Nov 15, 2013

The company known for their signature character, Mickey Mouse, is defending a class action claim based on questions about its background screening policies.

A lawsuit against the Walt Disney Co. was filed in the Superior Court of California on Nov. 1, 2013, and the complaint alleges that Disney’s policy for notifying applicants about background checks has violated the Fair Credit Reporting Act (FCRA).

The case is part of a bigger trend — the exponential rise in FCRA-based class action claims. The suits have been on the rise for a few reasons.

FCRA litigation is on the rise

The widespread adoption of employment background checks by companies over the past 10-15 years has justifiably raised awareness about the screening process. FCRA litigation is a “new” area that the trial bar seems to have only recently discovered.

With statutory damages, attorney’s fees, punitive damages and costs as well as actual damages, these class actions are much more lucrative than individual plaintiff cases.

Disney is not the only large-scale employer to be singled out.  Other household names like Kmart, Domino’s, Swift Trucking, Dillard’s and Rite Aid have all been called out in FCRA-related allegations.

Making the case for adverse action

In this case, the plaintiff is alleging that Disney failed to provide notice of adverse action —  process required by the FCRA when an adverse employment decision is based on any portion of a background check pursuant to 15 USC 1681b(b)(3) and 15 USC 1681m(a).

In plain English, the statute requires employers to give applicants notice before a hiring decision is made to reject them for the position, based on the results of a background check.

If you think about it, this makes sense. The applicant has an opportunity to see the background report, challenge any inaccuracies in the report, and clear up any negative information that disqualifies him from the job. The FCRA also requires a second notice, after a final decision has been made not to hire.

The plaintiff’s background check showed a criminal conviction that was entered when he was 19 years old, 13 years prior to applying for the position. The complaint alleges that the plaintiff was conditionally hired on Nov. 3, 2011, and then was verbally notified on Dec. 7, 2011 that he could not be hired by Disney because of the background check results.

The plaintiff stated that Disney:

  • Did not provide him with a copy of the report;
  • Did not issue a pre-adverse action notice;
  • Never sent him written notice of adverse action.

What the plaintiff is alleging

The complaint goes on to describe a series of attempts by the plaintiff to dispute the accuracy of the report, including clarification with the background screening company that his record had been expunged, and that the record was eventually removed from his report on Dec. 14, 2011.

In the end, he did not get the job. He is now alleging that:

  • Disney knew its duty to provide pre-adverse notification;
  • That Disney in fact had a policy to that effect;
  • Yet, Disney still failed to send him notice or a copy of the report and the other required notifications.

The plaintiff also claims that Disney violated a California statute (read more about background checks in California here) that prohibits an employer from using dismissed or expunged records to disqualify candidates. His argument is this: Disney did not give him the opportunity to clear up the inaccuracy of the report.

Instead, the company took action and made the decision not to hire based on inaccurate information that the Plaintiff never had the opportunity to cure.

Considerations for employers

At this early stage we have no basis to know whether the plaintiff’s allegations are true or whether the complaint accurately portrays the events in this case. Disney has not yet filed an answer or had an opportunity to respond to the various factual allegations and legal claims. There may be other factors that disqualified the plaintiff that have not yet been brought forward.

However, we do know that if the plaintiff is successful at establishing the class action, the plaintiff will make a claim for statutory damages up to $1,000 per violation, actual damages, costs and attorney’s fees, plus punitive damages. So on that sobering note, here are a few considerations for employers:

  • Do make sure that you have a policy for adverse action procedures that includes both pre-adverse and adverse action notifications, and that all hiring managers understand the need to follow those policies with a uniform process.
  • Do include a copy of the background report and the FCRA required “Summary of Rights” with your pre adverse action notice.
  • Do understand your contractual responsibility (in addition to statutory responsibility) to provide adverse action notices. Here, the Plaintiff made a point of the contractual certification that Disney made to its screening company that Disney would follow proper adverse action procedure.
  • Do consider outsourcing adverse action to your background screening provider. The Plaintiff points out that the screening company offered a service to send pre and adverse action notices, but Disney did not opt to purchase those services.
  • Don’t rely on verbal adverse action. It does not meet statutory requirements in most instances, and provides no means for documentation.

Reasonably evaluate each decision

One final thought: If you disqualify an applicant for reasons other than adverse information in the background report, do consider how you will document that decision and further adverse action consequences.

For example, if your employment application contains a clause stating that lying on the application is grounds for termination or disqualification, you may be relying on a failure to disclose criminal history as the basis not to hire, and not the background report itself. Some employers see those circumstances as a way to avoid adverse action requirements.

However, if the criminal record should have been expunged or never reported (as the plaintiff alleges here) you may have a difficult time defending its practice. So if lying on the application is the reason for disqualification or termination, proceed with caution.

The best practice is to reasonably evaluate each decision, and when you can, give the job applicant the benefit of notice. By doing so, you might avoid being the next class action defendant.

This was originally published on the EmployeeScreen IQ blog.