Articles Posted in Credit history discrimination

Lev Craig and Shelby Krzastek

Earlier this week, on March 6, 2017, class members and McDonald’s management requested final approval of a $950,000 proposed settlement in James Wesley Carter v. Shalhoub Management Co., et al., a class action filed in the U.S. District Court for the Central District of California. The approximately 2,300 class members allege that Shalhoub Management Co. (“Shalhoub”), a California-based McDonald’s franchise operator, did not comply with its obligations under the Fair Credit Reporting Act (“FCRA”) when it conducted background checks on employees and job applicants without their knowledge and used those background checks to determine whether to hire or terminate those individuals.

The FCRA is a comprehensive statute that regulates how consumer reporting agencies store, disseminate, and use consumer information. Under the FCRA, employers requesting background information, such as credit reports or criminal background checks, from job applicants must get the applicant’s written permission and inform applicants in writing—in a separate notice not included in the employment application—that the results of the background check may be used to make employment decisions. If an employer then takes an adverse action against an employee or refuses to hire a job applicant based on the received background information, the employer must provide the employee or applicant with a copy of the relevant report, inform the individual that they were rejected or terminated based on the report, and provide an opportunity to dispute or explain any inaccurate or negative information.

Edgar M. Rivera, Esq.

On June 10, 2015, in Coleman v. Kohl’s Department Stores Inc., Plaintiff Kaynie Coleman filed a class action in the Northern District of California against Kohl’s, alleging that Kohl’s violated the Fair Credit Reporting Act (“FCRA”) by unlawfully acquiring consumer reports and investigative consumer reports to conduct background checks on perspective, current and former employees, and used that information in connection with the hiring process.

In the employment context, the FCRA provides protection for prospective employees against the misuse and misreporting of credit information.  The FCRA requires employers to follow specific procedures when they use consumer-reporting agencies to obtain “consumer reports” or “investigative consumer reports” on job applicants for employment purposes.  The FCRA defines a “consumer report” as “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 may include driving records, employment verifications, education verifications, criminal records.  The most common employer violations of the FCRA are: (i) failing to provide a consent form before obtaining a report; (ii) failing to provide stand-alone disclosure and consent forms, i.e., a “separate, clear and conspicuous document”; (iii) failing to provide the applicant with a copy of the summary of rights under the FCRA; (iv) basing hiring decisions on non-conviction criminal data older than seven years; and (v) failing to follow proper pre-adverse and adverse action steps when denying employment based on information contained in a consumer report, for example, providing a copy of the report.

Owen H. Laird, Esq.

When people think about discrimination, the types of discrimination that come to mind are typically the major categories covered by federal laws: race, gender, age, disability, religion, and the like. While these types of discrimination still remain problematic, people are generally aware that they are illegal and that laws exist to protect individuals who suffer from such discrimination.

However, employees and prospective employees experience other forms of work-related discrimination, and are often unaware that the employer’s conduct is illegal. For example, lesser known types of employment discrimination include discrimination on the basis of citizenship status, genetic information, military status, marital status, and one’s status as a victim of domestic violence. While most employees working in New York City are protected against these types of discrimination under the New York City Human Rights Law (“NYCHRL”), millions of employees across the country do not have legal protection against one or more of the above forms of discrimination.

EDIT: Please note that The Harman Firm, LLP, is NOT counsel in this action. According to the complaint, the plaintiffs in this lawsuit are represented by Francis & Mailman PC and Gordon Wolf & Carney. The case is Mitchell v. Aerotek Inc., et al., Case No. 1:14-cv-03691, in the U.S. District Court for the District of Maryland. 

On November 25, 2014, Plaintiff Michael Craig Mitchell filed a lawsuit, on behalf of himself and a potentially huge class of similarly-situated individuals, against employment agency Aerotek, Inc., an operating company of Allegis Group, Inc. In their complaint, plaintiffs allege that Aerotek routinely required prospective employees to authorize the company to acquire their “consumer reports,” including information about criminal history. Plaintiffs allege that in some cases–probably many–the company took adverse employment action on the basis of the reports, without providing the required notice to the employees or allow them sufficient time to correct errors in their reports. The Fair Credit Reporting Act (FCRA) requires employers to provide a copy of any background report prior to taking any adverse action on the basis of that report, and to do so in time for the prospective employee to rectify any inaccuracies in the report.

In this case, Aerotek offered Mr. Mitchell a position at their client United Health Care, starting in early November 2012. Aerotek then requested his a consumer report on or around November 20, 2012 and On November 30 received a criminal background report for Mr. Mitchell. This report contained extensive personal information, including information about two felony and three misdemeanor convictions, all information about other people which was falsely attributed to Mitchell. That same day, an Aerotek representative informed Mitchell that he could no longer work at United health Care because of what they learned from his background report.

On April 21, 2014, the parties in James Ellis III, et al. v. Swift Transportation Co. of Arizona, LLC filed a joint motion for a class action settlement. In the complaint, filed in the Eastern District of Virginia on July 23, 2013, the Plaintiff had claimed that the Defendant had collected consumer information, including criminal background reports, about job applicants who submitted non-in-person applications-via facsimile, telephone, mail, electronic mail, or through an internet website. Plaintiff alleged that Swift routinely obtained such consumer data (i) without obtaining proper authorization from applicants, (ii) without providing notice that applicants were entitled to free copies of their consumer reports within 60 days, (iii) without providing notice that they were entitled to dispute the information in these reports, and (iv) without providing notice of adverse actions that were taken by Swift on the bass of these reports, all violations of the FCRA.

Each of the 10,000+ members of the class-each person who applied for a Department of Transportation regulated position at Swift during the five years before the filing of the Complaint that started this lawsuit-will be eligible to receive between $100.00 and $1000.00. In addition to attorneys’ fees and costs, $5,000.00 service awards to named plaintiffs, and administrative costs, the company will pay out approximately $4,400,000.00. In the Settlement Agreement, the company denies the charges in the Complaint and explicitly states that their willingness to settle is based on its calculation that the company will benefit more from paying the agreed amount than incurring the cost and risk of further litigation.

This settlement and several others like it happen against the backdrop of a larger political discussion of whether companies should be permitted to gather and use applicant’s credit information in the first place. In December 2013, Senator Elizabeth Warren introduced the “Equal Employment for All Act,” which would amend the FCRA to say that “a person, including a prospective employer or current employer, may not use a consumer report or investigative consumer report, or cause a consumer report to be procured, with respect to any consumer where any information contained in the report bears on the consumer’s creditworthiness, credit standing, or credit capacity–“(A) for employment purposes; or (B) for making an adverse action…” Senator Warren and the Bill’s co-sponsors have argued that there is rarely any correlation between a candidate’s creditworthiness and her fitness for a job, and that individuals’ credit problems are almost always caused by a combination of economic downturn and personal misfortune. “Families have not fully recovered from the 2008 financial crisis,” Warren said, “too many Americans are still searching for jobs. This is about basic fairness-let people compete on the merits, not on whether they already have enough money to pay all their bills.”

On February 7, 2014, a class action complaint was filed in the Northern District of California in the case Esayas Gezahegne v. Whole Foods Market California, Inc. In the complaint Plaintiffs allege that the company violated the Fair Credit Reporting Act (FCRA) in its conduct background searches on hundreds of job candidates who filled out online job applications on the company’s website. As part of this first stage in each candidate’s application process, s/he was required to “electronically sign” an online form that reads, in most relevant part:

“I hereby authorize Whole Foods Market to thoroughly investigate my references, work record, education and other matters related to my suitability for employment and, further, authorize the references I have listed to disclose to the company any and all letters, reports, and other information related to my work records, without giving me prior notice of such disclosure. In addition, I hereby release the company, my former employers and all other persons, corporations, partnerships and associations from any and all claims, demands or liabilities arising out of or in any way related to such investigation or disclosure.”

It is generally legal for employers to obtain credit reports and criminal records for the purpose of conducting background checks on potential employees, so long as they obtain consent and properly notify candidates of any adverse action taken by the employer on the basis of these data. The key legal claim in the complaint, the cornerstone of the plaintiffs’ argument in the case, is that the inclusion of a liability waiver with the initial consent form made that form facially invalid. The consent form therefore did not actually entitle Whole Foods to undertake its investigation of Gezahegne or other Class members, defined as “all individuals who executed online authorization forms permitting Defendant to obtain a consumer report as part of an employment applicationat any time from February 7, 2009 until the present…” Thus, Plaintiffs argue, these investigations violated their rights under the FCRA. Plaintiffs further claim that the company committed a willful violation of the FCRA by treating these invalid forms as authorizing them to collect credit and other records, since the law clearly states that an employer must disclose its intention to procure a consumer report for purposes of researching a job candidate “in a document that consists solely of the disclosure.” This is perhaps a fine legal point, but Plaintiffs cite several cases to support their argument that “an employer violates the FCRA by including a liability release in a disclosure document.”

In March, we wrote about the use of credit checks by employers to discriminate against job applicants.

The good news: the city of Chicago has recently outlawed the practice. “Business groups” lobbied against the measure, according to the Chicago Tribune, but workers’ advocates won the city council over:

A union representative, an employment coordinator for a human rights group and a lawyer with the Illinois attorney general’s office all told the council’s Human Relations Committee that a troubled credit history has no relationship to poor job performance or theft on the job.

The officials also cited studies that indicate about a third of credit reports contain errors.

(Emphasis added.)

In December, the New York Times ran an unsettling article about the increasing use of credit scores to vet potential romantic partners in the aftermath of the recession.

On Sunday, the paper returned to the subject with an editorial decrying credit history discrimination against job candidates. The Times called for the federal government to fight the practice, including intervention by the EEOC. As they point out, a poor credit score can be more a result of circumstances than character:

Advocates of screening say that it provides insight into an applicant’s character. But those who seek bankruptcy often do so because of unmanageable medical debt. A new study of nearly 1,000 low- and middle-income families by Demos, a research and policy group, suggests that most of those who suffered degraded credit ratings during the recession either lost their job, lacked medical insurance or incurred debt when they were injured or got sick.

Moreover, credit history discrimination has a disparate impact on black and Hispanic Americans, many of whom were targeted by predatory mortgage lenders during the housing bubble.

Checking the creditworthiness of a job candidate or employee can be compared to drug testing: the question in both cases is, when is it warranted to invade a worker’s privacy? In New York, drug testing is legal when it pertains to job function; for truck drivers, for example, safe driving is a necessary job function. Discrimination via credit-check is objectionable in any case, but especially when it is used for jobs that have nothing to do with managing money.