Ninth Circuit Holds That Background Check Disclosures Should Not Contain Any Extraneous Information

Seyfarth Synopsis: On March 20, 2020, the Ninth Circuit Court of Appeals held the Fair Credit Reporting Act’s (“FCRA”) standalone disclosure requirement does not allow for the inclusion of any extraneous information in an employer’s background check disclosure. While the decision is helpful to employers as its provides examples of the types of information that can be in a disclosure, it still serves as a reminder that employers must continually review their forms and processes to minimize the risk of a FCRA class action.

Background

In March 2017, the plaintiff applied for a job with a supermarket. As part of the hiring process, the store presented the plaintiff with several disclosure and acknowledgement forms, including two documents concerning an investigation of his background. One of the documents was a “Disclosure Regarding Consumer Reports and Investigative Consumer Reports” (the disclosure), which advised the plaintiff of the store’s intent to order his background check. The second document was an “Authorization Regarding Consumer Reports and Investigative Consumer Reports,” which sought the plaintiff’s consent for the background check.

A few weeks later, the store sent to the plaintiff a pre-adverse action notice, which included a copy of his background check report and advised him of, among other things, the right to dispute the accuracy or completeness of the report with the consumer reporting agency (“CRA”) that prepared the report. Nothing in the letter advised the plaintiff that he could discuss the report directly with the store. Five business days later, the CRA sent to the plaintiff an adverse action notice, which advised of the store’s decision not to continue his employment.

The plaintiff filed a putative class action alleging the store violated the FCRA by: (1) providing an unclear disclosure form with extraneous text and (2) failing to notify the plaintiff in the pre-adverse action notice that he could discuss the report directly with the store. The district court granted the store’s motion to dismiss both claims.

Disclosure Claim

The FCRA requires employers who obtain a background check report on a job applicant to first provide the applicant with a “clear and conspicuous disclosure” that the employee may obtain such a report. The Ninth Circuit previously held in Syed v. M-I, LLC, 853 F.3d 492 (9th Cir. 2017), that this language requires the disclosure to consist “solely” of the disclosure. In other words, according to Syed, the FCRA’s disclosure requirements do not allow for the inclusion of extraneous information in the disclosure, even if the information is related to the disclosure. It is against this backdrop that the Ninth Circuit in Walker v. Fred Meyer, Inc., No. 18-35592 (9th Cir. March 20, 2020), addressed “as a matter of first impression what qualifies as part of “the disclosure.

In reversing the district court’s dismissal of the disclosure claim, the Court rejected the employer’s argument that “some additional information” may be included in the disclosure so long as the information is “closely related” to the disclosure and “focuses the applicant’s attention on the FCRA disclosure rather than detracting from it.” In doing so, the Court noted that its recent decision in Gilberg v. Cal. Check Cashing Stores, LLC, had foreclosed the possibility of the inclusion of information that is simply “closely related” to the disclosure.

The Ninth Circuit concluded by making it clear that “a disclosure form violates the FCRA’s standalone requirement if it contains any extraneous information beyond the disclosure required by the FCRA.” It then addressed what qualifies as part of the disclosure, noting that beyond a plain statement disclosing “that a consumer report may be obtained for employment purposes,” some concise explanation of what the phrase means may be included. The Court provided examples of information that would further the purpose of the disclosure by helping the applicant understand the document, including that an employer “could briefly describe what a ‘consumer report’ entails, how it will be ‘obtained,’ and for which type of ‘employment purposes’ it may be used.” The Court rejected the plaintiff’s argument that the disclosure was not standalone because it referenced “investigative consumer reports,” concluding that such reports are “a subcategory or specific type of consumer report.” Thus, the Court reasoned, “[a]s long as the information about investigative reports is limited to disclosing that such reports may be obtained for employment purposes, and providing a very brief description of what that means,” the inclusion of such information in the disclosure “does not run afoul of the standalone requirement.”

The Court’s opinion is particularly instructive because it reviewed the text of the entire disclosure at issue to determine whether it contained extraneous information in violation of the FCRA. After quoting the disclosure in its entirety, the Court focused on the following text, which it found to be problematic and, thus, unlawful:

You may inspect [CRA’s] files about you (in person, by mail, or by phone) by providing identification to [CRA]. If you do, [CRA] will provide you help to understand the files, including communication with trained personnel and an explanation of any codes. Another person may accompany you by providing identification.

If [CRA] obtains any information by interview, you have the right o obtain a complete and accurate disclosure of the scope and nature of the investigation performed.

While the Ninth Circuit recognized that these two paragraphs were a good faith effort to provide information that an applicant might find useful, it found the language “extraneous” because it might “pull[ ] the applicant’s attention away from his privacy rights protected by the FCRA by calling his attention to the rights” the applicant has to inspect the CRA’s files. Instead of including the two paragraphs in the disclosure, the Court said the employer should have provided the information in a separate document “because the information cannot reasonably be deemed part of a ‘disclosure … that a consumer report will be obtained for employment purposes.’” Because the district court did not address whether the text of the disclosure violated the FCRA’s requirement that the disclosure also be “clear and conspicuous,” the Court remanded that issue to the district court.

Pre-Adverse Action Claim

With respect to the plaintiff’s pre-adverse action notice claim, the Ninth Circuit affirmed dismissal, holding that the FCRA’s requirement that an applicant or employee be provided the right to dispute inaccurate information in a consumer report does not also require employers to provide applicants or employees with an opportunity to discuss their reports directly with the employer. Rather, according to the Court, the employer need only provide, in a pre-adverse action notice to the applicant or employee, a description of the individual’s right to dispute with the background check company the completeness or accuracy of any item of information in the applicant or employee’s file with the background check company. Having done that, the Court agreed that the employer complied with the FCRA’s pre-adverse action requirement.

Recommendations for Employers

The Ninth Circuit’s reading of the FCRA’s “standalone” disclosure requirement is the most literal and narrow view at the federal appellate court level. And, while COVID-19 has slowed hiring for many companies, this case serves as yet another reminder to employers to carefully review their background check disclosure and authorization forms and processes. The FCRA-mandated disclosures should be set out in a separate, standalone document, entirely distinct from any other application paperwork, including even applicable disclosures mandated by other state laws, such as in California, which has its own unique disclosure requirements. Employers also should make sure to use language that is clear, concise, and free from any typographical errors or wording that could confuse the least sophisticated consumer about his or her rights under the FCRA or any comparable state laws.

Finally, all employers should continue to be mindful of other laws regulating criminal records checks and screening policies, including state and local employment and ban-the-box laws and the growing body of laws restricting employer use of credit reports and other credit history information in hiring and other employment decisions.