the fair credit reporting act: friend or foe? - leclairryan · the fair credit reporting act:...

The Fair Credit Reporting Act: Friend or Foe?AND

FLSA Collective Actions: Understanding What They Are and How to Defend Against Them.

Presented by:

Susan Childers North, Esq. Laura H. Corvo, Esq.5388 Discovery Park Blvd. Two Penn Plaza EastThird Floor Newark New Jersey 07105Williamsburg, Virginia 23188 [email protected]@leclairryan.com

Today’s attorneys and some notes...

Susan Childers North

Williamsburg

Laura H. Corvo

Newark

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Fair Credit Reporting Act (FCRA)

The FCRA is a federal law put in place to protect consumers. The consumer reporting industry is big business. Information about consumers is sought by:

• lenders, • credit sellers, • insurance companies, • employers, and• others every day.


Consumer reporting agencies (CRA’s) aggregate and store information on individuals and sell it to those who need it (creditors, banks, retailers, employers, landlords, insurers, etc.).CRA’s play an integral and expansive role in the U. S. economy –they can facilitate and/or frustrate a consumer’s access to credit and employment.


Thus, accuracy and completeness of consumer reports is critical –especially due to the ever increasing use of electronic information. Identity theft and privacy issues are also of paramount importance.

See Gramm-Leach-Bliley Act (“GLBA”) – Title V Privacy. This was created in order to provide protection to individuals regarding privacy of their personal financial information.

• Applies to all financial institutions AND

See Safe Harbor Principles.

Let’s review the FCRA as it relates primarily to employment.

Definitions

Consumer—An individual.

Consumer Report—The term “consumer report” means any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part for certain reasons:

DefinitionsThese reasons include:

(A) credit or insurance to be used primarily for personal, family, or household purposes;(B) employment purposes; or(C) any other purpose authorized under section 604 (see permissible purposes).

Note: Business/commercial credit for the most part is not governed by the FCRA or GLB.Caveat: Decisions exist where poor business credit was reportedunder individual’s name which led to rejection of credit for personal, family and household purposes, thus leading to FCRA violations.

Definitions

The term “consumer reporting agency” means any person which, for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties, and which uses any means or facility of interstate commerce for the purpose of preparing or furnishing consumer reports.

Definitions

The term “investigative consumer report” means a consumer report or portion thereof containing information on a consumer’s:

• character• general reputation• personal characteristics; or • mode of living.

Information often times is gathered through personal interviews with neighbors, friends, or associates of the consumer or with others with whom he is acquainted or who may have knowledge concerning any such items of information.

Definitions

A couple of key exclusionary provisions which take a consumer report out of the FCRA include:

• when a report contains information solely as to the transactions or experiences between the consumer and the person making the report; and

• when the communication of information in a consumer report is among persons related by common ownership or affiliated by corporate control.

Examples: Drug testing, affiliated companies.

DefinitionsAdverse Action The term “adverse action” means:

• the same as in the Equal Credit Opportunity Act;• a denial of employment or any other decision for employment

purposes that adversely affects any current or prospective employee;

• an action that is adverse to the interests of the consumer.Very broad language.

(Beverly v. Wal-Mart case – did not hire, then later hired – still constituted an adverse action.)

Permissible Purposes of Consumer Reports

A consumer reporting agency may furnish a consumer report to a person only under permissible circumstances which include:

• in response to a court order;• in accordance with written instructions of the consumer;• to use the information in connection with a credit transaction

involving the consumer on whom the information is to be furnished, and involving the extension of credit to, or review or collection of an account of, the consumer;

• to use the information for employment purposes;

Permissible Purposes of Consumer Reports

• to use in connection with underwriting of insurance of consumer;

• to use in connection with determination of consumer’s eligibility for a license granted by government required by law to consider consumer’s financial responsibility or status;

• when otherwise have a legitimate business need:• in connection with business transaction that is initiated by

consumer; or• to review an account to determine whether account should

continue.

Disclosure Required to Consumer

Generally, a person may not obtain a consumer report, or cause one to be procured, for employment purposes unless:

• a clear and conspicuous disclosure has been made in writing to the consumer at any time before the report is procured or caused to be procured;

• This must be in a document that consists solely of the disclosure that a consumer report may be obtained for employment purposes.

Disclosure Required to Consumer

In addition, the consumer must authorize in writing the procurement of the report. This can be on the same document as the disclosure.

• Cannot obtain written signature after you have or caused to have the consumer report procured.

CRA’s Must Comply with Certain Provisions

Key provision leading to litigation:

A consumer reporting agency that compiles and reports items thatare matters of public record and are likely to have an adverse effect on a consumer’s ability to obtain employment shall:

–AT THE TIME the public information is reported to the user of the report, notify the consumer of the fact that the information is being reported, together with the name and address of the person to whom the information is being reported; OR

–maintain strict procedures designed to insure that whenever public record information that is likely to have an adverse affect on a consumer’s ability to obtain employment is reported, it is complete and up to date.

CRA’s Must Comply with Certain Provisions

Almost all CRA’s attempt to comply with option 1.

• Violations can occur if CRA sends notification to consumer later than the same day user receives reports.

• Incredibly high standard to meet option 2.

• Cannot attempt to prove violation of option 2 unless some error or inaccuracy existed on the report.

Conditions on Use for Adverse Actions

In using a consumer report for employment purposes, BEFOREtaking any adverse action, the person shall provide to the consumer:

• a copy of the consumer report; and

• a summary of Rights prescribed by the FTC.

*Commonly known as the “pre-adverse action” notice.

Duties of Users Taking Adverse Actions on the Basis of the Information Contained in Consumer Reports

If a person takes any adverse action with respect to a consumer that is based on any information contained in a consumer report, that person shall:

• provide notice of the adverse action to the consumer (oral, written or electronic);

Duties of Users Taking Adverse Actions on the Basis of the Information Contained in Consumer Reports

• provide the consumer with the name, address and telephone number of the consumer reporting agency, and provide the consumer with a statement that the consumer reporting agency did not make the decision to take the adverse action and is unable to provide the specific reasons why the action was taken;

• provide the consumer notice of the consumer’s right to request a free copy of the consumer’s consumer report within 60 days of the adverse action notice from the CRA and provide notice to the consumer that he/she can dispute with the consumer reporting agency the accuracy of the information in their report.

*Commonly known as the “post-adverse action” notice.

Civil Liability for Willful Noncompliance

A person who willfully fails to comply is liable to the consumer for:• actual damages sustained by the consumer as a result of the

failure, or • damages between $100 and $1,000; and• punitive damages as the court may allow (Saunders case –

526 F.3d 442 (4th Cir. 2008) punitive damages award of $80,000.00 based on a $1,000.00 violation upheld);

• costs and reasonable attorney’s fees as determined by the court.

Civil Liability for Negligent Noncompliance

A person who is negligent in failing to comply is liable to the consumer for:

• actual damages sustained by the consumer as a result of the failure; and

• costs plus reasonable attorney’s fees as determined by the court.

Illustrative Cases

Significant litigation has occurred over the last two years under the provisions reviewed today.

–Williams v. Telespectrum, Inc. (E.D. Va.)• Filed as a class action alleging violations of FCRA that employer

failed to provide all information required in pre-adverse and post-adverse action notices and timing of notices was improper.

• Allegations were that employer brought candidates in – handed them a copy of the consumer report and then terminated them on the spot.

• Court denied summary judgment for employer regarding issue that employer did not provide notice of adverse action before it took adverse action.

• FTC opinions state that some reasonable period of time must elapse between these two notices.

Illustrative Cases

–Williams (contd.)• Consumers need an opportunity to correct any

inaccuracies.• FTC opinion states 5 business days could be reasonable.• Summary judgment for employer also denied regarding

punitive damages. Court stated that repetitiveness or multiplicity of conduct alone could prove punitive damages.

• This was the employer’s general practice so applied to every candidate for past several years.

Illustrative Cases

–Williams (contd.)• Plaintiffs moved for class certification which was denied

because failed FCRP 23(b)(3) predominance criteria.• This is because plaintiffs asked for individual damages and

punitive damages for each class member which would require extensive individual, as opposed to, class calculations.

• Case settled on an individual basis and plaintiffs’ counsel learned not to ask for individual, actual damages.

• Now they ask for statutory damages of $100 to $1,000, plus punitive damages.

Illustrative Cases

– Beverly v. Wal-Mart (E.D. Va.)• Filed as a class action alleging violations under FCRA that Wal-

Mart did not provide reasonable time period between pre-adverse and post-adverse action notices for plaintiffs to dispute accuracy/completeness of consumer reports.

• Court denied employer’s motion for summary judgment• The fact that the named plaintiff received both pre-adverse and

post-adverse notices on same day fails to satisfy the law.• Plaintiffs sued for statutory damages of $100 to a maximum of

$1,000 per violation plus punitive damages.• Case settled (multi-million dollar settlement) (one of the largest

in Virginia last year.

- Caveat: Contract with CRA wherein employer delegates responsibility to CRA.- Indemnification?

Illustrative Cases

–Williams v. Lexis Nexis Risk Management, Inc. (E.D. Va.)• Filed as a class action alleging violations under FCRA that

CRA failed to notify consumer at the time the consumer report was reported to the user of the report and alleging violations that CRA implemented an improper standard or policy for consumers to file a dispute.

• Both types of classes were certified under Rule 23(b)(3) –over 200,000 class members.

• Plaintiffs requested statutory and punitive damages.• Case settled for in excess of $20 million dollars (largest in

Virginia last year).

• The number of FLSA collective actions filed in federal courts have grown exponentially.

• Collective actions under the FLSA outnumbered all other types of employment related class actions.

The Proliferation of FLSA Collective Actions

• In 2008, the 10 largest FLSA collective actions settlements totaled $252 million. Some examples include:

• Wal-Mart - $54.25 million• Merill Lynch - $45.5 million• Charter Commission - $28.5 million• RPS - $27 million• CVS - $14.75 million

• In 2009, Walmart reached agreements to settle 63 employment class actions with payouts estimated to be between $350 million to $640 million.

The Costs for Employers

FLSA Basics

What types of claims are filed under the FLSA:• Unpaid overtime*

• Misclassification of exempt and non-exempt employees.• Minimum wage*

• Effective July 24, 2009, the federal minimum wage is $7.25 per hour.

• Child labor* The overwhelming majority of wage and hour cases involve unpaid overtime issues or minimum wage issues.

FLSA Collective Actions

• FLSA collective action claims are fundamentally different from other class action claims filed under other federal and state laws.• Section 16(b) of the FLSA, rather than Rule 23

of the Federal Rules of Civil Procedure, governs how collective actions will take place.

• Employees must “opt in” to the lawsuit.• Employees must be deemed “similarly situated”.

“The Opt In” Requirement

• Employees must “opt in” to the lawsuit• Under the FLSA, employees must affirmatively consent to

participate in the lawsuit against the employer by signing a document evidencing such consent.

• “[n]o employee shall be a party plaintiff to any such action unless he gives his consent in writing to become such a party and such consent is filed in the court in which such action is brought”.

• In other class actions, an employee is presumed to be a part of the lawsuit against the employer and if the employee wishes not to participate, then the employee must “opt out”.

The “Similarly Situated” Requirement

• Employees must be deemed “similarly situated”.• Employees are “similarly situated” if they are subject to a

common policy, plan or design, that stretches across company departments or locations.

• Raise similar legal issues such as coverage, exemption, and/or nonpayment of wages.

• Raise similar factual settings such as job requirements, geographical locations, and/or pay policies.

• Each employee’s factual situation need not be identical to that of the members of the collective action.

Statute of Limitations

• Under the FLSA, a two-year statute of limitations exists. The caveat, however, is that there is no tolling of the statute of limitations due to the filing of the collective action complaint. The clock continues to run until each employee who can potentially “opt in”does so.

Federal Labor Standards Act Collective Action

• Courts take two distinct approaches in determining whether a FLSA collective action should be certified:

1. Courts examine the elements required for certification under Rule 23 to the extent they do not conflict with Section 16: numerosity; commonality; typicality; and adequacy of representation.

2. Other courts use a two-step approach to determine whether employees are “similarly situated” (Plaintiff Friendly Standard):1. Conditional Certification;2. Post-discovery Stage.

Avoiding FLSA Collective Actions

• Create a Wage and Hour Compliance Program:• Eliminate compliance issues;• Maintain evidentiary records in order to be able

to invoke good-faith defenses;• Ensure that employees are classified and paid

correctly.


• Implementing the Wage and Hour Compliance Program:• Conduct an audit of actual policies, procedures and practices;• Revise policies, procedures and practices so that they are

compliant;• Make operational changes to ensure compliance;• Implement a wage and hour complaint and reporting system;• Create a wage and hour training program for Human

Resources, supervisors and employees;• Use technology to ensure accuracy;• Maintain compliance.


• Audit of actual policies, procedures and practices:• Exempt employees

• Duties of exempt classified employees• Payment on salary basis

• Non-exempt employees• Pay for hours worked• Regular rate calculations for overtime• Record keeping• Deductions

• Audit documentation

Discrimination Class Actions

• Class actions usually allege that the employer has implemented a policy that has an adverse impact on employees of a protected class, such as women or minorities.

• As most class actions are driven by statistical evidence, the employers most vulnerable to class actions are those whose workforces are not diverse or where employees seem clustered in certain job categories.


Class actions also often involve allegations that the employer has treated a large group of employees in a disciplinary fashion and that the employer’s subjective decision making processes result in both disparate impact and disparate treatment on the basis of race, age and gender.


A case involving allegations of “disparate impact”involves a challenge to a facially neutral policy or practice that falls more harshly on a protected group and cannot be justified by business necessity.


For example, if an employer institutes a policy requiring a college degree as a prerequisite for a clerical position, and that policy has a disproportionate adverse impact on African-American applicants, all African-American applicants without a college degree who were denied clerical positions would have a strong argument for class certification because they all would potentially have common claims of discrimination.


• An individual “disparate treatment” case, on the other hand, alleges that an individual or individuals were treated less favorably based on a protected category than others outside the protected category.

• In class action “pattern and practice” cases, the plaintiffs’ burden is to show that the alleged discrimination was the defendant’s “standard operating procedure,” thus creating a presumption of discrimination.


• In addition, recent reductions in force (RIF’s) have resulted in age class action lawsuits.

• Age discrimination is governed by the collective action procedure under the FLSA, 29 U.S.C. §216(b).

Class Action Lawsuits

• Cases alleging discrimination in violation of Title VII of the Civil Rights Act of 1964 (“Title VII”) and the Americans with Disabilities Act may be pursued as class actions under Rule 23 of the Federal Rules of Civil Procedure.

• Applied to employment cases, Rule 23 requires the class of plaintiffs to provide a showing of facts that might raise an inference of a pattern and practice of discrimination.


Employment cases brought under the Equal Pay Act (“EPA”) are known as “collective actions” and are governed by the requirements of Section 216(b) of the Fair Labor Standards Act.


Employers should also note that although a pattern and practice action by the EEOC is effectively a class action, the EEOC as a general matter is not required to satisfy the detailed requirements for class certification outlined in Federal Rule of Civil Procedure 23.


• Instead, the EEOC may, in certain circumstances, intervene in a private action already filed by a charging party following receipt of a right to sue notice, or may initiate a lawsuit on behalf of a charging party and a class, based on either an individual’s charge or a charge by the Commissioner.

• Class actions involving the EEOC are more complicated.

How to Avoid Class Actions

• Identifying employment related class action risk begins with an assessment of the workforce environment.

• Careful and confidential analyses of hiring, promotion, transfer, compensation, and termination personnel data should be done.

• These areas often create statistically significant disparities between similarly situated male/female and non-minority/minority employees.


Early analysis of this data may result in improvements to a company’s employee relations systems, promotions systems, management accountability systems, or other employment related functions that could ward off a class complaint.


• Employers should also conduct a statistical analysis of the compensation provided to its employees to determine if there are statistically significant differences in compensation between similarly situated (i) male and female employees and (ii) white employees and minority employees.

• If such differences exist, managers should then be directed to justify those differences. Absent a legitimate business justification, the employer might then consider appropriate and carefully implemented adjustments to the compensation levels of affected employees.


• Employers should take care to make sure that training opportunities offered to female and minority employees and to similarly situated white male employees are the same.

• Differences in training and mentoring opportunities can lead to allegations of intentional discrimination.


• Remember: Performing these analyses may reveal sensitive information and perhaps expose significant legal liability.

• It is therefore strongly recommended that employers take advantage of available legal privileges (and their concomitant confidentiality) by using outside counsel, in tandem with the employers’ internal resources, to direct and effect the various analyses suggested.

Questions?

Susan Childers North, [email protected]

Laura H. Corvo, [email protected]

Usage

This webinar slide show provides general information and is not legal advice and should not be used or taken as legal advice for specific situations. You should consult legal counsel before taking any action or making any decisions concerning the matters in this show. This communication does not create an attorney-client relationship between LeClairRyan, A Professional Corporation, and the recipient.

Copyright 2009 LeClairRyan, A Professional Corporation. All rights reserved.

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