On Jan. 29, 2019, the 9th U.S. Circuit Court of Appeals, in a strikingly
broad decision, raised the bar for employers’ compliance with the Fair
Credit Reporting Act (FCRA). In Gilberg v. California Check Cashing Stores, LLC, the
court held that an employer violates the FCRA by including, in a
pre-background check notice form, information about a job applicant’s
rights under various state laws. This decision will require significant
revision of many employers’ FCRA consent forms.
The Gilberg court’s opinion focused on the FCRA’s pre-background
check notice requirement, one of several notice and disclosure obligations
the FCRA imposes on employers who use “consumer reports,” typically
referred to as “background checks” or “background reports.”
Specifically, before obtaining a background check, the employer must make a
clear and conspicuous disclosure to the applicant, in a document consisting
solely of the disclosure, that a background report will be obtained. The
employer also must obtain the applicant’s written consent to the background
check. One of these conditions requires that the disclosure be made in a
document “consisting solely of the disclosure,” commonly known as the
“standalone” disclosure requirement.
Over the last decade, courts have offered varying interpretations of what
sorts of information this “standalone” requirement permits in a
pre-background check disclosure. It is well-settled that employers may not
include liability waivers or releases in these forms. Courts frown on such
waivers because they require applicants to waive rights in a disclosure
that is supposed to focus only on the procurement of the background check.
But most courts agree that an employer may use a consent form to explain
the types of information it will obtain in a background check. On nearly
everything in between — e.g., acknowledgments, disclosures
required under state consumer protection laws, or information about
consumers’ rights — courts have disagreed.
The 9th Circuit held in Gilberg that an employer may not
include “extraneous information relating to various state disclosure
requirements” in its FCRA form. The employer in Gilberg did
not include a liability waiver in its disclosure. Instead, it included a
few paragraphs of information regarding disclosures required for residents
of different states. The 9th Circuit opined that this language is “as
likely to confuse as it is to inform.”
Importantly, the 9th Circuit also rejected the idea that extra information
might be permissible as long as it is “closely related” to the
FCRA-mandated disclosure, stating that there are no “implicit exceptions”
to the standalone requirement. This represents a considerable expansion of
the 9th Circuit’s previous holding in Syed v. M-I, LLC, in which
the court found that including a liability waiver in a background check
notice is a willful violation of the FCRA. Based on this expansion,
any reference to state law in a pre-background check notice form poses
in the 9th Circuit.
The Gilberg decision’s broad language also increases the
risk that an employer including other seemingly innocuous information in a
consent will violate the FCRA. For example, the court did not specifically
discuss whether an employer may include information regarding
“investigative consumer reports” (which involve personal contact with an
applicant’s acquaintances, such as reference checks) in an FCRA notice.
According to the Federal Trade Commission and multiple lower courts, that
sort of information may be acceptable in a “standalone” disclosure but Gilberg’s categorical rejection of “implicit exceptions”
implies that the 9th Circuit may reach a different conclusion.
The 9th Circuit also concluded that, for similar reasons, the employer’s
form violated the FCRA’s California analogue, the Investigative Consumer
Reporting Agencies Act (ICRAA). The ICRAA, like the FCRA, requires
employers to make a “clear and conspicuous” “standalone” disclosure
regarding background checks, but mandates inclusion of several additional
items in that form. For this reason,
California employers should ensure that they have a separate notice
form designed to address ICRAA’s notice requirements.
Noncompliant background check forms can be very costly. If an applicant can
prove that an employer’s violation of the FCRA’s disclosure requirement was
“willful” (which the Gilberg court did not address), the
FCRA provides recovery of statutory damages between $100 and $1,000 per
applicant, plus punitive damages, attorneys’ fees and costs. For employers
who process thousands of applicants per year, these numbers can add up
alarmingly quickly. These damages provisions have made background notices a
favored target for class-action plaintiffs’ lawyers. In fact, just before Gilberg was decided, the same plaintiff’s attorney
convinced a California district court to certify a class of 5 million applicants and employees of a major retailer for an
alleged violation of the standalone requirement.
Employers should take a close look at their background check processes,
particularly their notice forms. Moreover, employers should not assume
their forms are compliant just because they have delegated these
responsibilities to their background check vendors. Employers are
ultimately responsible for providing proper notice, which means taking a
close look at vendors’ forms and making corrections if necessary. Employers
also would be well-advised to monitor background check guidance from
government agencies and courts as this area continues to develop.
For further information or questions about these developments, please
contact the authors, your McGuireWoods contact or a member of the firm’s
labor and employment