A Federal District Court recently ruled the technology used in LinkedIn's Reference Search does not constitute a “consumer background check” of employees and job candidates.

Reference Search provides a list of coworkers or former coworkers of a particular LinkedIn member to potential employers paying for the service. Subscribers who use Reference Search are encouraged to send In-mail to the individuals on the list, presumably in an effort to find more information about the job seeker.

According to Nicole Kamm of Lewit Hackman, the plaintiff's in the lawsuit Sweet v. LinkedIn alleged LinkedIn’s search feature violated the Fair Credit Reporting Act (FCRA). The FCRA was enacted in 1970 to ensure consumer reporting agencies protect consumer privacy, and impart fair information.

"Employers are entitled to conduct background checks, but under federal and state law must comply with several requirements, including obtaining written permission and making certain disclosures. They must also provide the reason(s) a candidate was not selected should something in the background check lead to an adverse decision in hiring or promotion," Kamm wrote. 

Tracee Sweet and the members of her purported class contended they were passed over for jobs because of Reference Search results. She and three others sought to form a class on behalf of all LinkedIn members who had reports run on their professional backgrounds in the last two years through Reference Search.  

Plaintiffs alleged five violations of the FCRA:

1. LinkedIn is a consumer reporting agency, which failed to obtain required certifications.

2. LinkedIn does not verify or make reasonable efforts to verify, the identities of those using Reference Search, or the purpose for which those users are compiling reports.

3. The FCRA requires consumer reporting agencies to assure maximum possible accuracy of the information provided; LinkedIn failed to undertake any reasonable procedures to do so.

4. The FCRA requires agencies to provide a "Notice to Users of Consumer Reports", which includes a user's obligations to provide a notice to consumers when an adverse action is taken, in this case a refusal of employment. LinkedIn does not provide this Notice to Users.

5. Because LinkedIn provides information to users without inquiring into the users' purposes for obtaining the information, the social media site does not have reason to believe the users have permissible purposes as defined by FCRA.

According to Kamm, "The plaintiffs sought monetary damages, punitive damages, and attorneys' fees and costs. LinkedIn moved for dismissal, citing the plaintiffs' failure to state a claim, and prevailed."

The federal court judge held that:

1. The purpose of LinkedIn is for members to "share their professional identities online" – the information compiled through the site does not constitute a consumer report.

2. LinkedIn serves to "carry out consumers' information-sharing objectives", whereas a consumer reporting agency's purpose is to furnish information to third parties.

3. The information collected via Reference Search comes from the searcher's networks, not the employment candidate's networks.

4. LinkedIn does not market this information as reliable.

According to Kamm, "The plaintiffs may amend their complaint in future, so the case is not entirely put to rest yet. Arguably though, the information provided via Reference Search is not so different from the information an employer may glean by calling or emailing contacts s/he may already know at a candidate's former places of work."

For the moment, employers may continue to use social media websites as an informal type of background check without rising to the level of a “consumer reporting agency.” However, employers should only do so with caution. California employers are prohibited, under Labor Code §980, from:

1. Asking employees or prospective hires for usernames and passwords of their social media accounts;

2. Retaliating, by discharging, disciplining, or threatening job seekers or employees for refusing to provide their usernames and passwords;

3. Asking candidates or employees to log on to their personal accounts while in the presence of the employer, management, human resources representative, etc.

Employers using social media may also be at risk for discrimination claims though, should their findings result in hiring, firing or promotion decisions based on protected characteristics they may discover in search results, Kamm said. For example, an employee who thinks s/he was passed over for a promotion because s/he Tweeted about personal medical conditions or political beliefs may allege Fair Employment and Housing violations, Kamm said. 

 Before Googling the next applicant or current employees, employers should consider the risks carefully and consult employment counsel, Kamm said.