Insurance Coverage for Employment-related Fair Credit Reporting Act Violations
The Fair Credit Reporting Act, 15 U.S.C. §§ 1681, et seq. (FCRA), may barely sneak into a top ten list of federal labor and employment laws. Competing with such stalwarts as Title VII, ADEA, ADA, § 1981, FMLA, FLSA, NLRA, and OSHA, the FCRA might make the list because it regulates the acquisition and use of background checks, which employers often use.
To comply with the FCRA, an employer must pay attention to technical and unforgiving requirements. An employer must get the subject employee’s advance authorization before pursuing a background check. Then, before taking any adverse action based on the background check, the employer must provide the subject a copy of the background check and a summary of FCRA rights. An employer that fails to comply with the FCRA can be liable for actual damages, statutory damages ranging from $100 to $1000 per violation, punitive damages, and attorneys’ fees and costs. Because FCRA non-compliance is often embedded in corporate policies and practices, affected plaintiffs often assert FCRA claims seeking both individual and class-wide relief.
Obviously, employers can best manage FCRA exposures through compliance. While we’ve seen employers stub their toes on compliance in different ways, one of the most common missteps involves an employer that blindly relies on a vendor for compliance. When the vendor fails to clear the path to compliance, the employer suffers the pain of liability. Competent counsel experienced in compliance and defending against individual and class action FCRA lawsuits can help employers ensure compliance.
Employers can also use appropriate insurance coverage to manage FCRA exposures. While widely available Employment Practices Liability (EPL) will address claims for employment-related FCRA violations, not all EPL coverage will. Appropriate EPL coverage typically addresses claims for employment-related FCRA violations by referring to FCRA violations in defined terms incorporated in an insuring agreement (e.g., “Employment Practices Wrongful Act,” “Workplace Tort” or “Violation of Privacy”). Even when EPL coverage expressly responds, some component of the relief may not be covered. For example, the cost of equitable relief in the form of changes to corporate policies, including FCRA-related documentation, usually would not be covered. Some insurers may claim that statutory damages are not covered, although courts have ruled against this argument.
Our practical advice is for employers to comply in the first place. They should call on experienced counsel for help. But employers also can use appropriate EPL coverage to manage employment-related FCRA claim exposure.