Walmart suffered a major defeat recently involving claims that it improperly used credit reports with respect to applications for employment. Access and use of credit reports for hiring purposes have long been subject to federal and California law and regulation. However, the standards have been tightened over the last several years and a variety of notices and consents must be obtained before a credit report can be pulled and used. A US federal court judge recently granted a motion to certify a class of current and former Walmart employees that could encompass upwards of five million individuals. See Petri v. Wal-Mart Stores, Inc., Case No. SA CV 17-01281-DOC (DFMx) (US Dist. C.D. Cal. January 9, 2019).

The initial class representative was Randy Petri. He worked for Walmart for slightly less than a year from November 2015 to August 2016. When he applied for work, Walmart pulled a credit report on him, which was Walmart’s standard hiring procedure. In his lawsuit, Petri alleged, among other things, that Walmart failed to obtain proper and lawful consent for pulling the report by failing to give Petri proper notice of his rights under the Federal Fair Credit Reporting Act (“FCRA”). See 15 U.S.C. §§ 1681 et seq. Further, Petri also alleged that he was not given a copy of the report that was pulled.

The FCRA requires that a person or entity using a consumer report for employment purposes must provide the applicant with a copy of the report and a written description of the applicant’s rights under the FCRA before the potential employer can take any adverse action based on the report. Petri alleged in his Complaint against Walmart that the Notice of FCRA Rights was improper because it willfully included extraneous information that confused and diluted the information provided.

As noted above, on January 9, 2019, the federal judge assigned to the case granted Petri’s motion to certify the case as a class action. Since the law changed in 2015, the class will be split between those who applied for jobs prior to November 5, 2015 and those who applied after.

Even if Walmart has a good legal defense to the claims, defending class action lawsuits is wildly expensive in terms of legal fees and administration costs. This is particularly true with a class that might be as large as 5 million. Settlement of the case will also be expensive. Even at $100 per plaintiff, settlement will cost $500 million with the attendant attorneys’ fees and other litigation costs.

Lessons for San Diego businesses

Seek advice and counsel from an experienced San Diego corporate attorney with respect to the FCRA and your hiring practices. Furthermore, given recent decisions handed down by the US Supreme Court, add mandatory arbitration clauses to your employment contracts that waive an employee’s or an applicant’s right to file a class action. Lyft, Inc., did exactly this and avoided the Walmart result. Lyft was also sued by a former employee for alleged violations of the FCRA. The federal case was dismissed and the case sent to arbitration based on Lyft’s contracts with its drivers. See Peterson v. Lyft, Inc., Case No. 16-cv-07343-LB (US Dist. N. D. Cal. November 19, 2018).

Call San Diego Corporate Law Today

If you would like more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard has been named a “Rising Star” for four years running by Contact Mr. Leonard by calling (858) 483-9200 or via email.

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