A Magistrate Judge in the Northern District of California recently handed down an important decision regarding the application of the Fair Credit Reporting Act to one of LinkedIn’s search products.  The decision in Sweet v. LinkedIn Corp. comes amidst a fluid legal landscape for employers and consumer reporting agencies trying to remain in compliance with the FCRA and provides another example of a court grappling with how to reconcile new technologies with existing statutes.

LinkedIn’s Reference Searches Function

LinkedIn is the world’s largest professional network on the internet with more than 347 million members.  It generates revenue by offering talent and marketing solutions and through its premium subscription products.  One of the premium subscription products it offers is called “Reference Searches.”  LinkedIn markets this product as a way for potential employers to find “Trusted References” and get “real, honest feedback” about job candidates.

Through its proprietary search technology, LinkedIn allows a “search initiator” (i.e. an HR representative of a prospective employer) to run a Reference Search that will cull member profile data from LinkedIn’s central database and identify two pieces of information.  First, it will identify the LinkedIn member who is the subject of the search (i.e. the job applicant) and any of his or her current and former employers.  Second, it will provide a separate list of LinkedIn Members who are in the same network at the search initiator and who may have worked at the same employer during a similar time period as the LinkedIn member who is subject to the search.  The search initiator (a/k/a the employer) may then contact any “references” identified in the report via a LinkedIn communication.  LinkedIn does not alert the subject of the search that a search was run.

For example, let’s say that Matt applies for a position at ABC Corp.  Tom, the HR rep, runs a Reference Search, which notes that Matt also worked at DEF Corp., and it also identifies Lizzy as a “reference” because she is in Tom’s LinkedIn network and because, according to her LinkedIn profile, she previously worked at DEF Corp during the same time period as Matt.

The plaintiffs in Sweet each utilized LinkedIn to apply and interview for jobs, whether it was submitting their resume through the site for a posted position or communicating with a third-party or in-house recruiter.  And in each case they claimed that LinkedIn’s publication of Reference Searches to their prospective employers violated the Fair Credit Reporting Act.  LinkedIn sought to dismiss their case immediately by claiming that the FCRA did not extend to Reference Searches because those search reports did not constitute “consumer reports.”

Magistrate Judge Grewal Says Reference Searches Are Not Consumer Reports Under the FCRA

In a nutshell, the FCRA is designed to protect consumers from certain third parties transmitting inaccurate information about them.  As part of this law, “consumer reporting agencies” must “adopt reasonable procedures for meeting the needs of commerce for consumer credit, personnel, insurance, and other information in a manner which is fair and equitable to the consumer, with regard to the confidentiality, accuracy, relevancy and proper utilization of such information.”  And this dictate applies when “consumer reporting agencies” generate “consumer reports,” which are reports that contain information about a consumer regarding their “credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living, that will be used in whole or in part as establishing the consumer’s eligibility” for “employment purposes.”

The central dispute in Sweet was whether “Reference Searches” fit within the FCRA’s definition of “consumer report.”  If so, LinkedIn may have been on the hook to the plaintiffs (and potentially other class members) for damages, including punitive damages, for failing to comply with the FCRA’s disclosure, authorization and other requirements.  But the magistrate judge sided with LinkedIn in a lengthy analysis that cited four reasons for the dismissal boiled down as follows:

• The FCRA excludes from its definition of “consumer reports” any “report containing information solely as to transactions or experiences between the consumer and the person making the report.” The court said that the Reference Searches fall under this exception because the plaintiffs voluntarily provided LinkedIn with their employment-related information precisely so that LinkedIn could publish this information online.

• A report does not constitute a consumer report unless made by a “consumer reporting agency.” Consumer reporting agencies gather and/or evaluate consumer credit information to make consumer reports to third parties (i.e. employers) in exchange for a fee.  But here, the court said, LinkedIn gathers the information primarily to “carry out consumers’  [the plaintiffs’] information-sharing objectives.”  Since LinkedIn is not a consumer reporting agency, at least in this context, when it publishes these Reference Searches, the Reference Searches did not constitute a consumer report.

• Next, the plaintiffs claimed that the information contained in the Reference Searches bore on their “character, general reputation, mode of living” and other relevant characteristics. More specifically, the plaintiffs claimed that because the Reference Searches showed the full profiles of the references, including that their references had jobs in a certain industries, lived in certain locations, and had connections to other well-respected or notorious individuals, it ostensibly also showed whether the plaintiff was well-connected in a certain industry or associated with certain people from certain locations.  But the court batted down this argument, because the Reference Searches didn’t actually show that the plaintiffs actually knew or associated with these references.

• Finally, the court said that the Reference Searches are not used or intended to be used for “employment purposes.” Employers don’t use them, the court said, to make employment decisions; instead, they use them to locate people who may be able to provide them with information that could help them evaluate a candidate.  This extra layer was enough to insulate LinkedIn from a claim.

Takeaways

While LinkedIn can breathe a sigh of relief, the Magistrate Judge did not dismiss the case outright; instead, he provided the plaintiffs with an opportunity to submit an amended complaint that contains allegations sufficient to plead Reference Searches as consumer reports under the FCRA.  Even if their next stab at a viable complaint fails, the plaintiffs can still ask a District Court judge to review the magistrate’s decision, and they can appeal any subsequent adverse decision too.  We’ll continue to pay attention to this case on our end and report back as necessary.