The Fair Credit Reporting Act (FCRA) is a federal law that governs employment-related background checks. Most lawsuits asserting federal claims proceed in federal court.¹ The FCRA is atypical in that FCRA claims can proceed in either federal or state court. A new opinion from a California court of appeal in Hebert v. Barnes & Noble is one of the few court of appeal opinions in California to consider such federal FCRA claims. The court reversed summary judgment for the employer, and in doing so, reinforced the need for employers to remain ever vigilant about complying with the FCRA's hyper-technical requirements for obtaining authorization for background checks.

The defendant-employer in this case disclosed its intention to order the plaintiff's background report. Nothing was done in secret. The defendant used an updated disclosure it obtained from its background check company. The background check company provided the disclosure to its customers as a sample, and included a footnote stating:

Due to an oversight, the defendant used the sample disclosure without first deleting the footnote. The plaintiff's class action lawsuit alleges the footnote is impermissible "extraneous" information that cannot be included in a FCRA disclosure. Stated differently, the plaintiff alleges that the defendant failed to provide him with a "stand-alone" disclosure.² The lawsuit, like so many others, seeks class-wide statutory damages for the alleged "willful" FCRA violation.³

The defendant moved for summary judgment in the trial court, arguing that a reasonable jury could not find it acted willfully (i.e., knowingly or recklessly). The defendant submitted evidence that any non-compliance resulted from an inadvertent drafting error when it was attempting to update the FCRA disclosure. The defendant successfully moved for summary judgment, but the court of appeal reversed, holding there was sufficient evidence of recklessness. Initially, the court observed that the question of "willfulness" is usually for the jury. The court then concluded a reasonable jury could find willfulness based on evidence that the employee in charge of updating the disclosure knew it included the footnote, the employee (who was not an attorney) was not versed in the requirements of the FCRA, the defendant used the allegedly deficient disclosure for two years (i.e., had no "proactive monitoring system in place to ensure its disclosure was FCRA-compliant"), and only further updated the disclosure because it switched background check companies, not for sake of fortifying its compliance with the FCRA. (The in-house attorney for the defendant had delegated responsibility for overseeing the update to the disclosure to the non-lawyer employee when she went on maternity leave.)

The defendant also argued against a finding of willfulness because it ran the updated disclosure by its outside attorneys. The court agreed that seeking the advice of counsel may cut against a finding of recklessness, but ruled this is just one fact for the jury to consider when assessing willfulness, and is not necessarily dispositive.

The take-away from the court's opinion remanding the case for trial, possibly a class action trial, is that employers must remain ever vigilant about complying with the FCRA's hyper-technical requirement for the "stand-alone" disclosure, including consulting with true FCRA subject matter experts (whether in-house or outside counsel), training employees involved in the background check program about FCRA compliance, and monitoring the disclosure for any further and necessary compliance updates. Of course, in addition to the FCRA, employers also must be mindful of compliance with the various other laws that govern the use of criminal and credit reports in the employment screening process.⁴ New "ban the box" laws are enacted on a regular basis.⁵

Posted: April 22, 2022

¹ This analysis has become somewhat more complicated by recent cases discussing Article III of the U.S. Constitution. See generally Rod M. Fliegel, "No Concrete Harm, No Standing": The Supreme Court Reinforces the Requirement for Injury-in-Fact Even for Violations of Federal Statutes, Littler Insight (June 28, 2021).

² See Rod M. Fliegel and Garrick Chan, The Rest of the Story (for Now): Employer Prevails in FCRA Class Action Alleging "Stand-Alone" Disclosure Violation, Littler ASAP (Sept. 27, 2021); Rod M. Fliegel, Ninth Circuit Reinforces Prohibition Against "Extraneous" Information In Background Check Disclosures, Littler ASAP (Mar. 21, 2020).

³ See 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); Rod Fliegel and Jennifer Mora, California Court Certifies FCRA Class of Over 40,000 Applicants, Littler Insight (July 17, 2017).

⁴ See Rod M. Fliegel and Garrick Chan, The Dust Hasn't Settled Yet: Employers Must Continue to Be Thoughtful About Criminal Record Screening Policies, Littler Insight (July 6, 2021); Rod M. Fliegel, California DFEH Ramps Up Enforcement of FEHA's Protections Against Criminal Record Discrimination, Littler Insight (Mar. 8, 2021).

⁵ See, e.g., Kwabena A. Appenteng and Andrew Gray, Illinois Imposes New Criminal History Check Requirements on Employers, Littler ASAP (Mar. 26, 2021).