Employers Beware: Ninth Circuit Finds Inclusion of Liability Waiver in FCRA Background Check Disclosure Form is a Willful Violation

This article was written by David N. Anthony, Alan D. Wingfield, and Meagan Mihalko, and originally published on the Troutman Sanders LLP Consumer Financial Services Law Monitor. It is republished here with permission.  

On January 20, 2017, the Ninth Circuit Court of Appeals issued a decision of first impression in Syed v. M-I, LLC, a putative class action, when it held that a prospective employer willfully violated the Fair Credit Reporting Act (FCRA) by including a liability waiver in its FCRA background check disclosure form.

Any employer who conducts employee background checks should take note of this decision, as it highlights the importance of extreme care in preparing the necessary FCRA disclosure form given to consumers in obtaining consent to obtain the background check.

In the underlying case, Syed applied for a job with M-I. During the application process, M-I provided a form labeled “Pre-employment Disclosure Release.” The form provided that the employer would obtain Syed’s credit history and that other information could be collected and used to make a decision on his employment application. The form also included a waiver that discharged, released and indemnified the “prospective employer, PreCheck, Inc., their agents, servants, employees, and all parties that rely on this release and/or the information obtained with this release from any and all liability and claims arising by reason of the use of this release and dissemination of information that is false and untrue if obtained by a third party without verification.”

Under the FCRA, before obtaining a background check on a prospective or current employee for employment purposes, an employer is required to make disclosure of the prospective background check in a writing “solely” consisting of the disclosure. Under the FCRA, the ability of an employee to maintain a class action often depends on the plaintiff’s ability not only to allege a violation of the FCRA but also that the violation was “willful.”

The district court granted M-I’s Motion to Dismiss finding that Syed’s willfulness allegations were insufficient. The employer pointed out that neither on-point case law nor a specific provision of the FCRA expressly outlawed including a liability waiver in the disclosure.

The Ninth Circuit disagreed. Not only did the court reverse the district court and found that Syed’s complaint sufficiently stated a claim, but it also found that M-I’s use of the disclosure form was a willful violation of the FCRA. In reversing the district court, the Ninth Circuit held that the language in Section 1681b(b)(2)(A) was unambiguous in its requirement that the disclosure and authorization be presented in a form that “consists solely of the disclosure.”

In its opinion, the Ninth Circuit explicitly rejected M-I’s argument that the statutory text was “less than pellucid” and noted that a “lack of guidance” does not render an interpretation reasonable. The Court also noted that M-I’s inclusion of the liability waiver in its disclosure form “comports with no reasonable interpretation of 15 U.S.C. § 1681b(b)(2)(A).”

This decision serves as another example of why all employers should take a close look at the pre-employment disclosure forms. What may appear to be a minor wording variation from the disclosure language stated in the FCRA could result in a class action lawsuit, and one that at least some courts – including now any Court in the Ninth Circuit – could declare to be a willful violation.

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