Hiring Documents Willfully Violated Fair Credit Reporting Act

April 21, 2017

During the hiring process, employers provide prospective applicants with a variety of documents.  Indeed, most employers require that applicants complete an employment application and authorize the employer to conduct a background check, a drug test, or both. Although this is an expected and widely accepted practice, many employers do not know that their application and background-check authorization forms – if not in compliance with state and federal law – may subject them to liability.  

In January 2017, in an issue of first impression, the Ninth Circuit Court of Appeals, in Syed v. M-I, LLC, found that an employer willfully violated the Fair Credit Reporting Act (“FCRA”) by including a liability waiver on a background-check disclosure form. Specifically, the FCRA requires employers who wish to conduct a background check to provide a “clear and conspicuous disclosure [to the applicant] . . . before the report is procured . . . in a document that consists solely of the disclosure.” (Emphasis added). In Syed, instead of a document that consisted “solely of the disclosure,” the employer’s disclosure included a waiver of liability that indemnified the employer from “any and all liability and claims arising by reason of the use of th[e] release . . . .”  

In finding that the employer violated the FCRA, the court held that the “liability waiver  . . . pulls the applicant’s attention away from his privacy rights protected by the FCRA by calling his attention to the rights he must forego if he signs the document.” The court reasoned that by reading the employer’s disclosure, an “applicant could reasonably conclude that his signature was not consent to the procurement of the consumer report, but to a broad release of the employer from claims arising from” the background check.   

Not only did the court find that the employer violated the FCRA, the court found that the violation was “willful,” concluding that the employer “ran an unjustifiably high risk of violating the statute” and maintained a “reckless disregard of statutory duty.” The employer was, accordingly, subject to both statutory and punitive damages. 

Employers should regularly examine their hiring documents to ensure that the documents remain in compliance with state and federal law. Although conducting background checks is a routine and accepted hiring practice, navigating complex state and federal laws involving disclosure requirements, discrimination, non-competition agreements, and social media may be difficult. It is advisable to stay up-to-date on state and federal law and consult an attorney to ensure your company’s hiring documents will not subject it to liability. 

Contributed by David J. Houston of Dickinson Wright PLLC.