After a major class action settlement earlier this year, business owners may no longer think first about pizza when they hear the name “Chuck E. Cheese’s.” CEC Entertainment, the formal name of the pizza and entertainment chain, paid $1.75 million to settle a class action lawsuit challenging its use of background checks in hiring.
What Was the Lawsuit About?
The plaintiffs alleged that Chuck E. Cheese’s hiring process violated the federal Fair Credit Reporting Act and related state law. These laws provide that disclosure and authorization forms for background checks be (1) clear and conspicuous and (2) in a stand-alone format. The laws also require that additional disclosures be provided to those who suffer adverse hiring actions as a result of the information received in background checks. Violations of these laws can subject employers to actual damages between $100 and $1,000 per violation, as well as punitive damages, attorney fees, and costs.
The certified class consisted of over 28,000 applicants to Chuck E. Cheese’s restaurants. The central claims were that the authorization form was improperly incorporated into the employment application along with other items in the hiring package. In addition, a subclass was certified that consisted of over 400 applicants who suffered adverse actions, such as the loss of job offers, due to information received in their background checks.
What Was the Settlement?
The settlement requires the company to pay up to $1.75 million to the class members. The main class members will receive approximately $38 each; the subclass members will receive about $63 each. In addition, Chuck E. Cheese’s agreed to change its background check and authorization forms prospectively. A federal judge has approved the proposed settlement.
What Can Business Owners Learn from the Lawsuit?
Although the dollar value provided to each class member was somewhat insubstantial, this settlement demonstrates how quickly damages can add up. Basic background check law is reasonably clear and easy to follow.
- Make background check disclosures and authorizations clear and conspicuous;
- Ensure disclosures and authorizations are not combined with other documents;
- Do not add to disclosure and authorization forms, such as by inserting certifications, releases, or continued consent to ongoing background checks.
In addition, if you are going to take an adverse action against an applicant because of information you receive during a background check, make sure you provide the additional disclosures that are required by law.
Kundani & Chang LLP are well-versed in the federal and state laws that apply to businesses, including the Fair Credit Reporting Act. Make an appointment today to discuss any questions you have about background checks, or schedule a LIFT Start-Up Session, which includes employment structuring, financial, and tax systems you need for your business.