As we predicted four years ago, class action lawsuits against employers under the Fair Credit Reporting Act (FCRA) continue to spike, including class actions targeting background check disclosures.1 Before procuring a background check from a consumer reporting agency, the employer must disclose its intention to do so and obtain the individual's authorization (known as the "stand-alone" disclosure requirement). The plaintiff's bar has racked up significant settlements in cases alleging that the employer's disclosure includes so-called "extraneous" information and thus violates the FCRA's stand-alone disclosure requirement.2
To date, only the Ninth Circuit has opined on what information is and is not extraneous, most recently in March 2020 in Walker v. Fred Meyer, Inc.3 Although the Ninth Circuit revived the plaintiff's lawsuit, the employer recently prevailed at the trial court on the crucial issue of whether any violation was "willful," i.e., reckless or intentional.4 "Willfulness" is a pivotal issue because statutory damages are available for such violations without any corresponding showing of actual damages.5
In Walker, the plaintiff asserted that the defendant acted willfully when it provided him with a disclosure that included alleged extraneous information, i.e., failed to comply with the FCRA's stand-alone disclosure requirement. The trial court granted the defendant's motion to dismiss, but the Ninth Circuit reversed, holding, as an issue of first impression, that the last two paragraphs of the defendant's disclosure (each containing one sentence) were extraneous.6 The Ninth Circuit reasoned that, although the defendant included this text in "good faith," it "could pull the applicant's attention away from" the privacy rights protected by the FCRA by calling their attention to the rights that they have to inspect the background check company's files. The Ninth Circuit did not consider whether the violation was willful.
On remand, the defendant argued that its violation was not willful because in March 2017, when the plaintiff applied, the stand-alone disclosure requirement was ambiguous. The magistrate judge agreed and recommended granting summary judgment to the employer, emphasizing that the Ninth Circuit's opinion defined the term "disclosure" in the FCRA for the very first time.7 On September 24, 2021, the district court judge adopted the magistrate's recommendation and dismissed the case.
Takeaways for Employers
A second appeal in this years-long battle is virtually certain. Meanwhile, the magistrate's order provides a useful guidepost for trial courts assessing purported willful violations of the stand-alone disclosure rule, reinforcing how (1) the text of the disclosure rule is susceptible to some interpretation, not unambiguous, and (2) the determination of willfulness turns on the law that existed at the time of the underlying violation (i.e., when the employer presented the plaintiff with the alleged deficient disclosure), not the time of the lawsuit itself.
Beyond FCRA class actions, background checks continue to raise thorny compliance issues nationwide, especially those involving criminal background checks.8 Employers thus must continue to monitor the proliferation of new and amended "ban the box" laws.9 Consultation with knowledgeable employment law counsel is recommended to help mitigate the many risks.
See Rod Fliegel, Alison Hightower, and Allen Lohse, High Alert for California Employers and Employers Nationwide for the Second Wave of FCRA Class Actions, Littler Insight (Oct. 19, 2017).
2 15 U.S.C. § 1681b(b)(2)(A)(i).
3 953 F. 3d 1082 (9th Cir. 2020). See also 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); and Rod M. Fliegel, The Ninth Circuit Adopts an Expansive Reading of the FCRA's Provision Governing Background Check Disclosures, Littler ASAP (Jan. 29, 2019).
4 See Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47 (2007) (an employer acts in "reckless disregard" when "the action is not only a violation under a reasonable reading of the statute's terms, but shows that the company ran a risk of violating the law substantially greater than the risk associated with a reading that was merely careless").
5 15 U.S.C. § 1681n (allowing statutory damages between $100-$1,000). Actual damages and "concrete" harm for purposes of federal court standing are distinct issues. See 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).
6 One paragraph summarized the rights that job applicants have to request and inspect their "file" from the background check company; the other paragraph stated that job applicants had a right to obtain an additional disclosure if the background check company gathered any information for the background check from interviews.
7 The magistrate also agreed with the defendant that the disclosure was both "clear" and "conspicuous."
8 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).
9 See, e.g., Kwabena A. Appenteng and Andrew Gray, Illinois Imposes New Criminal History Check Requirements on Employers, Littler ASAP (Mar. 26, 2021); Rod M. Fliegel, William J. Simmons and Wendy Buckingham, Philadelphia Enacts Amendments to and Expands Coverage of its Background Screening Ordinances, Littler ASAP (Jan. 26, 2021); Rod M. Fliegel, Hawaii Amends its Ban the Box Law to Fortify Protections for Ex-Offenders, Littler ASAP (Sept. 16, 2020); and Stephen A. Fuchs, New York City Expands Scope of its Ban-the-Box Law, Littler Insight (Dec. 16, 2020).
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