These suits are separate from a growing number of EEOC and private claims alleging disparate impact discrimination through use of background checks. The combination of these concerns may lead employers to take a comprehensive look at their use of background checks, and the safeguards in place to ensure legal compliance.