Pre-Employ Blog

Background Checks & Class Action Suits: Who Really Wins?

Posted by Bob Mather on February 08, 2017

Starbucks, Home Depot, Wegmans, Lowes, Avis. What do these companies have in common? Lawsuits brought against them for improper criminal background checks. Class action and individual lawsuits are on the rise: nearly 4,000 last year alone.

While lawsuits are damaging, class action suits could be a death blow to your company. Grabbing the media spotlight, surging in SEO hits, class action suits have the potential not just to cost reparations and damages, they could damage your brand in the marketplace irreparably. As an HR Executive, that much media attention could mean the difference between having an office in the morning or considering a name change.

On the Rise

Gavel and law books on deskWebrecon, LLC reported 359 Fair Credit Reporting Act lawsuits in October 2016 and 389 in November; an 8.4 percent increase. Fair Credit Reporting cases also increased 8.4 percent from 3,395 through November 2015, to 3,680 a year later. WebRecon also reported 36 percent of all consumer litigation plaintiffs had sued at least once before under consumer statutes. Whether they’re just unlucky consumers or they’ve tapped a new revenue stream, we’ll leave for you to decide.

Who really wins when class action suits are filed? Some believe the company will learn its lesson and benefit; plaintiffs will be made whole; and the consumer will ultimately gain. But the reality is that, for most class action lawsuits, the only ones who win are the lawyers.

The Distribution Process

A LinkedIn suit settled in 2016 is highly illustrative: their “Add Connections” feature to the site solicited friends and contacts to join LinkedIn: sounds annoying but benign, certainly not worthy of much more than a correction, right? The settlement cost the company $13 million with the funds divided as follows:

  • $1,500 for the each named plaintiffs;
  • No less than $10 per class member;
  • $3.25 million for attorney’s fees and costs.

Even the United States government is not immune to lawsuits. The US Census Bureau settled a suit in 2016 that alleged discrimination against 45,000 minority candidates during the run up to the 2010 census. Without an admission of guilt, the agency agreed to pay $15 million to settle the suit, and to hire industrial organizational psychologists who will design new criteria for criminal background checks for 2020 to limit disparate impact applicants. The settlement breakdown:

  • $5 million to help class members fix errors in their criminal records and to notify class members of job opportunities for the 2020 census;
  • $10 million for attorney’s fees and costs.

A Big Payday

With 25% to 65% of settlements going directly to attorneys, there’s little wonder the trend to class action litigation will continue. The stakes are high for employers, and will likely continue to grow higher as highly publicized settlement after settlement attracts even more lawyers to the table.

It's essential that your screening process conforms to the Fair Credit Reporting Act (FCRA). Check out our guide on the top 3 FCRA lawsuits and tips to avoid them.

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What can employers do to steer clear of this disturbing trend? Let Pre-employ.com help. With over 20 years in the industry, we’ve been voted Best Background Check Service by Business News Daily two years in a row. Find out how Pre-employ.com can help you avoid individual and class action lawsuits while you find the best employees for your company. Contact us today.

Topics: Background Checks, FCRA, class action lawsuit, Lawsuits

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