Federal court reminder of litigation risk arising from background screening

Excerpted from a National Law Review Blog

In a recent decision from North Carolina, a federal court found a plaintiff in a Fair Credit Reporting Act (FCRA) case to have “Article III” standing to bring his claims in federal court. The ruling relied on the Supreme Court’s ruling in the Ramirez case last year and so denied an employer defendant’s Motion to Dismiss. The case involved allegations the employer violated the FCRA by failing to include a copy of the consumer’s background screening report in the “pre-adverse action letter” sent to him.

One trend in FCRA litigation is a rising number of claims brought against employers for background checks. As shown by recent cases, many employers are not aware of the potential risks of FCRA litigation concerning background check disclosures because template disclosures and notices are often provided by third-parties.

In Derrick v. Full House Mktg., Plaintiff Derrick Perez Scott applied for employment in March 2019 with an employment agency. Based on information in a consumer report provided by Resolve Partners, LLC, the employment agency defendant determined the Plaintiff was ineligible for employment. On March 15, 2019, Resolve sent Plaintiff the pre-adverse action letter that the FCRA requires employers to provide before taking an adverse action based on information in a report. However, the pre-adverse action letter did not include a copy of the report used by the employment agency in determining the Plaintiff was ineligible for employment, a violation of FCRA Section 1681b(b)(3).

Because Plaintiff did not receive a copy of his report, he was unaware it inaccurately stated he had been found guilty of six felonies and misdemeanors (convictions related to a Derrick Lee Scott, rather than Derrick Perez Scott). Plaintiff only became aware of error five weeks later, after the position had been filled.

Plaintiff sued Defendant, alleging a violation of the FCRA by failing to provide him a copy of his report prior to adverse action. Plaintiff also alleged he suffered harm due to the violation — the loss of employment and damages in the form of wage loss and distress. Defendant asserted a facial challenge to Plaintiff’s standing under Article III of the U.S. Constitution, arguing that Plaintiff “has failed to articulate any injury” because an informational injury cannot confer Article III standing.

As a reminder, a party wishing to sue in federal court bears the burden of establishing Article III standing, requiring: (1) an injury in fact; (2) the injury was caused by defendant’s conduct; and (3) the injury can likely be redressed by a favorable judicial decision. Five years after the Supreme Court’s significant holding in Spokeo, Inc. v. Robins, the Court reconsidered the question of what constitutes an “injury in fact” under Article III in Ramirez. In doing so, the Court held that “only plaintiffs concretely harmed by a defendant’s statutory violation have Article III standing to seek damages against that private defendant in federal court.”

The Court reaffirmed that “Article III standing requires a concrete injury even in the context of a statutory violation” and it was not the case that “a plaintiff automatically satisfies the injury-in-fact requirement whenever a statute grants a person a statutory right and purports to authorize that person to sue to vindicate that right.” As the Court explained, “an injury in law is not an injury in fact.” The Court’s opinion resolved a circuit split on whether increased risk of future harm could constitute an injury in fact sufficient to confer standing.

In the Derrick case, the Court found that Defendant was required under the FCRA to provide Plaintiff with a copy of his consumer report but failed to do so. Because Plaintiff never received a copy, he had no reason to know about the inaccurate report and his ability to correct the report was hindered. The court found that the Defendant’s failure was material insofar as it ultimately prevented him from being hired. In denying Defendant’s Motion, the court held that Plaintiff had sufficiently alleged that he suffered an injury in fact that was concrete and particularized and so had Article III standing.

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