Here is one more potential advantage of using independent contractors rather than employers that so far has flown below the radar screen. According to a federal district court in Wisconsin, the Fair Credit Reporting Act’s disclosure obligations do not apply to independent contractor relationships.
When EMS Energy Marketing Service, Inc., terminated Phillip Lamson based on the results of a background check, it failed to provide him with a copy of the report or the written description of his rights under the FCRA as required by the Federal Trade Commission. Lamson sued, alleging that his termination violated FCRA. The Court concluded, however, that FCRA did not apply because Lamson was hired as an independent contractor. In reaching this conclusion, the court stated that the unambiguous language of the authorization and disclosure sections of FCRA applies to use of a consumer report for the purpose of “evaluating a consumer for employment, promotion, reassignment or retention as an employee.” (emphasis added).
Because EMS did not obtain the consumer report to evaluate Lamson for a position as an employee of EMS, the court granted EMS’s summary judgment motion– but not before evaluating whether Lamson’s relationship with EMS actually met the criteria for independent contractor status. The court evaluated the applicability of three different tests before settling on a common law test that the court concluded was met by EMS.
So where does this decision leave businesses? Among the many reasons why a business may choose to use independent contractors, avoiding FCRA liability is probably way down the list. Nevertheless, the court’s decision in Lamson vs. EMS Energy Marketing Service, Inc., adds an interesting new wrinkle to the analysis.