January 16, 2015 – According to Fortune, some employers are not compliant when it comes to the Fair Credit Reporting Act (“FCRA”) and employee background checks. As a result, several well-known companies are finding themselves on the wrong end of a lawsuit. The list includes chain retailers and restaurants such as Whole Foods, Dollar General, Panera, Michaels Stores, Publix Super Markets, Chuck E. Cheese, and Century 21 Department Stores. Even Paramount Pictures has been sued for violations pertaining to the FCRA.

Credit scoring

Credit scoring

So what does the FCRA have to do with employment law? Quite a lot it seems when it comes to paperwork for job candidates. The FCRA, enacted in 1970, was meant to protect individual privacy when it comes to personal information in response to the credit reporting industry’s assembling and disseminating dossiers on consumers to landlords, banks, credit card and loan companies, and employers.

However, many companies do not follow the FCRA regarding background checks, either playing fast and loose intentionally, or simply because of ignorance. Job applicants have noticed, resulting in several class-action lawsuits and a lot of business for employment plaintiffs attorneys.

The overriding FCRA rule that employers break has to do with giving notice to job applicants of impending background checks in a way that is “clear and conspicuous.” The notification should stand on its own as a separate document and not have other employment matters included. There are also problems with online applications and how they are just one long piece of digital information, which does not clearly differentiate other applicant questions and information from the background check notification. Ideally, the background check notification should not be included in an online application, but should be a completely separate online (or paper) document.

Another important caveat is that employers must notify a job applicant if it does not plan to hire them because of something they don’t like in the background check BEFORE actually rejecting the applicant’s candidacy in order to allow the applicant to correct any errors in their background check.

The FCRA has been around since 1970, so why is there recently such a sharp rise in employment lawsuits connected to it? Denise Trani-Morris, an employment lawyer at the Sedgwick firm in San Francisco who represents employers (defendants) told Fortune that she thinks the trend to sue employers because of FCRA violations is because many plaintiffs lawyers have identified the FCRA as a particularly vulnerable area that’s “ripe for class actions” and where “penalties are significant.”