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Davis Brown Employment and Labor Law Blog

Trouble in the Magic Kingdom: Disney Finds Itself the Villain in This Fairytale - January 27, 2015

Disney is known for its fairytales and happy endings. Usually its adorable characters and feel-good plots earn it wide acclaim. But recently, a California judge agreed with the plaintiff, in Roger L. Culberson II v. The Walt Disney, Co., that there is an issue of material fact as to whether or not Disney violated the Fair Credit Reporting Act (“FCRA” found at 15 USC § 1681 et seq).

The FCRA mandates that employers acquire applicants (and employees) consent prior to obtaining the results of a background investigation (referred to as a “consumer report”) from a third party company. Further, employers must notify applicants when they may use information from their consumer report to make an employment decision. This notice must take place before any adverse action is taken (i.e., not hiring an applicant). The purpose of the FCRA procedure is to protect applicants, so that they can explain or correct potentially harmful or inaccurate information prior to employers making their employment decisions.

Culberson applied for a job with Disney. Disney hired him, but then later told him not to report to orientation. After he was denied the job opportunity, he discovered that Disney retained Sterling Infosystems Inc. to conduct a criminal background check. Culberson was convicted of battery in 1998, but this conviction was expunged from his record in 2010. Sterling Infosystems Inc. inaccurately informed Disney that Culberson was convicted in 2010. When Disney contracted with Sterling Infosystems Inc., it agreed to comply with the FCRA by providing applicants like Culberson a copy of his consumer report, issuing a pre-adverse action notice, and sending him written notice of the adverse action itself. Culberson claims Disney knowingly failed to comply with this promise.

Disney is responding to Culberson’s allegation by claiming that its decision to not hire him was based on the company’s needs rather than the information it learned in the consumer report. But, the judge determined that there is a question of fact pertaining to whether or not Disney improperly relied on the information in Culberson’s consumer report, without following the procedures in the FCRA.

What’s the big deal? Disney may be on the hook for millions. If Culberson can successfully prove that Disney violated the FCRA, he can make a claim for statutory damages up to $1,000 per violation (or class member), actual damages, court costs, and attorney’s fees, plus punitive damages. There is no cap on the amount of damages that may be awarded against a FCRA defendant; and unlike some claims, plaintiffs do not have to prove actual damages. 

K-mart recently agreed to a $3 million settlement and Domino’s Pizza settled for $2.5 million - both based on alleged FCRA violations. Even more striking, Publix Super Markets Inc. agreed to a settlement of $6.8 million in Knights v. Publix Super Mkts., Inc., No. 3:14-cv-0072 (M.D. Tenn. 2014). The class members of this settlement—comprised of 90,633 job applicants who applied for positions with Publix from March 12, 2012 through May 13, 2014—received approximately $48 each after lawyers' expenses.

What does this mean for employers like Disney who are trying to escape the wrath of being classified as a villain?

1. Follow the FCRA. It is relatively easy to comply with this statute, especially given the significant risk for failing to do so.

2. Make sure your notices use the correct language and format. Some notices, such as the applicant’s consent form, must be clear and conspicuous and in a stand-alone format.

3. Make sure your pre-adverse notice and written notice of adverse action are accompanied by the most current handout called, “A Summary of Your Rights Under the Fair Credit Reporting Act.” This document was revised in 2013 so that applicants know to contact the Consumer Financial Protection Bureau, rather than the Federal Trade Commission, for more information about their rights.

4. Timing matters. Do not engage with a third party company to acquire an applicant’s consumer report before you have received the applicant’s written consent to do so. Work with counsel to make sure your staff is trained on when to send out the various notices and how long to wait before taking further action.

5. Wisely select your background screening partner. Ask about the screening company’s past complaints, and its litigation and settlement history, to determine if you can trust the screening company to comply with the FCRA and to provide you accurate information.