Employers: Keep FCRA in Mind When Drafting Arbitration Agreements

The outcome of a recent case in California is a reminder that employers seeking to arbitrate employee disputes need to draft arbitration provisions with the Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681, in mind, particularly in cases where employers engage in FCRA-covered reporting prior to the execution of arbitration agreements.

FCRA cases continue to plague employers, and the FCRA has been a major issue before the courts with nearly 4,000 federal cases filed in 2018. The pace shows no signs of letting up as nearly 40 federal lawsuits have already been filed in the first few days of 2019.

In Alvarado v. Lowe’s Home Centers, LLC, 18-cv-03591 (N.D. Cal. June 15, 2018), a case recently decided in U.S. District Court for the Northern District of California, the court heard a motion to compel arbitration on an FCRA claim that raised questions regarding FCRA claims in the employment setting.

The plaintiff, a former employee of Lowe’s, signed an employment agreement at the time of her hiring which contained an arbitration provision covering any controversy between the plaintiff and her employer arising out of the plaintiff’s employment or termination thereof.

Following the end of her employment, the plaintiff brought a putative class-action lawsuit alleging her former employer conducted background checks during the hiring process without making the appropriate disclosures, a violation of the FCRA.

When the employer moved to compel arbitration, the former employee argued her claim accrued pre-employment and was not covered by the subsequently signed employment agreement, which meant the arbitration clause could not be applied retroactively.

However, the court disagreed and compelled arbitration, finding that because the arbitration provision was drafted in detail to explicitly list the federal and state statutes it covered, including the FCRA (“all such disputes between you and Lowe’s including but not limited to those arising out of . . . the Fair Credit Reporting Act”), the employee was on notice of her obligation to arbitrate. The court declined to decide when the FCRA cause of action accrued.

Carefully crafted arbitration provisions in the FCRA context can aid employers in curbing the extensive litigation that can arise out of FCRA claims, including in the class-action context. As we have previously discussed, arbitration provisions can be an important tool in limiting class-action claims.