Earlier this week, the FTC issued a closing letter to counsel for California Health & Wellness (“CHW”) related to “possible [FCRA] violations” by CHW “in connection with its screening program for potential employees.” When FTC staff closes an investigation it sometimes issues closing letters to the target of the investigation, which can contain an explanation as to why the investigation is closed.
We do not see too many closing letters on background screening from the FTC so that, in and of itself, makes the letter noteworthy. Beyond the mere presence of the letter, it is perhaps unusual that the letter was issued at all when the FTC staff concluded that CHW fully complied with the FCRA and that the FCRA § 603(y) (exclusions for certain communications for employee investigations) does not apply in the matter at hand.
CHW “established a policy of conducting background checks on job applicants” under “a contract with the California Department of Health Care Services (‘CDHCS’)”. The two-page letter, linked above, is the end of a staff investigation that, among other things, “examined the applicability of Section 603(y) to CHW’s background screening program. Staff also examined CHW’s procedures regarding the screening of potential job applicants to assess their sufficiency under the FCRA.” Based on the staff review, staff “has determined that CHW’s procedures are consistent with those set forth in the FCRA” and because of that “staff has decided not to recommend enforcement action at this time”. The letter adds that
Based on our investigation, we do not view CHW’s use of background screening reports in the hiring process as falling within the Section 603(y) exclusions. To the contrary, we view Section 603(y) as covering only investigations of current employees, rather than investigations of both current employees and job applicants. First, the language of Section 603(y) itself contemplates an existing employer/employee relationship. For example, the title of the section refers to employee investigations, rather than background screening of potential employees. Similarly, subsection 603(y)(l )(B)(i) refers to ‘suspected misconduct relating to employment’ and subsection 603(y)(l)(B)(ii) refers to ‘preexisting written policies of the employer,’ both phrases that connote an existing employment relationship. That Section 603(y) is a narrow exception is bolstered by the legislative history. Finally, we note that the FCRA is ‘undeniably a remedial statute that must be read in a liberal manner in order to effectuate the congressional intent underlying it.’ Cortez v. Trans Union, LLC, 617 F.3d 688,722 (3d Cir. 2010). As such, it should be broadly construed and its exceptions be narrowly applied. See A.H Phillips, Inc. v. Walling, 324 U.S. 490, 493 (1945) (construing narrowly an exception to the Fair Labor Standards Act).
(citations omitted). Having set up FCRA § 603(y) as a straw-man and then knocking it down, and then perhaps doing the same with the FCRA as a remedial statute, the staff letter closes by noting that
CHW’s procedures are consistent with those set forth in the FCRA. Among other things, staffs investigation showed that CHW currently notifies job applicants of its intent to use a screening report and obtains an applicant’s authorization before obtaining this report. CHW further provides applicants with an opportunity to review and contest the information in the screening report before making a final personnel decision, and, if the company ultimately declines the applicant, sends the applicant an ‘adverse action’ notice.
The matter is California Health & Wellness, FTC File No. 152-3077 and counsel is Rod M. Fliegel of Littler Mendelson. The letter was signed by Maneesha Mithal, Associate Director, FTC Division of Privacy and Identity Protection.
Eric J. Ellman is Senior Vice President for Public Policy and Legal Affairs at the Consumer Data Industry Association (CDIA) in Washington, DC. He also served for eight months as Interim President and CEO of the Association. More