FCRA Violation Case Dismissed for Lack of Standing

The Fair Credit Report Act (FCRA) is central to the use of background checks for employment. For better or worse, the FCRA is often made clearer through court interpretations of the law when ruling on lawsuits alleging FCRA violations. If you have been reading our updates for a while, you may notice we dig into court rulings, opinions, and judgments related to the FCRA. What about dismissed cases?

The Eighth Circuit has recently dismissed Schumacher v.  S.C. Data Center, Inc., a putative class action that alleged multiple FCRA violations, due to lack of standing.

What is Standing?

For a federal court to have jurisdiction to hear a case, a party must establish three elements to meet the “irreducible constitutional minimum” of standing:

1. Facts demonstrating “an injury in fact;”

2. That is fairly traceable to the challenged conduct of the defendant; and

3. That is likely to be redressed by a favorable judicial decision.

An “injury in fact” must be “concrete and particularized” and “actual or imminent,” not conjectural or hypothetical. According to the Supreme Court, “concreteness” contemplates traditional harm, such as physical harm, monetary harm, or various intangible harms such as reputational harm.

If a party can’t establish all three elements of standing, the case cannot be heard in federal court.

A Revoked Job Offer

Ria Schumacher applied for employment with defendant S.C. Data Center, Inc. in August 2015. As part of the application process, she responded “no” to a question asking whether she had ever been convicted of a felony. After Schumacher completed the company’s pre-employment tests, she was the job.

S.C. Data asked her to complete an Authorization for Release of Information form. The form notified Schumacher that S.C. Data intended to use Sterling Infosystems to conduct a criminal background search that “will only be conducted once an offer of employment has been made.”

After S.C. Data reviewed the report and one week before Schumacher’s scheduled start date, S.C. Data notified Schumacher that it was withdrawing the conditional offer of employment and that a confirmation letter would follow.

Schumacher was not given an opportunity to correct or explain the results in the report before the employment offer was withdrawn and received the letter one week after her start date had passed. It included a copy of her background report and a description of her rights under the FCRA. Schumacher did not dispute the accuracy of the report.

Three Alleged FCRA Violations & Court Response

Schumacher filed a lawsuit against S.C. Data. She alleges the company committed three violations of the FCRA.

1. “Adverse Action Claim” (violation of 15 U.S.C. § 1681b(b)(3)(A)) – Taking adverse action based on the background report before giving the candidate a copy.

The undisputed facts established that S.C. Data offered Schumacher a job, arranged a start date, and rescinded the job offer before she was given a chance to see or respond to the background report. S.C. Data also relied on information in the report when it took adverse employment action. Notably, Schumacher did not claim the report was inaccurate. Under the FCRA, Schumacher had the right to receive a copy of her background report before the adverse action was taken.

2. “Improper Disclosure Claim” (violation of 15 U.S.C. § 1681b(b)(2)(A)(i)) – Obtaining a background check without a FCRA-compliant disclosure.

Schumacher claimed that S.C. Data’s disclosure form was not clear and conspicuous because most of the text in the disclosure was no larger than six-point font, constituting “eye-straining text” within “a host of non-disclosure language.”

Next, Schumacher claimed the disclosure did not conform to FCRA requirements because it did not use the words “consumer report” and did not tell her that a consumer report may be procured for employment purposes. However, it expressly informed her that a criminal background search would be conducted only after an offer of employment was made.

Finally, Schumacher claimed the disclosure included extraneous information, including:

• • A statement regarding the consequences for failing to provide accurate or complete information.
  • Information applicable only to candidates applying for motor carrier positions.
  • Release of liability provisions.
  • Report dispute process details.

Notably, Schumacher did not allege any claim of harm, either tangible or intangible.

3. “Failure to Authorize Claim” (violation of 15 U.S.C. § 1681b(b)(2)(A)(ii)) – Obtaining more information than what was disclosed in the authorization.

Schumacher claims that she only authorized a criminal background check, not a consumer report.  She did, however, explicitly authorize the screening company to conduct a “criminal background search” and “make an independent investigation of [her] criminal records maintained by public and private organizations.”  It was undisputed that the “Background Screening Report” returned criminal history information and information contained in a national sex offender search. It did not contain information about Schumacher’s credit history or worthiness, personal characteristics, or other information that is typically included in a comprehensive consumer report.

Schumacher’s case lacked the minimum requirements to establish standing, and as a result, the Court dismissed the case for lack of jurisdiction. This case turned on its facts in a circuit that required the plaintiff to prove an injury in fact. As the Schumacher Court noted, other circuits consider a technical violation of the statute (i.e., taking an adverse employment action without providing the required consumer report, to be an actual harm sufficient to confer standing).

While this is one case that ended in the employer’s favor, others often don’t. Employers may want to consult their legal team to review their background check documents and adverse action process for FCRA compliance.