Legal Report August 2013
U.S. JUDICIAL DECISIONS
BACKGROUND CHECKS. A federal district court has ruled that an employee who was incorrectly linked to a negative background check may not pursue a class action lawsuit against the consumer reporting agency that conducted the check. The court found that the lawsuit, which sought to represent everyone who had received a negative background check from the company over the past five years, was too broad because the plaintiff could not prove that most negative findings were inaccurate.
At the request of a client, a temporary staffing agency hired a third party, The Phillips Agency, Inc., to run background checks on its employees. The check of one woman, Cynthia Farmer, uncovered a possible match. The date of birth matched as did the name. The report was sent to the staffing agency flagged as a “possible match.” Within a few days, it was determined that the woman with the felonies was not the staffing agency’s employee. Farmer was returned to work with no loss of pay.
However, Farmer filed a lawsuit against The Phillips Agency, alleging that it had violated the Fair Credit Reporting Act (FCRA) when it passed along the record. The attorneys in the case filed a class action lawsuit on behalf of Farmer and 14,000 other individuals who had received a negative report from The Phillips Agency within the previous five years. The lawsuit did not allege that these records were inaccurate but just that they uncovered negative information. The plaintiff argued that if the company’s procedures were poor, it should be held responsible for damages for all individuals with negative reports, without regard for the accuracy of the reports.
Under the FCRA, consumer reporting agencies must either maintain strict procedures to ensure reliability or notify the person being investigated that a background check is being conducted. The Phillips Agency argued that they chose to meet the reliability standard and, therefore, did not send a notice. Under the company’s quality control policy, a record is considered a possible match if the names and birth dates match. The company then notifies the employer of the possible match, and states that the employer should take steps to ensure that the record does, in fact, match the employee.
The Phillips Agency defended its reporting accuracy, noting that, in the previous five years, it had received only four complaints. Therefore, the company argued, the court could not assume that all 14,000 records were incorrect. Also, under the FCRA, if an employer takes an adverse employment action based on a background check, it must notify the employee and provide a copy of the report, along with contact information on the consumer reporting agency that compiled it. The Phillips Agency would, therefore, be aware if its methods were producing faulty reports.
The U.S. District Court for the Northern District of Georgia ruled in favor of the defense, finding that attorneys for Farmer had to prove that a record was incorrect and led to an adverse employment action for a plaintiff to be a member of the class action lawsuit.
If the court had ruled differently, the company could have been ordered to pay up to $14 million in statutory damages to the class of plaintiffs, according to Andria Lure Ryan, a partner with Fisher & Phillips LLP, which represented The Phillips Agency in the case. But Ryan cautions companies conducting background checks to take heed and make sure their procedures are sound. “Other judges could have ruled differently,” she says. “The takeaway is to be prepared to defend your procedures. Quality control policies should be carefully written and periodically updated. Employees should be trained to conduct accurate background checks and handle follow-ups, inquiries, and complaints.” (Farmer v. The Phillips Agency, U.S. District Court for the Northern District of Georgia, No. 2:11-CV-0089-WCO, 2012)
SECURITY SCREENING. A federal appeals court has ruled that warehouse employees may pursue a lawsuit against their company to receive payment for the time spent undergoing security screenings at the end of their shifts.
Jesse Busk and Laurie Castro were employed by Integrity Staffing Solutions, a company that provides warehouse space and staffing to clients. Busk and Castro worked as hourly employees filling orders in Nevada warehouses. All employees at the warehouses were required to pass through a security check at the end of their shifts to prevent theft. This process, which required being searched—including removing wallets, keys, and belts—and passing through a metal detector, took up to 25 minutes each day. Employees were required to clock out before the security check, so they were not compensated for time spent at the checkpoint. Employees were also screened as they returned from lunch, a process that took about 10 minutes.
Busk and Castro filed a lawsuit against the company on behalf of all the warehouse employees, alleging that the company violated the Fair Labor Standards Act (FLSA) by failing to pay employees for the time spent in the security screenings. The U.S. District Court for the District of Nevada found in favor of the company, ruling that the letter of the law did not require that employees be compensated for the time spent in security screenings. The employees appealed the decision.
The U.S. Court of Appeals for the Ninth Circuit disagreed, in part, with the lower court’s ruling. The appellate court ruled that employers are not generally required to pay employees for activities that take place either before or after work. However, such activities can be compensable if they are “integral and indispensable” to an employee’s activities. In turn, an activity is “integral and indispensable” if it meets two conditions: such an activity must be necessary to the principal work performed, and it must be done for the benefit of the employer.
The court ruled that, under this definition, the employees may pursue their lawsuit to be compensated for the after-work screenings. These screenings, ruled the court, are necessary to the employees’ primary work as warehouse employees and are designed to prevent theft, which is clearly for the company’s benefit.
However, the court ruled that the employees may not pursue their claim to be paid for the after-lunch screening. The time required to clear the screening, approximately 10 minutes, falls under the de minimus exception under the FLSA. The relatively short time required in the after-lunch screening means the company need not pay employees for the time spent there. (Busk et al. v. Integrity Staffing Solutions, U.S. Court of Appeals for the Ninth Circuit, No. 11-16892, 2013)
U.S. REGULATORY ISSUES
DATA BROKERS. The Federal Trade Commission (FTC) has sent warning letters to 10 data brokers after an investigation indicated that they might be willing to sell personal information in violation of the Fair Credit Reporting Act (FCRA).
In the FTC investigation, agency employees posed as individuals or companies and asked 45 data brokers for background information on individuals ostensibly for creditworthiness, employment, or insurance reasons. Under the FCRA, data brokers must verify the identity of customers and ensure that they have a legitimate reason for requesting the information. Of the data brokers contacted, 10 offered information without meeting the FRCA’s requirements.
The letters do not signal a formal complaint but rather served to remind the companies that they should evaluate their procedures to ensure they are complying with the law.
U.S. CONGRESSIONAL LEGISLATION
BORDER SECURITY. A bill (H.R. 1417) designed to improve border security has been approved by the House Homeland Security Committee. The bill now goes before the House of Representatives for a vote.
The bill would require that the Department of Homeland Security (DHS) develop a comprehensive strategy to improve border security. The strategy would include advanced technology to develop situational awareness and effectively deploy manpower. The strategy would also include collecting metrics, such as the number of apprehensions, to define the program’s progress.
The bill would require that the DHS develop the strategy within 120 days and implement it within 60 days after that. The DHS must have “operational control” of the border within two years of the strategy’s implementation as verified by an independent audit.
TERRORISM. A bill (H.R. 1073) that would amend federal maritime law has been approved by the House Judiciary Committee. The bill must now come before the full House of Representatives for a vote.
The bill would make it an act of terrorism to use or attempt to use explosive or radioactive material; a biological, chemical, or nuclear weapon; or other nuclear explosive device aboard a ship with the intent to intimidate a population or compel a government or international organization to behave in a certain way. The bill would apply to actions committed against or aboard a U.S. vessel or a vessel subject to U.S. jurisdiction. The bill also establishes procedures for delivering a person suspected of committing such crimes to the authorities of a country that is party to international conventions preventing acts of aggression against maritime vessels.
CREDIT REPORTS. A new law (formerly S.B. 13-018) makes Colorado the ninth state to restrict the use of credit reports in hiring. The law prohibits employers with four or more employees from using credit reports in hiring or employment decisions but provides a number of exceptions for certain types of businesses and employee positions. Exceptions to the law are provided for banks and financial institutions and for employers who are required to check backgrounds by law. The law also allows background checks for high-level management personnel who are involved in setting the direction of a business, have a fiduciary responsibility, have access to customer financial information, or the authority to issue payments, collect debts, or enter into contracts.
SOCIAL MEDIA. New Jersey Governor Chris Christie has vetoed a bill (A.B. 2878) that would have banned employers from requesting social media passwords from applicants or employees. Christie announced that he vetoed the bill because it prohibited employers from asking whether employees or applicants possessed a social media account and had no exceptions for employers to investigate workplace misconduct. According to Christie, he would sign a bill that included these changes.
This column should not be construed as legal or legislative advice.