Individualized Assessments Gain Favor as Lawsuits Rise
A recent upsurge in litigation around violations of the FCRA (Fair Credit Reporting Act) has pushed companies towards use of more individualized assessments during the recruitment process.
The Fair Credit Reporting act is U.S. government legislation which was enacted to protect consumers from willful or negligent use of inaccurate information on their credit report. Good for the individual, but for companies, not complying with the rules can be a costly headache, as ridesharing company Uber has discovered.
Abdul Mohamed, a former driver for Uber, sued the company in 2014, for using his credit report in violation of the Fair Credit Reporting Act. Abdul Mohamed, who began driving for Uber in 2012, found his access to the Uber smartphone app cut off due to negative information found on his credit report. The previous year, he was required to sign two new contracts before he could sign into the app and do his work for Uber. One provision required him to submit to arbitration most disputes with the company, and another that he waive his right to bring disputes as a class action. Mohamed, in late 2014, filed a class action lawsuit in the Northern District of California, alleging that the use of his credit report violated the FCRA, and other acts. Uber later agreed to pay the full cost of the arbitration hearing – about $7,000 a day.
The FCRA rules regarding any action an employer takes with regard to an applicant’s credit report are clear. FCRA rules require a clear two-step process be followed when informing potential applicants about information on their credit report that could disqualify them. First, employers must send a “pre-adverse” action notice to the applicant who will be given five days to challenge or correct the record. The notice must include a copy of the credit report containing the negative information, as well as a document from the Federal Trade Commission outlining their rights. After five days, the employer is allowed to notify the applicant they will not be hired.
Ryan Howard, vice president of business development at Verifirst Background Screening in Philadelphia, explained that this two-step process also helps to minimize the risk of litigation, because if the report contains an error, the applicant has a real chance to correct it. “If it goes the way it should, litigation risk is minimized”, he said.
With the increased litigation, and new laws presenting more risk to employers, a new an important trend with many companies is to take an individualized assessment approach for determining what criminal offenses on a qualified applicant’s record would exclude them from employment with their company. Employers are moving away from sticking to fixed rules about what kinds of convictions would bar employees from certain jobs.
Explaining the benefits of this shift, Jackson C. Jackson, a lawyer with Morgan, Lewis, and Bockius in Chicago, said: “One, all things being equal, I think you’ll get a better decision. And you may reduce your susceptibility to class action at the same time.”