ASAP
The Rest of the Story (for Now): Employer Prevails in FCRA Class Action Alleging “Stand-Alone” Disclosure Violation
As we predicted four years ago, class action lawsuits against employers under the Fair Credit Reporting Act (FCRA) continue to spike, including class actions targeting background check disclosures.1 Before procuring a background check from a consumer reporting agency, the employer must disclose its intention to do so and obtain the individual’s authorization (known as the “stand-alone” disclosure requirement). The plaintiff’s bar has racked up significant settlements in cases alleging that the employer’s disclosure includes so-called “extraneous” information and thus violates the FCRA’s stand-alone disclosure requirement.2
To date, only the Ninth Circuit has opined on what information is and is not extraneous, most recently in March 2020 in Walker v. Fred Meyer, Inc.3 Although the Ninth Circuit revived the plaintiff’s lawsuit, the employer recently prevailed at the trial court on the crucial issue of whether any violation was “willful,” i.e., reckless or intentional.4 “Willfulness” is a pivotal issue because statutory damages are available for such violations without any corresponding showing of actual damages.5
The Litigation
In Walker, the plaintiff asserted that the defendant acted willfully when it provided him with a disclosure that included alleged extraneous information, i.e., failed to comply with the FCRA’s stand-alone disclosure requirement. The trial court granted the defendant’s motion to dismiss, but the Ninth Circuit reversed, holding, as an issue of first impression, that the last two paragraphs of the defendant’s disclosure (each containing one sentence) were extraneous.6 The Ninth Circuit reasoned that, although the defendant included this text in “good faith,” it “could pull the applicant’s attention away from” the privacy rights protected by the FCRA by calling their attention to the rights that they have to inspect the background check company’s files. The Ninth Circuit did not consider whether the violation was willful.
On remand, the defendant argued that its violation was not willful because in March 2017, when the plaintiff applied, the stand-alone disclosure requirement was ambiguous. The magistrate judge agreed and recommended granting summary judgment to the employer, emphasizing that the Ninth Circuit’s opinion defined the term “disclosure” in the FCRA for the very first time.7 On September 24, 2021, the district court judge adopted the magistrate’s recommendation and dismissed the case.
Takeaways for Employers
A second appeal in this years-long battle is virtually certain. Meanwhile, the magistrate’s order provides a useful guidepost for trial courts assessing purported willful violations of the stand-alone disclosure rule, reinforcing how (1) the text of the disclosure rule is susceptible to some interpretation, not unambiguous, and (2) the determination of willfulness turns on the law that existed at the time of the underlying violation (i.e., when the employer presented the plaintiff with the alleged deficient disclosure), not the time of the lawsuit itself.
Beyond FCRA class actions, background checks continue to raise thorny compliance issues nationwide, especially those involving criminal background checks.8 Employers thus must continue to monitor the proliferation of new and amended “ban the box” laws.9 Consultation with knowledgeable employment law counsel is recommended to help mitigate the many risks.
