The Cost of Hiring: Is Due-Diligent Employment Pre-Screening Cheaper than Lawsuits?

With several lawsuit allegations and settlements in 2014 surrounding Background Check compliance issues and Fair Credit Reporting Act (FCRA) violations, companies should be starting the New Year with the resolution of reviewing their Background Check process before they become legal suits. Although companies may have a New Year’s resolution to make the National news this year, making news for a lawsuit is bad press. And, contrary to the popular myth, no press is bad press, isn’t true when the press costs millions of dollars and leaves a reputation in ruins.

The fact is, proper Background Checks do cost companies money, but the cost is pennies on the dollar compared to the cost of a bad hire or even worse – a lawsuit! Take these examples as a warning:

Michael’s Craft Stores: “(A) background check class action lawsuit was filed against Michaels Stores Inc., alleging the craft supply retailer neglected to properly inform job applicants that the company regularly performed background checks on potential employees during the application process. Without proper disclosure of the background check procedure, Michaels allegedly violated both state and federal consumer protection laws.”1 The suit states violation of FCRA and NJCRA.
Uber: “According to the Uber class action lawsuit, the credit reporting laws give businesses guidelines for how consumer background checks may be used for hiring or firing employees. ‘Specifically, the statutes require that an employer first disclose its intent to use a background report in its hiring decision and must obtain the prospective employee’s written authorization to do so, and the employer’s disclosure must be in a document that consists solely of the disclosure.”’2
Swift Transportation Company: “Swift violated the FCRA by neglecting to inform prospective drivers about their rights to access the records used during the company’s hiring process and agreed to pay $4.4 million to settle a class action lawsuit accusing the trucking company of failing to inform job applicants that they had the right to access and contest records used during the company’s hiring process.” 3
Publix: “Publix Super Markets Inc. denies the allegations but agreed to pay $6.8 million to settle the FCRA class action lawsuit that alleges it violated the FCRA by failing to provide legally required disclosures prior to obtaining background reports.” 4
Dollar General: “A Virginia federal court is being asked to give preliminary approval for a $4 million class action settlement with Dollar General retail stores as well as class certification and approval for how the settlement will be administered in a class action lawsuit alleging that the retail chain conducted background checks on job applicants without complying with federal law.”5
LexisNexis: “A $13.5 million class action settlement against LexisNexis Risk & Information Analytics Group, Inc. alleging that it violated the FCRA.”6

In addition to these examples, more victims of hiring based lawsuits include Paramount, Panera, and Whole Foods. Let these suits and settlements serve as a warning that companies need to do their homework. Not only are Background Checks imperative to good hires, they must be performed properly and follow FCRA compliance. Due-diligence is a MUST! Bad hires cost companies’ time, money, and slow growth; FCRA Compliance issues can cost a company a lawsuit, bankruptcy, or even an “Out of Business” sign.

References:

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The Cost of Hiring: Is Due-Diligent Employment Pre-Screening Cheaper than Lawsuits?

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