Ninth Circuit Restricts the Use of Combined Federal and State Background Check Disclosures

02.13.2019

On January 29, 2019, the Ninth Circuit Court of Appeal held that the use of combined federal and state background check disclosures violates the federal Fair Credit Reporting Act (“FCRA”) and California Investigative Consumer Reporting Agencies Act (“ICRAA”). (Gilberg v. California Check Cashing Stores, LLC (9th Cir. 2019) 2019 WL 347027.)

Background

The FCRA and ICRAA require employers to provide “clear and conspicuous” disclosures to applicants or employees before a background check can be conducted. The disclosures must contain specific information required under these statutes, and applicants and employees must consent to the background check.  Employers must follow specific procedures to deny employment or take other types of adverse employment action based on information contained in a background check report.

The Gilberg Matter

Desiree Gilberg (“Gilberg”) applied for work with CheckSmart Financial, LLC (“CheckSmart”) and completed a single form, entitled “Disclosure Regarding Background Investigation,” to authorize background checks under the FCRA and several state laws.  The document provided disclosures concerning Gilberg’s rights under the FCRA and additional notices relating to specific states, including California, New York, Maine, Oregon, Washington, Minnesota, and Oklahoma. CheckSmart hired Gilberg, and Gilberg worked for five months before she resigned.

Gilberg filed a putative class action lawsuit against CheckSmart, alleging CheckSmart failed to provide proper disclosures under the FCRA and ICRAA.  Gilberg claimed that the FCRA and ICRAA do not permit employers to use one disclosure form to satisfy multiple federal and state background check statutes and violated both laws. The district court disagreed, finding that a single form was permissible.  However, the Ninth Circuit reversed.

As the Ninth Circuit explained, the FCRA requires a standalone disclosure, which cannot be combined with any other information or disclosures.  Specifically, the FCRA requires:

[A] clear and conspicuous disclosure…made in writing to the consumer…in a document that consists solely of the disclosure, that a consumer report may be obtained for employment purposes…

(15 U.S.C. § 1681b(A)(i)(emphasis added).)

Like the FCRA, California’s ICRAA requires employers to provide a “clear and conspicuous disclosure . . . that consists solely of the disclosure.”  (Cal. Civ. Code § 1786.16(a)(2)(B)(emphasis added).)

The Gilberg court stated that including any extraneous information, including information designed to satisfy both federal and state background check requirements, violated the FCRA’s and ICRAA’s standalone disclosure requirement.

The Ninth Circuit’s conclusion followed its decision in Syed v. M-I, LLC (9th Cir. 2017) 853 F.3d 492. In that case, the Court held that an FCRA disclosure form did not meet FCRA’s requirement of a “standalone” disclosure where the disclosure form also included a liability waiver.  The Ninth Circuit strictly construed the FCRA’s statutory mandate that the disclosure “consist[s] solely of the disclosure.”  The only exception to this rule, according to Syed and confirmed in Gilberg, allows the applicant to authorize in writing the procurement of a consumer report in the same document as the disclosure under the FCRA. (15 U.S.C. § 1681b(b)(2)(A)(ii).)

The Gilberg court further held that CheckSmart’s disclosure form did not satisfy the FCRA’s and ICRAA’s “clear and conspicuous” standard.  To meet this standard, the disclosure form must be “reasonably understandable” and “readily noticeable to the consumer.”  CheckSmart’s disclosure form failed to meet this standard because the disclosure did not explain how the authorization form would affect an applicant’s rights and contained grammatically incorrect and confusing language.

What This Means for Employers

Employers have faced an increasing number of class actions in recent years for technical violations of the FCRA and ICRAA, including the stand-alone disclosure requirement.  Many of these class actions resulted in multi-million dollar settlements due to the potential recovery of statutory damages and attorneys’ fees for each non-compliant background check. 

Although background checks can be an effective means to vet applicants during the hiring process, the Gilberg decision reminds employers that federal and state laws impose detailed and highly specific requirements for background check disclosures and authorizations.  Employers must comply with the technical requirements of these laws, even if they rely on third party vendors to provide disclosure and authorization forms.  Employers with further questions concerning background check forms and procedures may contact one of the authors or their usual employment law counsel at AALRR.

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