Robert Half Settles Background Check Class Action

Staffing giant Robert Half International ("RHI") has settled a long-running class action lawsuit arising out of its background check procedures. The case illustrates the risks and highly technical compliance obligations that come with performing background checks on employment candidates in the US. The tab was payment of $2,258,909.85 to the class members and an impressive attorneys' fee award of $4,076,999.77 to the plaintiffs' lawyers. The large award fee award was driven by the length of the proceedings - the case was filed in 2013 and litigated heavily for over a decade.

Background

All employers by now should know that the Fair Credit Reporting Act ("FCRA") requires employment candidates to receive an initial notice of rights before a background check is conducted. The notice must be separate from all other onboarding documents. Today this notice is generally supplied to the candidate by the background check company. Employers should also know that before taking adverse action on the results, the candidate must be given a "pre-adverse action notice" and an opportunity to make corrections to the report.

The process used by RHI seems quite reasonable on its face. As described by the court:

The background checks assigned candidates a color-coded flag
of green, yellow, or red based on the information in the report and the job criteria. Plaintiffs allege that Defendant would send the files of all applicants whose background reports contain either a yellow flag or a red flag to Defendant’s legal department for further review. After such review, Defendant’s legal department would decide either: (1) to remove the yellow or red flag and process the employment application; or (2) to designate the applicant as “not placeable” and direct GIS to send a pre-adverse action notice to the applicant whose background report continued to have a yellow or red flag. The legal department review process would take anywhere from several days to more than two weeks to complete, and only after that review would Defendant direct GIS to send a pre-adverse action notice to the applicant.

Independent of the FCRA are guidelines issued by the Equal Employment Opportunity Commission, as well as some states, requiring an "individualized assessment" of adverse criminal background check results to determine if the offense is relevant to the prospective job. The RHI Legal Department review process was no doubt created to comply with these guidelines, which arise from the fact that minorities have historically been criminally prosecuted at a higher rate than non-minorities, and automatic rejection based on criminal history could have an adverse discriminatory impact on those minorities.

So what went wrong here? In the words of the court:

Plaintiffs contend that Defendant’s regular practice of designating an applicant as “not placeable” after review of background reports containing yellow or red flags but before sending pre-adverse action notices constitutes an “adverse action.”

In other words, the plaintiffs argued that the decision not to hire a candidate was effectively made internally before the required FCRA pre-adverse action notice was sent to the candidate. Never mind that the candidates still received the notice and were not formally banned until they had time to report any errors in the report. It was never actually determined if this practice was, in fact, premature "adverse action" under the FCRA. Rather, the court determined that a jury would have to make a factual determination on this issue. RHI presumably settled the case to avoid the expense and/or risk of the upcoming three-week jury trial.

Lessons Learned

• Pre-employment background checks are a highly technical legal minefield. Every negative report should be treated as a "legal emergency" and given careful attention, including legal guidance when necessary (not that it helped RHI).
• Adverse action notices should go out automatically to any candidate with a potentially disqualifying report before any analysis for any purpose is conducted. Your background check company may or may not already be doing this.
• Litigation is expensive. Employment litigation can be particularly expensive for employers because in almost every case the law allows the prevailing employee to recover attorney fees. Here, in addition to paying its own legal fees, RHI ended up paying opposing counsel a sum that is nearly twice the underlying exposure. This was likely a conscious choice, because RHI seems to have a practice of fighting lawsuits to the bitter end. Being one of the largest and most successful staffing firms in the world, presumably they can afford it.