Last week, the New York Times reported that large retail chains are pooling data on employees accused of theft, so they can avoid hiring those employees in the future (“Retailers Track Employee Theft in Vast Databases.”) That’s right: It’s an industry blacklist. And it’s not just for employees who have been convicted of theft or admitted to it. One employee interviewed for the article reported that she got into the database for failing to report another employee’s theft; another employee was reported for theft after leaving a pair of socks at a cash register.

And now the lawsuits are coming. The Federal Trade Commission is investigating whether these databases comply with the Fair Credit Reporting Act (FCRA), which requires employers who get reports on employees (such as credit reports or criminal background checks) from outside agencies to get the employee’s consent, notify the employee if the employer plans to rely on the report to take adverse action, and give the employee information on how to correct errors in the report. From the Times story and others I’ve read, it sounds like neither the employers nor the agencies gathering the alleged theft information followed these rules. (For more on the rules employers and agencies must follow, see Running Credit Checks on Job Applicants.)

But the potential legal violations go well beyond the FCRA. Many states prohibit blacklisting, for example. And, job applicants might have a claim for defamation against their former employer, if the information reported to the database is false. If there are racial or ethnic disparities in the database — for example, if a disproportionately large number of African American or Latino employees appear in its data — an employee who is turned down for a job might have a discrimination claim.

As a practical matter, the database blacklist might also lead to more claims against the former employer for wrongful termination. An employee might be willing to walk away after being fired for alleged theft, even if the accusation is false. Retail employees are often living paycheck to paycheck, and the imperative to get a new job may well outweigh the desire to clear one’s name at the old one. However, if the former employer takes steps to guarantee that the employee will never work again, the balance obviously shifts. Suddenly, a claim for defamation or false imprisonment might look a lot better if the alternative is waiting for the unemployment to run out.

Spare a thought for the employers caught in this web: Employee theft is a serious problem, accounting for almost half of all theft and $15 billion in lost merchandise in 2011, according to data From the National Retail Federation reported in the Times article. You can see why an employer would want to take any help available to avoid putting a thief on the payroll. But secret databases that report accusations and suspicions aren’t the way to do it.