Almost two years ago to the day, the U.S. Court of Appeals for the Ninth Circuit became the first appellate court to rule on the lawfulness of a liability waiver in a Fair Credit Reporting Act (FCRA) disclosure. In Syed v. M-I, the Ninth Circuit ruled that an employer acted "willfully" in violation of the FCRA when it included a liability waiver in its FCRA disclosure.¹ On January 29, 2019, the Ninth Circuit doubled-down on its ruling, holding in Gilberg v. Cal. Check Cashing Stores, 9th Cir., No. 17-16263, that the statute's prohibition on including so-called "extraneous" information with the requisite disclosure extends even to information about the legal rights that job applicants have under state fair credit reporting laws.

The FCRA is the federal law that regulates employer use of consumer reports, more commonly known as "background checks" or "background reports." Before an employer may obtain a consumer report from a consumer reporting agency, typically the employer must make a "clear and conspicuous" written disclosure to the consumer—in a document consisting "solely" of the disclosure—that a consumer report may be obtained. The applicant or employee must provide written authorization before the employer may obtain a consumer report for employment purposes.

During the last few years, the number of federal class action lawsuits against employers alleging hyper-technical non-compliance with the FCRA has skyrocketed. The class action suits challenging the employer's background check disclosures tend to target disclosures that are included within the employer's job application, or if separate from the job application, those that include alleged extraneous text, such as a release of liability in favor of the employer, the background company, or both.

Federal district courts have not been able to agree on when the inclusion of such text in the disclosure is unlawful and, if so, whether the plaintiff can clear the next hurdle of proving a willful theory of liability. The latter is important because if a plaintiff can show the employer acted willfully, then the plaintiff does not have to prove actual damages, which makes it easier for the plaintiff to attempt to certify the case as a class action.

The Decision

The named plaintiff applied for a position with the employer in California. As part of her application process, the plaintiff received a document titled, "Disclosure Regarding Background Investigation," which advised her (in 8-point font) that the employer intended to order her background check and had space for her to provide her authorization. The Disclosure was three pages long and included various statements about the legal rights that job applicants have under certain state fair credit reporting laws. The plaintiff provided her authorization, was briefly employed, and then filed a class action lawsuit under the FCRA and California law.

The employer successfully moved for summary judgment. The case was dismissed. The Ninth Circuit, however, reversed the judgment and reinstated the lawsuit. In a win for the employer, the Ninth Circuit agreed with the employer that the only document at issue was the Disclosure and not every document that the employer presented to the plaintiff during the hiring process. The court explained that "under [the plaintiff's] proposed interpretation, it is difficult to see how an employer could ever provide an applicant written application materials without violating FCRA's standalone document requirement."

The Ninth Circuit then considered whether it violated the FCRA for the employer to include the various state law disclosures together in the same document as the FCRA disclosure. The court ruled that it did violate the FCRA, finding that including these disclosures violated the statute's requirement to present the disclosure in a document consisting solely of the disclosure. Looking to its prior opinion in Syed, the court reasoned that the FCRA expressly allows the disclosure to be presented together with the separately required authorization, and refused to endorse any implied exceptions to the stand-alone disclosure requirement. The court also rejected the employer's argument that providing the state law disclosures helped effectuate the purpose of the stand-alone disclosure requirement, concluding that much of it was inapplicable to the plaintiff (e.g., disclosures about legal rights afforded by the laws of other states) and thus likely to confuse, rather than inform, job applicants.

The court also held—again on an issue of first impression for Delaware—that an implied private right of action exists under the DMMA's anti-discrimination prohibition. While the statute does not expressly provide a cause of action, the court concluded that a private cause of action is the "only means of effectuating the statute's remedial purpose."

The Ninth Circuit further ruled that the Disclosure complied with the FCRA's requirement for a "conspicuous" disclosure, but not a "clear" one. The court explained that the Disclosure was not clear because the combination of disclosures "would confuse a reasonable reader."

Recommendations for Employers in 2019

The Ninth Circuit's order was issued in the wake of numerous court opinions, including a recent one from the Ninth Circuit, tossing FCRA cases out of court for lack of subject matter jurisdiction (i.e., Article III injury-in-fact).² The battle over subject matter jurisdiction rages on, but, regardless, FCRA cases can proceed in state court because the statute affords concurrent jurisdiction to state and federal courts. Thus, employers should still consider arranging for a privileged review of their background check consent forms and notices.

Extraneous information should be eliminated and other legal updates may be necessary.³ A thorough review of these forms may help to mitigate risks that have continued to gather serious momentum over time.⁴ Employers also should continue to be mindful of their obligations under state and local ban-the-box laws,⁵ and should keep an eye on developments regarding the EEOC and its views regarding criminal record screening policies.⁶

¹ See See Jennifer Mora and Rod Fliegel, Ninth Circuit is the First Appellate Court to Rule on "Extraneous Text" in a FCRA Background Check Disclosure, Littler Insight (Jan. 25, 2017).
² See Rod M. Fliegel and William J. Simmons, Third Circuit Holds Individual Plaintiffs Lack Standing for Some Alleged Violations of the FCRA's Pre-Adverse Action Notice Requirement, Littler Insight (Sept. 11, 2018); Rod M. Fliegel and Julie A. Stockton, Eighth Circuit Holds Individual Plaintiff Lacks Standing for Alleged Violations of the FCRA's Authorization and Disclosure Requirement, Littler Insight (Sept. 10, 2018); Rod M. Fliegel, Seventh Circuit Holds Class Action Plaintiff Had Standing for an Alleged Violation of the FCRA's "Pre-Adverse Action" Notice Provision, Littler ASAP (Aug. 30, 2018); Rod M. Fliegel, The Ninth Circuit Holds Plaintiff Lacked Standing for an Alleged Violation of the FCRA's "Pre-Adverse Action" Notice Provision, Littler ASAP (July 18, 2018); Rod M. Fliegel, Phillip Gordon and Barbara Cusumano, U.S. Supreme Court Holds Not Every Violation of a Federal Statute is a Ticket to File a Federal Court Lawsuit, Littler Insight (May 17, 2016).
³ See Rod M. Fliegel, William J. Simmons, and Philip L. Gordon, New Amendment May Soon Affect FCRA Pre-Adverse Action Notice Requirements, Littler Insight (Aug. 30, 2018).
⁴ See Rod Fliegel and Jennifer Mora, Weathering the Sea Change in Fair Credit Reporting Act Litigation in 2014, Littler Insight (Jan. 6, 2014); Rod Fliegel, Jennifer Mora and William Simmons, The Swelling Tide of Fair Credit Reporting Act (FCRA) Class Actions: Practical Risk-Mitigating Measures for Employers, Littler Report (Aug. 1, 2014).
⁵ See, e.g., Rod M. Fliegel and Julie A. Stockton, EEOC Continues to Scrutinize Criminal Record Screening Policies, Littler ASAP (Oct. 1, 2018); Rod M. Fliegel, Criminal Record Screening Policies Continue to Raise Important Compliance Issues, Littler ASAP (Apr. 6, 2018); Daniel Thieme, James Zissler, and Brad Bigos, Washington State Enacts Fair Chance Act, Littler ASAP (Apr. 26, 2018); Rod M. Fliegel and Allen P. Lohse, Ban-the-Box-Plus" Ordinance, Littler ASAP (Feb. 6, 2018); Rod Fliegel and Molly Shah, Ringing in 2018 with New Ban-The-Box Laws, Littler Insight (Jan. 8, 2018).
⁶ See Rod M. Fliegel and Julie A. Stockton, EEOC Continues to Scrutinize Criminal Record Screening Policies, Littler ASAP (Oct. 1, 2018); Rod M. Fliegel and Molly Shah, EEOC's Background Check Guidance Suffers Loss in Texas Federal Court, Littler ASAP (Feb. 5, 2018); Rod Fliegel, Barry Hartstein, and Jennifer Mora, EEOC Issues Updated Criminal Record Guidance that Highlights Important Strategic and Practical Considerations for Employers, Littler Insight (Apr. 30, 2012).