On January 20, 2017, the 9th Circuit Court of Appeals, which covers Alaska, Arizona, California, Hawaii, Idaho, Montana, Oregon, and Washington, reversed a district court’s dismissal of the plaintiff’s Fair Credit Reporting Act (“FCRA”) claim against an employer.
The Court, in Syed v. M-I, LLC, held that a prospective employer violates the FCRA when it procures a job applicant’s consumer report after including a liability waiver in the same document as a statutorily mandated disclosure. The panel also held that, in light of the statutory language that the disclosure document consist “solely” of the disclosure, a prospective employer’s violation of that requirement is “willful” when the employer includes terms in addition to the disclosure, such as a liability waiver, before procuring a consumer report or causing one to be procured.
The original purpose of the FCRA was to ensure that businesses did not misuse consumer credit information. In 1996, the FCRA was amended to impose stringent notice requirements on employers who used “consumer reports” from consumer reporting agencies, (“CRAs”), when making employment decisions. The Act requires employers to give notice to employees and prospective employeees and obtain written consent prior to most background investigations. If employers make employment decisions in reliance on the consumer report, they must provide affected individuals with a copy of the report. Most background investigations qualify as consumer reports under the Act.
Section 603(d) of the Act states:
(d) Consumer Report
(1) In general. The term “consumer report” means any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer’s eligibility for
(A) credit or insurance to be used primarily for personal, family, or household purposes;
(B) employment purposes; or
(C) any other purpose authorized under section 604.
Section 604(b)(2) of the Act explains the disclosure and authorization required before engaging in an employment background check:
(2) Disclosure to consumer
(A) In general
Except as provided in subparagraph (B), a person may not procure a consumer report, or cause a consumer report to be procured, for employment purposes with respect to any consumer, unless—
(i) a clear and conspicuous disclosure has been made in writing to the consumer at any time before the report is procured or caused to be procured, in a document that consists solely of the disclosure, that a consumer report may be obtained for employment purposes; and
(ii) the consumer has authorized in writing (which authorization may be made on the document referred to in clause (i)) the procurement of the report by that person.
In Syed, the 9th Circuit was the first court of appeals in the country to rule on whether a prospective employer may satisfy the FCRA’s disclosure requirements by providing a job applicant with a disclosure that “a consumer report may be obtained for employment purposes” which also includes a liability waiver for the prospective employer and others.
Syed applied for employment with M-I, LLC in 2011. M-I, LLC used a company named PreCheck, Inc. to conduct its background checks. In accordance with the FCRA, M-I provided Syed with a disclosure that it would conduct a background check and sought his written authorization to proceed. The disclosure, however, also included the following language:
I understand the information obtained will be used as one basis for employment or denial of employment. I hereby discharge, release and indemnify prospective employer, PreCheck, Inc., their agents, servants and employees, and all parties that rely on this release and/or the information obtained with this release from any and all liability and claims arising by reason of the use of this release and dissemination of information that is false and untrue if obtained by a third party without verification.
Syed argued that inclusion of the waiver language violated the Act’s requirements that the disclosure document consist “solely of the disclosure.” This requirement would also render a disclosure in an employment application ineffective. The district court dismissed Syed’s claims against M-I and PreCheck. On appeal, the 9th Circuit Court disagreed with the district court and held that not only did M-I fail to provide a proper disclosure, it’s failure was “willful” because of the plain meaning of the term “solely” in the statutory requirement. The significance of a willful violation of the FCRA is that Mr. Syed was relieved of proving that the violation caused him actual damages.
Interestingly, Syed argued that the disclosure contained too much information instead of not enough. Syed never argued that the actual notice, apart from the inclusion of the waiver, was statutorily inadequate. This fact makes the 9th Circuit’s decision rest on overly technical, and in my opinion, nonsubstantive reasons. I highly doubt that the majority of the remaining circuits will sign onto the 9th Circuit’s reasoning if and when they get a chance to rule in similar cases. For the time being, that observation makes absolutely no difference. The 9th Circuit’s opinion is the law of the land for the territory it covers until it reverses itself or the U.S. Supreme Court reverses the decision. All employers who conduct background checks (and all should) should take immediate action to ensure that their FCRA disclosures and authorizations are compliant.
More information on the FCRA can be found here. If you have any questions about this or any other legal topic, please feel free to contact our office.