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 considerable risk 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 group.