Action Item: In a recent decision from the Ninth Circuit, which may have broad implications across the country, the Court held that an employer’s inclusion of a liability waiver as part of the Fair Credit Reporting Act-mandated disclosures constitutes a willful violation of the Act.

Background and Analysis:

Many, if not most, employers conduct some form of background check (such as a criminal history report) as part of their recruiting process. When using a third-party vendor to conduct the background check, the employer is required to comply with the Fair Credit Reporting Act (“FCRA”). The FCRA requires employers conducting such background checks (which is a type of “consumer report” subject to the FCRA) to provide applicants (or employees) in advance “a clear and conspicuous disclosure … in writing” stating that the background report may be used for employment purposes. The statute specifies that this disclosure must be made “in a document that consists solely of the disclosure” (emphasis added).

In Syed v. M-I LLC, the U.S. Court of Appeals for the Ninth Circuit considered a question that has never been considered by a federal court of appeals: can an employer comply with the FCRA’s disclosure requirement where it includes a liability waiver in the same document as the statutorily-mandated disclosure? In Syed, plaintiff was given a document entitled “Pre-employment Disclosure Release”—a form provided by a third-party background check vendor intended to serve as the FCRA-mandated disclosure. However, the Disclosure Release also provided that by signing the document, plaintiff agreed to release the employer and its agent for violations of the FCRA. Thus, plaintiff’s signature served as both an authorization for the employer to obtain his background report and as a liability waiver.

Plaintiff filed a class action lawsuit arguing that the inclusion of the liability waiver constituted a violation of the FCRA. Agreeing with plaintiff, the Ninth Circuit held that “[a] prospective employer violates [the statute] when it procures a job applicant’s consumer report after including a liability waiver in the same document as the statutorily mandated disclosure.” The Court further held that “[i]n 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.”

In addition to actual damages, a finding of willful violation of the FCRA exposes an employer to statutory damages ranging from $100 to $1,000 (plaintiff does not have to prove actual harm from violation), punitive damages, and attorney’s fees and costs.

Takeaways:

This case serves as a wake-up call to employers throughout the country to re-evaluate the inclusion of a liability waiver in the FCRA disclosure notice—which is a fairly common approach. Although this decision was rendered by the Ninth Circuit (which covers the states of Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington), it may be persuasive in other jurisdictions. Thus, employers nationwide should contact their employment counsel to review their FCRA disclosure and authorization forms, and consider removing liability waivers (or any other information not specifically authorized by the FCRA) and to include them in a separate document. Employers should also be vigilant in reviewing and ensuring that forms provided by third-party vendors comply with the FCRA. Finally, employers with insurance coverage should be mindful of the fact that a finding that an employer willfully violated the FCRA may serve as a basis for an insurer to reject an employer’s coverage claim, in addition to the fact that any punitive damages awarded may be excluded from coverage in some policies.