Bernard J. DiMuro, Jonathan R. Mook, and Michael E. Barnsback, Editors
DiMuroGinsberg, P.C.

Vol. 20, No. 3
April 2008

BACKGROUND CHECKS

Erroneous background checks can get you into hot water

Hillary J. Collyer

While background checks can be helpful in selecting the right person for the job, they also pose potential pitfalls that can get you and your company into trouble. The federal Fair Credit Reporting Act (FCRA) requires you to comply with specific requirements if you use a credit reporting agency to perform a background check. If you fail to comply, your company can find itself the target of a lawsuit ― as Wal-Mart Stores, Inc., recently discovered.

Facts

In August 2005, Stephen Beverly applied for a position as an associate at a Wal- Mart store in Newport News. At his interview, Beverly signed an FCRA authorization form. The form stated that Wal-Mart would conduct a criminal background check. At the conclusion of the interview, Beverly was made a conditional job offer contingent upon successful completion of the background check and a drug screening.

Wal-Mart ordered a criminal background check from ChoicePoint Workplace Solutions. In addition to completing the background check, ChoicePoint was responsible for providing Beverly, on Wal-Mart's behalf, the notices required under the FCRA.

ChoicePoint's erroneous background check

In a letter dated September 1, 2005, ChoicePoint notified Beverly that his criminal background check included information that was "likely to have an adverse effect" on his ability to obtain employment. A copy of the criminal background report was included with the letter. The letter included a statement of Beverly's rights under the FCRA and explained that ChoicePoint had prepared the report for Wal-Mart. It also stated that Beverly could dispute incomplete or inaccurate information in the report, and it provided ChoicePoint's contact information. A few days later, on September 6, ChoicePoint sent another letter to Beverly. The second letter stated that Wal-Mart wouldn't be making an offer of employment at that time because of information in his criminal background report.

Beverly claimed that he received both letters on September 7. He immediately contacted ChoicePoint to correct the report. After conducting a second investigation, ChoicePoint found that Beverly's criminal background report contained inaccurate information. That same day, it sent him a revised report and a letter stating that it had corrected the report and sent the results of the second investigation to Wal-Mart. The letter also stated that he had successfully completed the background check and was cleared for hire. Wal-Mart hired Beverly to work at its Newport News store at the end of September.

Beverly sues Wal-Mart

Although Beverly got the job, he still filed suit under the FCRA, claiming that Wal-Mart unlawfully used an inaccurate consumer report to deny him employment. He sought statutory damages of not more than $1,000, punitive damages, and attorneys' fees. Wal-Mart asked the court to dismiss the case. It argued that Beverly couldn't establish a violation of the FCRA because he had suffered no harm since he was hired after the inaccuracies in the report were corrected.

Beverly contended that he was injured when ChoicePoint, on behalf of Wal-Mart, sent him the September 6 letter stating that Wal-Mart would not make him an offer of employment at that time because of information in his criminal background report. The federal court in Richmond agreed with Beverly and allowed his suit to go forward. It reasoned that the language in ChoicePoint's September 6 letter clearly denied Beverly employment and fit within the FCRA's definition of an "adverse action" even though he eventually got the job.

The law doesn't specify the amount of time that must elapse between a consumer's receipt of a copy of his consumer report and the employer's adverse action. The district court, however, found that an employer must provide a copy of the report "a sufficient amount of time" before it takes an adverse action, such as denying employment. That way the consumer is ensured an opportunity to correct any inaccuracies in the report.

The court explained that because Beverly received the September 6 letter notifying him of Wal-Mart's adverse action at the same time he received a copy of his consumer report, he didn't have sufficient time to dispute the inaccuracies contained in the report before Wal-Mart took an adverse action. Accordingly, the court allowed the case to proceed to trial. Beverly v. Wal-Mart Stores, Inc., 2008 U.S. Dist. LEXIS 2266 (E.D. Va., 2008).

What this means for your company

If your company performs background checks on job applicants and outsources all or part of those investigations, take care to provide applicants with a copy of their consumer report and a reasonable period of time to correct any errors after receiving it. Although the law doesn't specifically define what constitutes a sufficient amount of time, as this case illustrates, simultaneous provision or even several days isn't a sufficient amount of time.

For more information on background checks, see "Background checks for job applicants: protective steps for Virginia employers" in our April 2007 issue. You'll find general information on the law in Virginia as well as best practices for conducting background checks.

You can also find out more about background checks and how to use them in the subscribers' area of www.HRhero.com, the website for Virginia Employment Law Letter. You have access to an HR Executive Special Report on the subject: "How to Make Background Checks Part of Your Hiring Process." Just log in and scroll down to the link for all the Special Report titles. Need help? Call customer service at (800) 274-6774.

Copyright 2008 M. Lee Smith Publishers LLC

VIRGINIA EMPLOYMENT LAW LETTER is a monthly publication provided as an educational service only to assist lay persons in recognizing potential problems in their labor and employment matters. It is not meant to be construed as legal advice. Readers in need of legal assistance should retain the services of competent counsel.