The Ninth Circuit Takes on Background Report Disclosures (Again)… and Pre-Adverse Action Requirements Too

We have previously written about Gilberg v. California Check Cashing Stores, LLC, a recent decision by the Ninth Circuit Court of Appeals that dove into the disclosure requirements for employers that use background screening companies to get background reports (also known as consumer reports) on employees and applicants.

By now, you probably are aware of the Fair Credit Reporting Act’s (FCRA) disclosure requirements that were addressed in the Gilberg case. As a reminder, before obtaining a background report from a background screening company on an applicant or employee, an employer must:

• Provide the applicant/employee with a clear and conspicuous written disclosure, in a document consisting solely of the disclosure, that the employer may obtain a background report on the applicant/employee for employment purposes

These disclosure requirements have been the source of confusion, debate, and multiple court interpretations.  The Ninth Circuit is adding to the debate yet again with its latest interpretation of these requirements in the recently decided Walker v. Fred Meyer, Inc. case.  To read the court’s decision, click here.

The Walker court found that some provisions of the defendant employer’s disclosure document did violate the standalone disclosure requirement of the FCRA, while other provisions did not.  Importantly, the court established a new standard for interpreting whether language in a disclosure document is extraneous.  According to the court’s decision, “…beyond a plain statement ‘that a consumer report may be obtained for employment purposes,’ some concise explanation of what the phrase means may be included as part of the disclosure…”

According to the court, this new “concise explanation” standard may allow additional information to be provided in the disclosure document, potentially including:

• A brief description of what a consumer report entails;
• How the consumer report will be obtained; and
• For which type of employment purposes it may be used.

While this decision does make an allowance for some concise, explanatory language to be included in FCRA-required disclosure document, the court also noted that the sky isn’t the limit. Employers should be aware that too much information in a disclosure document is still a violation of the FCRA’s standalone disclosure requirement.

The court held that language in a disclosure document “…included in good faith in order to provide additional useful information about an applicant’s rights to obtain and inspect information about … [the background screening company’s] investigation of, and file about, the applicant” constitutes a violation of the FCRA, as “[t]his language, however, may ‘pull the applicant’s attention away from his privacy rights protected by the FCRA by calling his attention to the rights’ that he has to inspect … [his] files.”

In addition to the in-depth discussion of an employer’s FCRA disclosure requirements, the court also briefly touched on an employer’s pre-adverse action requirements under the FCRA.  For details on pre-adverse and adverse action requirements, you may want to visit our previous discussion on this topic here.  The Walker court held that the FCRA’s pre-adverse action requirements do not require that an applicant/employee be provided an opportunity to discuss their consumer report directly with the employer before adverse action is taken.

The Walker decision impacts the jurisdictions within the Ninth Circuit.  However, it may not be a stretch to imagine that other courts could adopt the Ninth Circuit’s standards for FCRA disclosure and pre-adverse action compliance.  This case should give employers more to think about when they’re putting together their disclosure forms, as well as pre-adverse action notices.  Of course, it’s always a good idea to discuss your employment practices with your legal counsel to make sure all your documents and employment practices fit with the latest court interpretations of applicable laws.