Retailers Facing New Class Action Attack for Routine (but Unlawful) Background Check Practices

The Sedgwick Law Firm > Retailers Facing New Class Action Attack for Routine (but Unlawful) Background Check Practices

Retail employers are under attack by a wave of recent class action lawsuits alleging violations of the Fair Credit Reporting Act (FCRA), as well as related state counterpart laws – such as the California Consumer Credit Reporting Agencies Act and the California Investigative Consumer Reporting Agencies Act.  These lawsuits center on employers’ alleged failure to provide proper disclosures to, and obtain proper authorizations from, prospective employees before performing background checks.  In most cases, the disclosure is allegedly deficient for including extraneous information, such as a release of liability or confirmation of “at will” employment within the same disclosure document or combining the FCRA disclosure in an employment application.  While this is not a new area of law, the complaints are growing and the allegations expanding, and if the trend continues, we may see more and more plaintiffs’ attorneys attempting to exploit this area.


Under the FCRA and related state laws, before obtaining a “consumer report” (which is a component of background checks that are routinely performed by most retail employers), a prospective employee must be provided with (1) a clear and conspicuous written disclosure that a consumer report may be obtained for employment purposes, and (2) the disclosure (including a written authorization by the prospective employee) must be in a stand-alone document.  If the results of the background check cause the employer to take an “adverse action,” such as not hiring a prospective employee or withdrawing a job offer, additional disclosures must be made to the employee (such as including a copy of the report and a Summary of Rights advising the employee that he or she has the right to dispute the accuracy of the report).

A violation of these federal and state laws supports an award of actual damages of not less than $100, and not more than $1,000 per violation, and potential claims for injunctive relief, punitive damages, civil penalties, reasonable costs of suit and attorneys’ fees.

The Recent Cases

A survey of recent class action filings nationally reveals over 10 background check cases filed in the last few months against national employers, including retailers.

Patrick Hathaway, et al. v. Whole Foods Market California, Inc., Case No. 14CV0663, was filed on March 21, 2014, in California federal court.  In this case, Whole Foods allegedly, through its online application process, included a liability waiver in the disclosure form for the background check process.  The lawsuit alleges that this violates the requirement of a stand-alone disclosure form, and that the inclusion of a waiver invalidates the consent by the applicant for the background check.  The lawsuit further alleges that Whole Foods has over 70 stores in California, and 370 stores throughout the United States, Canada and the United Kingdom.  The putative class includes every employee or prospective employee in the entire United States who completed the online background check disclosure and authorization forms that included the liability waiver during the last five years. The class is demanding $9,999,000.

Franchesca Ford, Isabel Rodriquez, et al. v. CEC Entertainment, Inc. d/b/a Chuck E. Cheese’s, Case No. 14CV0677, was filed in California federal court on March 24, 2014.  In this case, the plaintiff alleges that Chuck E. Cheese’s practice of including the authorization for a background check as part of a multipage printed employment application is a violation of the requirement that the disclosure be in a stand-alone document.  The lawsuit alleges that the application includes a certification of the accuracy of the information, a release of the company from any liability, a continued consent to the background check and drug and/or alcohol testing policies, and an understanding of “at will employment” provision.  The lawsuit also alleges that the disclosure did not include a check box for the applicant to elect to receive a copy of the report, as required by California law.  The proposed class includes everyone who applied for employment anywhere in the United States in the last two years.

Yahaira Camacho, et al. v. ESA Management LLC, Case No. 14CV1089, was filed on April 30, 2014, in California federal court, against the company managing Extended Stay America hotels.  In this case, the lawsuit alleges that the defendant’s at-will job application contained a disclosure/authorization stating, “I authorize the investigation of all statements contained in this application and release from all liability any persons or employers supplying such information, and I also release Extended Stay Hotels from any liability that might result from making the investigation.”  The lawsuit alleges that the application is unlawful because (1) it does not disclose that a consumer report will be obtained, (2) it does not seek written authorization from prospective employees, (3) it is not a stand-alone disclosure, and (4) it includes a release of liability.  This lawsuit is alleged as a nationwide class action, includes all applicants for the last five years, and allegedly includes an estimated 684 hotels operated by the employer.

Raphael Saye, et al. v. CSK Auto Enterprises LLC; O’Reilly Automotive Stores Inc., Case No. 2:14cv3470, was filed on May 5, 2014 as a nationwide class action with an alleged amount in controversy exceeding $5,000,000.  In addition to the allegations contained in the other lawsuits (lack of stand-alone disclosure, use of a liability waiver, and other extraneous information on the disclosure form), this case also alleges that the employer took adverse action based on the background check, but did not provide notification of the intent to take the adverse action, and did not provide a copy of the report, a summary of FCRA rights, or a “post adverse action” notice.

Anthony R. Cox Jr. v.Teletech@homeInc.; TeleTech Holdings Inc, Case No. 1:14cv993, was filed May 7, 2014, in federal court in Ohio as a class action. The class alleges that the employer, a global business process outsourcing company headquartered in Englewood, Colorado, procures consumer reports for its job applicants and uses them to deny employment or take other adverse action without providing applicants with proper pre-adverse action notice or a copy of the report or a summary of their rights under the FCRA.

Latifah White v. Century 21 Department Stores LLC, Case No. 1:14cv5058, was filed on July 7, 2014, in federal court in New York. This class action was filed on behalf of all Century 21 employees and job applicants at all seven locations who were the subject of a consumer report that was procured by Century 21 within five years of the filing of this complaint (estimated to be in excess of 500 employees/applicants). The proposed class seek damages against Century 21, alleging that the company’s background checks on its employees and potential employees violates FCRA because they are done so without first disclosing or receiving written authorization from the class members.   In addition, it is alleged the company failed to provide pre-adverse and post-adverse action notices and a copy of the consumer report to the applicant so that it could be challenged, if necessary.

Brad Cox v. Ozburn-Hessey Logistics, LLC, Case No. 3:14cv1443, was filed July 10, 2014, in federal court in Tennessee as a class action for alleged violations of the FCRA. The company is a global supply chain company with over 7,000 employees.  According to the complaint, the company allegedly violated the FCRA by failing to provide the plaintiff and other applicants with a stand-alone disclosure that a consumer report may be obtained for employment purposes.  Instead, the employment application contained multiple sections about the employee’s background and EEO status.

Vontanise Poole v. Axcess Financial Services Inc. dba Check ‘N Go, Case No. 1:14cv1582, was filed July 16, 2014, in federal court in Ohio as a class action on behalf of job applicants for the preceding five years.  The complaint alleges the employer procures consumer reports for its job applicants without obtaining proper written authorization or providing a stand-alone disclosure that clearly and conspicuously discloses its intent to obtain a consumer credit report for employment purposes in violation of FCRA.  The lawsuit alleges that Check ‘N Go used an online authorization form that contained at least nine paragraphs in small font over two pages and requested a variety of information, including whether the applicant had ever been convicted of a felony, self-identification for EEO purposes, and included extraneous information, such as an explanation of its probationary period, and authorization of the right to work and a waiver of liability.

Rumph v. Nine West Holdings, Inc., Case No. 0:14-CV-61673.UU, filed July 23, 2014, in federal court in Florida, alleges the plaintiff submitted an online application to work with Nine West in New York in August 2010, completing the company’s standard application materials. The complaint says nowhere in the application materials did Nine West use “consumer report” nor did it provide a stand-alone background check disclosure and authorization form that solely included the appropriate disclosures or authorizations under the FCRA. The plaintiff alleges Nine West does not properly include a conspicuous, separate background check form in its online application process, as required by the FCRA, but instead includes the authorization form on a page with extraneous language, including shipping information, privacy policies, philanthropy and other unrelated store information.

The complaint says the putative class members should be awarded statutory damages of up to $1,000 for each violation, in addition to punitive damages and attorneys’ fees and costs.

Mack v. Panera, LLC, Case Number 0:14-cv-61672, was filed July 24, 2014, in federal court in Florida.  The plaintiff alleges she originally submitted an online employment application in May 2012. The complaint says that while Panera had the standard application materials, including a background check disclosure and authorization form, it failed to use the terms “consumer report,” and did not provide a stand-alone background check disclosure and authorization form, instead including “at will” language, hours of work and a disclaimer.

Mack v. American Multi-Cinema, Inc. (AMC), Case Number 0:14-cv-61676, filed July 24, 2014, in federal court in Florida. The same plaintiff says she originally submitted an online employment application in November 2011. The complaint alleges AMC included a background check disclosure and authorization form that did not use the terms “consumer report.”  In addition, the complaint states that AMC did not provide a stand-alone background check disclosure and authorization form that solely included the appropriate disclosures or authorizations under the FCRA. The only arguable background check disclosure and authorization form provided by AMC – according to the complaint – included additional language regarding at-will employment, information regarding hours of work, and a disclaimer. By including the additional information/language in the background check disclosure and authorization form, the plaintiff alleges that AMC willfully disregarded the FTC’s regulatory guidance and violated the FCRA.

Mack says she is seeking up to $1,000 in statutory damages for each class member. The putative class consists of employees and potential employees nationwide who filled out job applications with the companies within the past five years.

Be Sure Your Background Check Forms Are Lawful and Only Used When Permissible

A review of these recently filed cases proves that the plaintiffs’ bar is seizing the opportunity to exploit common practices used by many employers in their multistate background check forms, which may violate federal and state background check laws.  At this point, it is unclear whether the lawsuits will result in adverse rulings for the employers.  However, regardless of the outcomes, the cost of defending a class action lawsuit can be high.

With the recent influx of FCRA complaints, be sure to review your background check forms for compliance with all applicable laws.  To minimize the risk of exposure to possible lawsuits, it is best to use a properly worded, stand-alone document.  Keep all other content in the employment application form (at-will employment, liability waiver, policy acknowledgment and EEO disclosure) separate and distinct from the stand-alone FCRA disclosure and authorization.  Before taking any adverse action, ensure that the employee/job applicant receives a copy of the consumer report and a summary of his or her rights under the FCRA.

Further keep in mind that many states (a) restrict inquiries regarding arrest and conviction records, and (b) limit requests for credit reports to certain types of employment positions.  Before you request a background check, make sure that it is permissible under applicable state law.

Whether you would like a comprehensive review of your current background check forms or employment applications, or need assistance in the face of a pending lawsuit, you may contact Sedgwick LLP to assist you through the process.