Appellate Decision Highlights Potential Employer Pitfalls When Performing Background Checks On Applicants

On January 20, 2017, the United States Court of Appeals for the Ninth Circuit, in a case of first impression, held that a prospective employer violates the Fair Credit Reporting Act’s (“FCRA”) disclosure requirements when it obtains a job applicant’s consumer report after including a liability waiver in the same document as the statutorily mandated disclosure.  Additionally, the Court held that in light of the clear statutory language that the disclosure consist “solely” of the disclosure, the prospective employer’s violation of the FCRA was “willful” and therefore exposed the employer to statutory and punitive damages.

In Syed v. M-I, LLC, Sarmad Syed applied for a job with M-I.  In the application process, M-I included a document labeled “Pre-employment Disclosure Release” that served to simultaneously authorize M-I to obtain the potential employee’s credit report and operate as a release of liability.  In a class action on behalf of himself and others whose credit reports were obtained by M-I under the same disclosure, Syed alleged M-I violated section 1681(b)(2)(A) of the FCRA’s requirement that a document “consists solely of the disclosure.”

The Court explained that congress’s goal in passing the FCRA was to guard the applicant’s right to control the dissemination of sensitive personal information.  The FCRA provides that before obtaining a credit report or background check, an employer must provide a disclosure to the applicant and obtain the applicant’s authorization.  The disclosure can be combined with the applicant’s authorization.  The Court reasoned that allowing the disclosure and authorization on the same page enhances the effectiveness of each clause and the applicant is likely better informed of his or her ability to authorize or deny the use of the report.  The Court determined, however, that an employer may not combine the disclosure with a liability waiver or any other language other than the applicant’s authorization.  Including a liability waiver pulls the attention away from the applicant’s privacy rights protected by the FCRA by calling attention to the rights he or she must forgo if the applicant signs the document.

Many employers use background checks during the hiring process to better evaluate candidates. To avoid potential liability, employers should confirm that their background procedures and form comply with state and federal laws, regardless of whether the employer relies on a third party to conduct the background checks.  Failure to comply with these laws could lead to significant liability due to the availability of statutory damages, punitive damages, and attorneys’ fees under the statutes.

For more information about the case or any other employment issues, contact Samantha Panosyan in LGC’s San Diego office.