What’s in your FCRA disclosure form?

A recent court case serves as a warning to employers

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Under the federal Fair Credit Reporting Act (“FCRA”) employers who use background checks (such as criminal history or credit reports) of applicants or employees are required to provide clear and conspicuous written disclosure of the applicant/employee’s rights under the FCRA. The written disclosure must be provided in a document that consists solely of the disclosure. The third-parties doing the background checks often provide employers their own disclosure forms to give to applicants, and the employers might assume that these forms are legally compliant.

However, the recent Ninth Circuit Court of Appeals decision in Syed v. M-I LLC, provides a wake-up call for employers to independently review their FCRA disclosure forms for compliance. In that case, the employer used the FCRA disclosure document form provided by its third-party background check vendor. The disclosure form also included a release of liability for the vendor and the employer, which stated:

I understand the information obtained will be used as one basis for employment or denial of employment. I hereby discharge, release and indemnify prospective employer, PreCheck, Inc., their agents, servants and 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.

As such, the applicant’s signature served as both an authorization for the employer to obtain his background report and a waiver of liability. The Court found that the presence of the liability waiver with the FCRA disclosure violated the FCRA, holding that “[a] prospective employer violates [the statute] when it procures a job applicant’s consumer report after including a liability waiver in the same document as the statutorily mandated disclosure” and that “[i]n light of the clear statutory language that the disclosure document must consist ‘solely’ of the disclosure, a prospective employer’s violation of the FCRA is ‘willful’ when the employer includes terms in addition to the disclosure, such as the liability waiver here.”

As such, employers should have their FCRA disclosure and authorization forms reviewed to ensure that the documents do not contain extra provisions that could violate the FCRA. Any such extra provisions should be contained in a separate document.

Additional guidance about the use of background check information

Employers should also remember that both federal and state law restrict the circumstances under which background checks are run and how employers use the information obtained in the checks.

For example, in California, employers may not run an applicant’s credit history unless the position that the applicant/employee will hold falls within a specific exception, such as:

  • A position that involves regular access, for any purpose other than the routine solicitation and processing of credit card applications in a retail establishment, to all of the following types of information of any one person: (A) Bank or credit card account information. (B) Social security number. (C) Date of birth.
  • A position in which the person is, or would be, any of the following: (A) A named signatory on the bank or credit card account of the employer. (B) Authorized to transfer money on behalf of the employer. (C) Authorized to enter into financial contracts on behalf of the employer.
  • A position that involves access to confidential or proprietary information, including a formula, pattern, compilation, program, device, method, technique, process or trade secret that (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who may obtain economic value from the disclosure or use of the information, and (ii) is the subject of an effort that is reasonable under the circumstances to maintain secrecy of the information.
  • A position that involves regular access to cash totaling ten thousand dollars ($10,000) or more of the employer, a customer, or client, during the workday.

Moreover, employers must use extreme care in using criminal history information only to the extent that it is job-related and consistent with business necessity, taking into consideration factors such as: 1) nature and gravity of the crime, 2) the time elapsed since the offense, and 3) the nature of the job. In addition, an employer should conduct an individualized assessment for those excluded under the above criteria and provide notice to the applicant that he/she was screened out based on the criminal history, and an opportunity for the applicant to demonstrate that he/she should not be excluded due to the particular circumstances. There must be a logical connection between the criminal conduct and the job duties to warrant exclusion. Also, employers may not ask for or use any information related to juvenile arrests, detentions, diversions, court dispositions, convictions, or other court orders in determining any condition of employment (including hiring).

For employers who are located or doing business in Los Angeles and San Francisco, local “ban the box” ordinances prohibit private employers from inquiring about an applicant’s criminal history until later in the hiring process (in San Francisco after the initial interview. and in Los Angeles after a conditional offer of employment) with only limited exceptions.

With all of these concurrent restrictions and obligations, employers should have strict and specific processes in place for screening applicants and should audit their employment applications and disclosure forms to ensure that they do not contain provisions or inquiries that are disallowed by law. Moreover, before disqualifying any applicant on the basis of information obtained in a background check an employer should ensure that it has performed sufficient analysis based on the above factors to show that the information was relevant to the job in question and should consult with legal counsel as to the employer’s obligations.