Author: David B. Weisenfeld, XpertHR Legal Editor

K-Mart has become the latest employer felled by the Fair Credit Reporting Act (FCRA). The company announced it will pay $3 million to settle claims that it failed to properly warn job applicants that they could be denied employment based on background checks.

A class of more than 60,000 jilted job applicants had sued the Illinois-based retailer claiming FCRA violations. Under the FCRA, an employer must notify applicants if it plans to take adverse action based on findings in their credit or criminal background reports. The applicants claimed they lost out on jobs without having a chance to challenge negative information uncovered in these background checks.

K-Mart and its parent company Sears denied any wrongdoing in the case, but said they agreed to the January 25 settlement to avoid protracted litigation.

Employment Screening Issues Becoming Hot Trend

The K-Mart agreement comes a few months after the Federal Trade Commission ordered the Oklahoma-based HireRight Solutions to pay $2.6 million for running afoul of the FCRA by failing to take adequate steps to verify the accuracy of background information.

Meanwhile, in 2011, a federal judge in the United States District Court for the Northern District of Illinois approved a $5.9 million settlement in a class action lawsuit against Cincinnati, Ohio-based FirstGroup. That case involved claims that criminal background checks were conducted without applicants' authorization. The suit also said FirstGroup denied employment based on the findings without providing copies of these reports to the applicants as required by the FCRA.

These cases serve as a reminder to employers of the dangers posed by failing to comply with the Fair Credit Reporting Act's notice requirements.

Additional Resources

Recruiting and Hiring > Preemployment Screening and Testing > Background Checks

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Background Check Policy

Background Check Adverse Action Letter