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The Federal Fair Credit Reporting Act (or “FCRA”) requires an employer to, among other things, provide a job applicant with a standalone disclosure, containing no extraneous information, stating that the employer may obtain the applicant’s consumer report when making a hiring decision. Seems simple enough, and as such, the FCRA may not be on the short list of laws that employers focus on from a compliance standpoint. Certainly, many employers trust their background check vendor to provide them with a compliant standalone disclosure and never look back.
But, as recent court decisions and mammoth FCRA-related class action settlements are making clear, employers need to pay attention to the FCRA. Why?
First, the costs of getting your disclosure wrong are simply too high: statutory penalties (which range from $100 to $1,000 per violation) can reach astronomical levels in a large state or even nationwide class actions. Second, as we explain below, it is very easy for employers (even well-intentioned ones) to get it wrong and find themselves on the hook for a FCRA violation.
In April 2022, the California Court of Appeal for the Fourth District issued the first published California appellate court decision on the FCRA. In Hebert v. Barnes & Noble, Inc., the plaintiff filed a putative class action against Barnes & Noble, arguing that the background check disclosure used by the company was illegal because it included "extraneous" language in violation of the FCRA’s "standalone disclosure" requirement.
Before getting into the details of the Hebert decision and it's practical lessons for employers, let's discuss some terminology:
- First, what is the "standalone disclosure" requirement? The FCRA requires employers who conduct background checks on prospective employees to provide a “clear and conspicuous” written notice to job applicants that the company will be running a background check on the applicant. The key issue here is that the FCRA requires the disclosure to be in a document that consists “solely of the disclosure.” In our experience, most employers seem to be getting this part of the equation right. Some of the older background check forms that vendors (often called "consumer reporting agencies" or CRAs) used to provide to employers would lump disclosure forms in with authorization forms or other documents. Some CRAs have yet to fix this problem, which leaves clients open to massive damages in FCRA lawsuits.
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Second, courts interpreting the FCRA have held that the employer's background check disclosure cannot contain any "extraneous" language. Some employers have run into trouble here when they include additional (usually helpful) information for job applicants on their disclosure forms. Recent court decisions like the Ninth Circuit's decision in Walker v. Fred Meyer, Inc., 953 F.3d 1082 (9th Cir. 2020) have demonstrated a hypertechnical application of the FCRA's language and an apparent indifference to an employer's intentions behind the inclusion of additional disclosure language. For example, in Walker, the “extraneous” language was: “You may inspect GIS’s files about you (in person, by mail, or by phone) by providing identification to GIS. If you do, GIS will provide you help to understand the files, including communication with trained personnel and an explanation of any codes.” The Ninth Circuit found that this statement was included in "good faith” and may have been helpful to the applicant, but that it nonetheless was extraneous and violated the standalone disclosure requirement.
In the Herbert case, the "extraneous" language in Barnes & Noble’s disclosure form was the following, which, as Barnes & Noble argued (unsuccessfully) was included inadvertently:
"Please note: Nothing contained herein should be construed as legal advice or guidance. Employers should consult their own counsel about their compliance responsibilities under the FCRA and applicable state law. [The background check company] expressly disclaims any warranties or responsibility or damages associated with or arising out of information provided herein."
Barnes & Noble filed a motion to have the lawsuit thrown out of court arguing that it had not "willfully" violated the FCRA because the company's invalid disclosure form was the result of a drafting mistake that occurred when Barnes & Noble revised a disclosure form provided by a vendor and began using it as part of the company's background check program. The trial court agreed with Barnes & Noble, granting its motion, and entering judgment in its favor.
On appeal, the California Court of Appeal reversed, holding that a reasonable jury could find that Barnes & Noble had willfully violated the FCRA's requirements.
Barnes & Noble argued that it hadn't acted willfully: (1) because it had been using the disclosure for two years, and no one had complained about it, so the company was not on notice that it needed to investigate anything with respect to the disclosure; and (2) because it relied on advice of counsel when it sent the disclosure form to the company's outside counsel for review.
The Court of Appeal disagreed, noting that the company's "continuous and prolonged use of the disclosure form suggests it had no proactive monitoring system in place to ensure it was FCRA compliant." The court also held that, while it was a factor, reliance on advice of counsel is not a complete defense and is just one factor for consideration that must be weighed against others.
Barnes & Noble did the right thing by asking its outside counsel to review the disclosure form. Apparently, the company's outside counsel had flagged a concern with the extraneous language, which was actually a footnote in the form document provided by the CRA that Barnes & Noble was using. The lawyer likened the footnote to a "drafting note."
The critical problem occurred when Barnes & Noble delegated a non-lawyer HR employee who “was not versed in (or tasked with knowing) the FCRA’s requirements" with the final decision on implementing the disclosure form. The HR employee did not remove the problematic language from the form before approving it to go live on the company's onboarding platform. As the Court of Appeal held, "[f]ar from helping Barnes & Noble, this evidence tends to establish the existence of a triable issue of material fact concerning willfulness."
While the Herbert decision provides some helpful guideposts as to what a court might consider in analyzing whether a violation of the FCRA was willful, it does nothing to slow the swelling tide of litigation in this area. Indeed, we expect that the plaintiff's bar will only be further emboldened to bring lawsuits alleging violations of the FCRA's "standalone disclosure" requirement on a class basis.
This decision identifies the type of conduct on which a court might rely in concluding that a violation of the FCRA was willful. Other takeaways for employers are clear: get your lawyers involved (and keep them involved) in the FCRA compliance process, train your HR professionals on FCRA compliance, and (for companies large enough to have them) consider using in-house attorneys in your implementation of background check documents.
Our attorneys have experience litigating FCRA-related class actions and advising on related issues. We will continue to monitor case law and other developments in the FCRA area, as well as those regarding California's Investigative Consumer Reporting Agencies Act (ICRAA) and other related laws.
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