Appeals Court Rules Employer Willfully Violated FCRA with Liability Waiver on Background Check Disclosure Document

 FCRA-graphic

Written By ESR News Blog Editor Thomas Ahearn

On January 20, 2017, the Ninth Circuit Court of Appeals ruled that employers can “willfully” violate the federal Fair Credit Reporting Act (FCRA) if they provide job applicants with a disclosure that a background check may be obtained for employment purposes that also includes a liability waiver for employers and others.

In the Opinion in Syed v. M-I, LLC, a three-judge panel also found an employer’s violation of the FCRA requirement that the disclosure document consist “solely” of the disclosure is “willful” when terms such as the liability waiver are included in addition to the disclosure for procuring a background check report.

Congress enacted the FCRA in 1970 in response to the “increasingly sophisticated use of consumers’ personal information in making credit and other decisions” and recognized the need to “ensure fair and accurate credit reporting, promote efficiency in the banking system, and protect consumer privacy.”

According to the Opinion, lead plaintiff Sarmad Syed applied for a job with M-I in 2011 and signed a document labeled “Pre-employment Disclosure Release” that informed him that his credit history and other information could be collected and used as a basis for the employment decision.

The document also authorized M-I to procure Syed’s consumer report and stipulated that Syed was waiving his rights to sue M-I and its agents for violations of the FCRA. His signature served both as an authorization for M-I to procure his consumer report, and as a broad release of liability.

A three-judge panel said the FCRA specifically requires companies to tell applicants if they intend to obtain their consumer report and allows them to refuse. The panel consisted of Circuit Judges Mary M. Schroeder, Kim McLane Wardlaw, and John B. Owens. Written by Judge Wardlaw, the Opinion stated:

  • The modern information age has shined a spotlight on information privacy, and on the widespread use of consumer credit reports to collect information in violation of consumers’ privacy rights. This case presents a question of first impression in the federal courts of appeals: whether a prospective employer may satisfy the Fair Credit Reporting Act’s (“FCRA”) disclosure requirements by providing a job applicant with a disclosure that “a consumer report may be obtained for employment purposes” which simultaneously serves as a liability waiver for the prospective employer and others. See 15 U.S.C. § 1681b(b)(2)(A). We hold that a prospective employer violates Section 1681b(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. We also hold that, in light of the clear statutory language that the disclosure document must consist “solely” of the disclosure, a prospective employer’s violation of the FCRA is “willful” when the employer includes terms in addition to the disclosure, such as the liability waiver here, before procuring a consumer report or causing one to be procured.

The Opinion concluded that the FCRA’s employment disclosure provision “says what it means and means what it says” and that the “statute unambiguously bars the inclusion of a liability waiver on the same document as a disclosure made pursuant to 15 U.S.C. § 1681b(b)(2)(A).”

As a result, Judge Wardlaw wrote: M-I willfully violated the statute by procuring Syed’s consumer report without providing a disclosure “in a document that consist[ed] solely of the disclosure.” § 1681b(b)(2)(A)(i). Therefore, the district court erred in dismissing Syed’s complaint.

The Opinion stated that the original complaint alleged that M-I’s statutory violation had been “willful.” On August 28, 2014, the district court dismissed Syed’s complaint for failure to state a claim, with leave to amend. It held that the allegation of willfulness consisted only of “labels and conclusions.”

Syed filed his First Amended Complaint (FAC) on September 2, 2014. The FAC included Federal Trade Commission (FTC) staff opinion letters and district court opinions that supported his position that M-I “knew or should have known about its legal obligations under the FCRA,” making its violation willful.

On October 23, 2014, the district court again dismissed Syed’s FAC for failure to state a claim, this time without leave to amend. The Ninth Circuit Court of Appeals has jurisdiction under 28 U.S.C. § 1291 to review the district court’s final judgment dismissing with prejudice Syed’s claims against M-I.

The full text of the Opinion in SYED v. M-I, LLC, No. 14-17186, D.C. No. 1:14-cv-00742-WBS-BAM in the United States Court of Appeals for the Ninth Circuit in San Francisco, California filed January 20, 2017, is available at https://cdn.ca9.uscourts.gov/datastore/opinions/2017/01/20/14-17186.pdf.

ESR Whitepapers about FCRA Lawsuits

Employment Screening Resources® (ESR) founder and CEO Attorney Lester Rosen has written the whitepaper Common Ways Prospective or Current Employees Sue Employers Under the FCRA to explain the reasons employers face FCRA lawsuits from applicants and employees.

Rosen writes: “More often than not, employers are sued for violating FCRA 101 – simple rules and procedures that are clearly set out in the law.” The complimentary whitepaper from ESR is available at www.esrcheck.com/Whitepapers/Ways-Employees-Sue-Employers-Under-FCRA/.

Rosen also wrote a second whitepaper for employers who use third party background screening providers entitled Common Ways Consumer Reporting Agencies are Sued Under the FCRA that describes certain practices employers should keep in mind when choosing a CRA.

Rosen describes issues that can give rise to FCRA class action lawsuits against CRAs in the legally-sensitive area of employment background checks. The complimentary whitepaper from ESR is available at www.esrcheck.com/Whitepapers/Ways-CRAs-Sued-Under-FCRA/.

NOTE: Employment Screening Resources® (ESR) does not provide or offer legal services or legal advice of any kind or nature. Any information on this website is for educational purposes only.

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