In its most recent decision on the subject, the Ninth Circuit Court of Appeals has continued to provide specific guidance on the murky question of the Fair Credit Reporting Act’s (FCRA) “standalone” disclosure requirement. The Court also addressed the process to dispute the accuracy or completeness of a candidate’s background check per the FCRA’s pre-adverse requirements. The decision provides employers with actionable direction for the purposes of drafting and assessing the compliance of their background check disclosures and adverse action processes.
On March 20, 2020, the Ninth Circuit issued a decision that both affirmed and reversed parts of a lower district court’s findings, which dismissed a purported class action brought by Plaintiff Daniel Walker against a grocery chain.
Walker’s Complaint – The Background Check Disclosure
- Setting the Stage
The grocery store presented Daniel Walker with multiple disclosure and authorization forms, including “two documents concerning an investigation of his background.” The half-page background check disclosure, which is the subject of this litigation, consisted of five short paragraphs, generally describing the purpose and scope of the background check as well as information regarding the candidate’s rights.
In his complaint, Walker alleges, in part, that he was unable to understand the nature of the background report that the grocery store requested. Walker argued that the disclosure was not a document that consisted “solely of the disclosure” because it contained extraneous information. In particular, the background check’s disclosure advised that an “investigative consumer report” may be requested, which Walker considered improper, asserting that “such extraneous information…violated the “clear and conspicuous” requirement [of the FCRA] because it rendered the disclosure “muddled” and “confusing…””
On June 21, 2018, the District Court dismissed the plaintiff’s complaint, finding that nothing in the disclosure was extraneous, and that it was clear and conspicuous. Walker’s appeal sent the issue to the Ninth Circuit.
- The Legal Standard
The FCRA is a federal law that regulates the process by which employers request and use consumer reports or background checks. Section 604(b) of the FCRA requires that before procuring a consumer report for employment purposes, employers must first:
- make a clear and conspicuous disclosure in writing to the consumer, in a document that consists solely of the disclosure, that a consumer report may be obtained for employment purposes; and
- get the consumer’s written authorization for the screening.
Alternative disclosure and authorization requirements exist for certain positions regulated by the Department of Transportation.
- The Question at Hand
In Walker, the Ninth Circuit assessed what is “extraneous” in terms of the background check disclosure. In particular, whether identifying an investigative consumer report in the disclosure is extraneous, and if text explaining what obtaining a background report for employment purposes means is extraneous. The Court also addressed if text advising a candidate of additional privacy rights could be considered extraneous.
- The Previous Decisions: Syed and Gilberg
When forming their judgment, the Ninth Circuit referenced its two previous decisions concerning the issue of extraneous text that violates the FCRA’s “solely of the disclosure” requirement.
In Syed v. M-I, LLC decided in 2017 the Court introduced its literal approach FCRA interpretation when it held that the “solely of the disclosure” requirement was unambiguous and meant what it said – a standalone document that consists exclusively of the disclosure. In particular, the Court found the inclusion of limitation of liability language included within the background check’s disclosure to be extraneous, and a willful violation of the FCRA.
The Court clarified its position in Gilberg v. California Check Cashing Stores, a decision in 2019 that occurred after the district court’s decision on Walker’s claim. In Gilberg, the Court found that a disclosure form violates the FCRA’s standalone requirement if it contains any information beyond the disclosure required by the FCRA. Further, the disclosure must be both “clear and conspicuous,” meaning understandable and apparent to the reader. For the first time in any appeals court decision, the Court found that information about state consumer reporting laws, when included within the disclosure, to be extraneous.
But what text qualifies as the background check’s disclosure? The FCRA neither defines “disclosure” nor explains what information is acceptable as part of the disclosure.
The Ninth Circuit applied Syed and Gilberg and held that “beyond a plain statement” disclosing that a background report may be obtained for employment purposes, a succinct explanation of what that phrase means can be included within the standalone “disclosure” required by the FCRA. Descriptions of what a “consumer report” involves, how it is “obtained,” and the type of “employment purpose” are acceptable. The Court found that such information helps an individual understand the background check’s disclosure.
As to Walker’s specific claims, the Court held that identifying that an “investigative consumer report” may be obtained is not extraneous. Because investigative consumer reports are a category of consumer reports, disclosing that such reports may be requested for employment purposes and providing a “very brief description of what that means” does not violate the FCRA’s standalone disclosure requirement.
The Court also found that information that explains what it means to “obtain” a consumer report, such as identifying who will provide the report to its requestor, and what information will be reported is not extraneous and does not violate the FCRA. The Court found these statements to be “helpful information” included within the disclosure provided by the grocery store to Walker.
When the district court provided their decision in 2018, they did not have the guidance provided by the Ninth Circuit in the 2019 Gilberg decision. In Gilberg, the Court noted that information concerning rights under state laws, and references to peripheral documents like the FCRA’s summary of rights, violated the FCRA’s standalone disclosure requirement stating it was “as likely to confuse as it was to inform.”
The disclosure provided to Walker included text that described his rights to obtain and inspect a file maintained by the consumer reporting agency resulting from its investigation of his background. The Ninth Circuit found that while this information was useful, it detracted from advising Walker about his rights protected by the FCRA, and was therefore extraneous. Using its reasoning in Gilberg, the Court held that this text, when included within the disclosure, violated the FCRA’s standalone disclosure requirement, and was better positioned in a separate document.
Because the district court had not been afforded the Gilberg decision, and the parties did not brief the issue on appeal, the Court declined to consider if the portions of the disclosure that it found to satisfy the standalone disclosure requirement were also “clear and conspicuous.” Instead, the Ninth Circuit referred the issue to the district court to decide under the standard established by Gilberg.
Walker’s Complaint – The Pre-Adverse Action
- Setting the Stage
The grocery store provided Walker with a pre-adverse action notice that included a copy of his background report and advised Walker to dispute the accuracy or completeness of the report with the consumer reporting agency. Walker’s complaint argues that the pre-adverse action notice supplied by the grocery store violated the FCRA in that it should have noted an opportunity to not only correct erroneous information but also to discuss the report with the grocery store. Walker asserted that he should have the chance to “change the employer’s mind” before the grocery store chose to take the adverse action of not hiring him.
- The Legal Standard
The FCRA requires that before taking any adverse employment action against an individual based in whole or in part on the information in a background report, employers must first provide to the individual a “pre-adverse-action notice” that includes:
- A copy of the background report; and
- A copy of the Consumer Financial Protection Bureau’s “A Summary of Your Rights Under the Fair Credit Reporting Act.”
Before taking an adverse action, such as denying a candidate employment, an employer must provide a candidate with a reasonable opportunity to exercise their rights to dispute the accuracy and completeness of the background report.
Alternative adverse-action requirements exist for certain positions regulated by the Department of Transportation.
- The Question at Hand
Does the FCRA provide a right for an individual to contact the background check’s requestor directly?
The Ninth Circuit affirmed the district court’s holding that the FCRA “does not require employers to provide job applicants or employees with an opportunity to discuss their consumer reports directly with the employer.” In their analysis, the Ninth Circuit reviewed the text of the FCRA, its legislative history, and the precedent set by the Court. The Court noted that providing a copy of the report enables applicants to exercise the textually supported right to dispute errors in the report, but found that the purported right to discuss a background report’s findings with the employer was “unsupported by the text of the FCRA.”
The Ninth Circuit’s decision clarifies that a brief explanation of what it means to obtain a background check for employment purposes is not extraneous and satisfies the FCRA’s standalone disclosure requirement, but that disclosure of related processes (such as how to obtain copies of those reports) is extraneous. Employers should review their forms of FCRA disclosure to make sure that they adhere to the standalone-disclosure requirement.
Employers should also adhere to the FCRA’s pre-adverse- and adverse-action requirements, and ensure that the applicant has an opportunity to dispute the report with the consumer reporting agency. As the Ninth Circuit affirmed in Walker, the FCRA does not require employers to instruct candidates to discuss the background report directly with the employer.
The Walker case provides employers with actionable information to review and revise their disclosure and authorization documents for compliance with the FCRA and applicable state laws and reminds employers to review their pre-adverse- and adverse-action procedures.