9th Circuit Significantly Restricts Permissible Contents of FCRA Disclosure Forms – Gilberg v. California Check Cashing Stores LLC

Employers who use third party vendors to perform background checks regarding job applicants and current employees know that they must comply with the federal Fair Credit Reporting Act’s technical disclosure and authorization requirements. Failure to do so subjects employers to potential liability of up to $1000 per discrete violation, plus punitive damages and attorneys’ fees. Typically the greatest source of FCRA exposure, and the source of numerous multi-million dollar payouts to plaintiff classes, arises from the FCRA’s provisions governing initial disclosures to applicants and employees that a background check will be performed. On January 29, 2019, the 9th Circuit significantly increased employers’ potential liability by finding conduct common amongst many employers is, in fact, a violation of the FCRA.

Employers' Preliminary Disclosure Obligation Under the FCRA

Before an employer may obtain a background check (called a “consumer report” under the FCRA) for employment purposes from a third-party vendor (called a “consumer reporting agency” under the FCRA), the FCRA requires the employer to disclose to the applicant or employee that the employer will seek and obtain a background check for employment purposes. This disclosure must be “clear and conspicuous” so that the applicant or employee can understand what is being disclosed. The disclosure must also be provided in writing and in a form “that consists solely of the disclosure.” Thus, employers cannot include anything extraneous to the FCRA-mandated disclosure in the disclosure form, such as liability waivers, employment agreements, or acknowledgements of “at-will” status. The FCRA makes one express exception to its “consists solely of the disclosure” obligation – employers may include language authorizing the employer to obtain a consumer report, and a place for the applicant or employee to execute such authorization.

Gilberg v. California Check Cashing Stores LLC

Multiple states, such as California, New York, and Washington, have similar state laws that require similar, state-specific employment background check disclosures and authorizations. Many employers have included language to address these similar state obligations in their FCRA disclosure forms, often at the suggestion of, or based on sample forms provided by, the employer’s consumer reporting agency vendor. A January 29, 2019, 9th Circuit decision – Gilberg v. California Check Cashing Stores LLC – has cast significant doubt on whether this practice of including state disclosure or authorizations is lawful, or in fact violates the FCRA.

In Gilberg, the employer used an FCRA Disclosure and Authorization form that included disclosures and authorizations from several states. The form declared that these state-specific disclosures and authorizations applied to applicants and employees of those states only. For example, the California disclosure and authorization form in Gilberg expressly applied to “California applicants or employees only.” The Court found that the employer’s inclusion of state-disclosures and authorizations violated the FCRA’s “consists solely of the disclosure” requirement. The Court further held that, because the language regarding the scope of the background check was not clear (due to typos and poor grammar), the employer’s FCRA disclosure form further violated the “clear and conspicuous” requirement. The Gilberg Court rejected the employer’s “invitation to create an implied exception” to the FCRA’s “consists solely of the [federal] disclosure” language in cases where a disclosure form includes language required by state or local law. Rather, the Court found that the FCRA’s “standalone requirement forecloses implicit exceptions,” including apparently legal obligations imposed by state law and arising from the same activity covered by the FCRA.

Action Items for Employers

Employers in the 9th Circuit – Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington – should take the following steps (and employers in other circuits should consider taking the following steps so as not to become test cases in courts outside the 9th Circuit):

• Review FCRA disclosure forms to determine whether they include any language other than the FCRA-required disclosure and authorization language;
• Determine whether any state or local laws impose additional disclosure, authorization, or acknowledgement obligations; and
• Review their FCRA disclosure forms to ensure that the language is clear and easily understood by an average layperson

Employers are advised to consult experienced counsel regarding how to properly comply with federal, state, and local obligations regarding employment background checks.