Background Check Disclosure Forms Must Be Clear, Standalone

​The United States Court of Appeals for the Ninth Circuit made clear that a prospective employer violates the standalone requirement of the federal Fair Credit Reporting Act (FCRA) by including extra material, such as state disclosure requirements, that goes beyond basic and clear authorization language.

Reiterating its 2017 decision in Syed v. M-I, the Ninth Circuit issued another decision Jan. 29 in Gilberg v. California Check Cashing Stores finding that before procuring a consumer report on a job applicant, the employer must provide a "clear and conspicuous disclosure" that is "in a document that consists solely of the disclosure."

In Gilberg, the court was presented two questions: (1) whether the prospective employer may satisfy the FCRA's standalone document requirement by providing job applicants with a disclosure containing extraneous information in the form of various state disclosure requirements; and (2) whether the specific disclosure, in that case, satisfied the clear and conspicuous requirement. The answer to both questions was a resounding no, and the case was remanded, in part, for further proceedings.

The Standalone Requirement

The FCRA requires employers who obtain a consumer report on job applicants to disclose that process "in a document that consists solely of the disclosure."

The Ninth Circuit had previously held in Syed that "a prospective employer violates Section 1681(b)(2)(A) when it procures a job applicant's consumer report after including a liability waiver in the same document as the statutorily mandated disclosure" because that would not be a document that "consist[s] 'solely' of the disclosure."

Here, in addition to the disclosure required under the FCRA, the disclosure form used by the defendant at issue, CheckSmart Financial, LLC, included disclosures required under laws in the states of New York, Maine, Oregon and Washington that were largely related to consumer credit protection and associated rights. CheckSmart argued these state-level disclosures were distinguishable from the waiver of liability language considered by the Ninth Circuit in Syed because its state-mandated disclosures furthered, rather than undermined, the FCRA's purposes.

The Ninth Circuit disagreed, taking a broad interpretation of the word "solely" and refusing to imply an exception into the statute for disclosures that explain additional state rights.

In so holding, the Ninth Circuit made clear its Syed ruling foreclosed a prior, district-level ruling in Noori v. Vivint Inc. The Noori court reasoned the inclusion of information "closely related" to the FCRA's disclosure requirements did not violate the standalone requirement. However, because the presence of disclosures related to additional state rights "is as likely to confuse as it is to inform the reader," it violates the FCRA's standalone document requirement.

Clear and Conspicuous

The Ninth Circuit also made several additional holdings with respect to the CheckSmart disclosure at issue. In addition to the standalone requirement, the FCRA and California's FCRA-like disclosure requirements found in the Investigative Consumer Reporting Agencies Act both require the disclosure form to be "clear and conspicuous." According to the court, "clear" under the FCRA means "reasonably understandable" and "conspicuous" means "readily noticeable to the consumer."

The Ninth Circuit concluded that the CheckSmart disclosure was not clear because it included language that a reasonable person would not understand. The court took particular issue with the following sentence in the disclosure form, which it quoted in full: "The scope of this notice and authorization is all-encompassing; however, allowing CheckSmart Financial, LLC to obtain from any outside organization all manner of consumer reports and investigative consumer reports now and, if you are hired, throughout the course of your employment to the extent permitted by law."

The Ninth Circuit held that telling the applicant the disclosure was "all-encompassing"—without more—was confusing and lacked connection to the applicant's rights. It also included an incomplete sentence that lacked a subject. Finally, the combination of federal and state disclosures in the document would confuse a reasonable reader, under the Ninth Circuit's view, because the state disclosures implied that only applicants in certain states were entitled to receive a copy of their report.

Nevertheless, the Ninth Circuit held that the CheckSmart disclosure was conspicuous because it capitalized, bolded and underlined the headings of each section, labeled the form accurately, and contained legible (although small) font.

Bottom Line

Litigation results in 2018 showed that companies are still at risk of significant judgments and/or settlements for violating 1681(b)(2)(A):

• Costco paid nearly $2.5 million to end an FCRA class action lawsuit alleging the company failed to use proper standalone disclosure notices to obtain background reports about job applicants.
  
• Petco Animal Supplies, Inc., agreed to pay $1.2 million to resolve the claims of approximately 37,000 individuals, based on allegations that its web-based application contained an FCRA disclosure containing a broad authorization for "any person" to provide "any and all information" to the consumer reporting agency, in addition to information relating to the laws of seven different states.
  
• Omnicare, Inc. agreed to pay approximately $1.3 million to more than 50,000 class members based on allegations that its FCRA disclosure and authorization form contained a liability waiver.
  
• Frito-Lay, Inc. agreed to pay about $2.4 million to resolve the claims of roughly 38,000 class members, based on allegations that the company included additional language in its FCRA disclosure form.
  

Gilberg confirmed that this trend of rulings against employers will continue into 2019 and potentially beyond. The lesson learned from these rulings and settlements is to act quickly in updating your FCRA disclosure and authorization forms. Employers should pay special attention to the Ninth Circuit's disapproval of the "all-encompassing" disclosure language used by CheckSmart.

David N. Anthony is a partner in the Richmond, Va., office of Troutman Sanders. Reposted with permission. ©2019 Troutman Sanders. All rights reserved.