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Missteps with background check forms can be costly

carlsonA recent decision by a federal appellate court underscores the importance of ensuring that forms used in connection with employer background checks comply with the strict requirements of the federal Fair Credit Reporting Act.

In Gilberg v. California Check Cashing Stores, LLC, et al., 913 F.3d 1169 (9th Cir. 2019), the 9th U.S. Circuit Court of Appeals found that an employer’s FCRA background check disclosure form was invalid because (i) the form included extraneous material — consisting of state-specific legal disclosures — not explicitly permitted by the FCRA; and (ii) the form was not worded in a sufficiently “clear” manner.

Background

The FCRA imposes detailed requirements upon employers that obtain “consumer reports” — such as criminal history records — on applicants or employees through third-party consumer reporting agencies.

In particular, before obtaining a consumer report, the employer must provide the applicant or employee with a “clear and conspicuous” disclosure” of the employer’s intent to do so. That disclosure must be in writing, in a standalone document that “consists solely of the disclosure.”

Following his or her receipt of the disclosure form, the applicant or employee must give his or her written consent before the employer can proceed to request a consumer report.

If, upon reviewing the consumer report, the employer is inclined to take an “adverse action” — such as revoking a conditional job offer — based on information contained in the consumer report, the employer must first (i) provide the applicant or employee with a written “pre-adverse action notice,” along with a copy of the consumer report and a notice of the individual’s rights under the FCRA, and (ii) give the applicant or employee an opportunity to dispute or otherwise respond to the information in the consumer report.

Finally, if, after considering the applicant or employee’s response (if any) to the pre-adverse action notice, the employer decides to proceed with the adverse action, it must send the individual another written notice confirming that the adverse action has been taken.

Along with these requirements, additional disclosures are required when an employer intends to obtain an “investigative consumer report” — i.e., a report that includes information obtained through interviews with co-workers, neighbors or other associates of an applicant or employee.

Employers that fail to comply with the requirements of the FCRA can be held liable for statutory penalties and attorneys’ fees. Frequently, such claims are brought as class actions, which can dramatically increase an employer’s potential financial exposure.

The ‘Gilberg’ case

The Gilberg litigation arose from Desiree Gilberg’s application for employment with CheckSmart Financial in California.

As part of the application process, Gilberg was presented with a form entitled “Disclosure Regarding Background Investigation,” notifying her of CheckSmart’s intention to carry out a background check on her. Gilberg signed the form and returned it to CheckSmart to authorize the background check.

After receiving Gilberg’s authorization form, CheckSmart ran a criminal background check on her through a third-party agency. The background check came back clean. Gilberg was then hired by CheckSmart, where she worked for several months.

Later, after her employment had ended, Gilberg sued CheckSmart on behalf of herself and a putative class of other job applicants, alleging that CheckSmart had failed to provide the requisite disclosures under the FCRA and California’s Investigative Consumer Reporting Agencies Act before running a background check on her.

9th Circuit’s decision

Reversing the District Court’s award of summary judgment to CheckSmart, the 9th Circuit concluded that CheckSmart’s disclosure form violated the FCRA for two main reasons.

First, the disclosure form did not consist solely of the FCRA’s required disclosure language. Rather, the form also included “extraneous and irrelevant information beyond what FCRA itself requires” — i.e., the state-specific disclosures.

Thus, the court concluded, “[b]ecause CheckSmart’s disclosure form does not consist solely of the FCRA disclosure, it does not satisfy FCRA’s standalone document requirement.”

In addition, the 9th Circuit held that CheckSmart’s disclosure form violated the FCRA because it was not “clear” and therefore failed to satisfy the statute’s “clear and conspicuous” requirement. The form contained language that, in the court’s view, a reasonable person would not understand, including a confusing, fragmented sentence about the scope of the authorization.

Regarding that second point, the court also found that the disclosure form’s combination of state and federal disclosures would likely confuse readers. For example, the disclosure form included the following language: “New York and Maine applicants or employees only: You have the right to inspect and receive a copy of any investigative consumer report … by contacting the consumer reporting agency identified above … .”

In the 9th Circuit’s view, that phrasing could lead a reader to conclude — incorrectly — that only applicants living in one of those two states had a right to obtain copies of their consumer reports.

On a related note, while the 9th Circuit found that CheckSmart’s disclosure form was sufficiently “conspicuous,” it expressed concerns about the format of the disclosure form.

The form’s capitalized, bolded and underlined section headings enabled applicants to comprehend what they were signing, and the font was technically legible. However, the court opined that the disclosure form’s 8-point Ariel Narrow font was “inadvisably” small and cramped.

Decisions in other jurisdictions

The 9th Circuit’s decision in Gilberg is consistent with recent holdings by other federal courts.

For instance, in Mitchell v. Winco Foods, LLC, 379 F. Supp. 3d 1093, 1098-99 (D. Idaho 2019), the court permitted the plaintiff to proceed with his class action claim alleging that the employer had violated the FCRA’s “standalone document” requirement by providing job applicants with a disclosure form that referred both to consumer reports and to investigative consumer reports.

Similarly, in Jones v. Halstead Mgmt. Co., LLC, 81 F. Supp. 3d 324, 332-33 (S.D.N.Y. 2015), the court rejected the employer’s motion to dismiss the plaintiff’s class action FCRA claim, concluding that a background check disclosure form that included “two full pages of eye-straining tiny typeface writing” on extraneous matters failed to satisfy the statute’s “standalone document” requirement.

Likewise, in Hargrett v. Amazon.com DEDC, LLC, 235 F. Supp. 3d 1320, 1327 (M.D. Fla. 2017), the court upheld a class action claim based on an employer’s use of a FCRA disclosure form that included five pages of extraneous information, including liability releases, references to other consumer reporting agencies, state law notices, and a statement regarding the consequences of an applicant’s revocation of his or her consent to the background check.

Lessons for employers

The Gilberg decision provides important takeaways for employers that use third-party vendors to run background checks on applicants or employees.

In particular, an employer should ensure that its FCRA disclosure form is truly a standalone document, and that the language contained in the form adheres strictly to the FCRA’s disclosure requirements.

Likewise, an employer should make certain that its FCRA disclosure form is easily readable, with clear, bolded headings, and in a sufficiently large font size.

The financial consequences of missteps on these points can be dramatic. Indeed, in recent years, a number of employers have settled class actions arising from FCRA background check forms for amounts rising into the millions.

For instance, Delta Air Lines in February agreed to pay $2.3 million to settle a class action alleging that job applicants had been given inadequate FCRA disclosure forms. A few months earlier, the national pet supply retailer Petco agreed to settle similar class action claims for $1.2 million.

Brian D. Carlson is co-managing partner at Schwartz Hannum in Andover, Massachusetts. The firm represents management in labor and employment law matters. Jaimeson E. Porter, formerly an associate at Schwartz Hannum, assisted in preparing the above article.

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