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.
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.
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Schumacher was not given an opportunity to correct or explain the results in the report before the employment offer was withdrawn and received the letter one week after her start date had passed.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.
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.
| What the Court ruled: It noted there are competing views among courts on whether an employer’s failure to comply with the FCRA by providing a copy of the consumer report prior to taking adverse employment action is a bare procedural violation or conduct that causes intangible harm sufficient to meet minimum requirements for standing. After evaluating those views, it concluded that neither the text of the FCRA nor the legislative history provides support for Schumacher’s claim that she has both a right to receive a copy of her report and to discuss directly with the employer accurate but negative information within the report prior to the employer taking adverse action. Even though she may have demonstrated a violation of the law, she did not demonstrate an “injury in fact.” |
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:
Notably, Schumacher did not allege any claim of harm, either tangible or intangible.
| What the Court ruled: Without something more, a technical violation of the disclosure statute is insufficient to confer standing. Schumacher failed to establish that she suffered a concrete injury due to the improper disclosure. As a result, she lacks standing to pursue her improper disclosure claim. |
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.
| What the Court ruled: The authorization and report fit within the FCRA’s broad definition of consumer report even though they may not have used the term “consumer report.” Under these facts, the search was FCRA compliant. Moreover, because the search did not plainly fall outside the scope of the authorization, Schumacher failed to plead an intangible injury to her privacy sufficient to confer standing. |
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.