Important Case Update Regarding The Fair Credit Reporting Act
Many employers conduct a credit or consumer background check as part of their employment process. If you do, there is a recent development of the 9th Circuit that all employers should be made aware of.
A consumer report is defined as the communication of information (either written or oral) by a consumer reporting agency on a consumer’s creditworthiness, credit standing or capacity, general reputation, or mode of living which is then used for the purpose of serving as a factor in establishing the consumer’s eligibility for credit or insurance, employment purposes, any other purpose authorized under the Fair Credit Reporting Act (The Act).
The Act imposes obligations on Employers who obtain a consumer report as part of the hiring process, including the obligation to obtain the applicant’s prior written permission to do so after providing to the employee certain disclosures of rights under the Act. In Syed v. M-I, LLC, et al., 2017 WL 242559 (9th Cir. Jan 20, 2017) the Employer provided the required Notice of Rights to the employee and written permission to obtain a report. Included in the Notice, however, was a waiver of the applicant’s right to sue the Employer for a violation of the Act. The employee brought a class action suit against the employer alleging a willful violation of the Act because the Act provides that the disclosure of rights document consist “solely” of the notice of rights. A plaintiff who alleges a mere procedural violation of the Act but no concrete harm from the violation fails to allege “an injury in fact” required to maintain an action. (i.e. that there be an actual “case of controversy” for Article III purposes.) The District Court dismissed the action, holding that combining the notice of rights with a waiver did not amount to a willful violation of the Act. In a case of first impression nationwide, the Ninth Circuit reversed, holding that the Complaint alleged more than a mere procedural violation, but rather a violation of a substantive right to be provided information by the employer in the precise manner required by statute.
Why is this an important holding? Damages! A non-willful violation of the Act entitles a plaintiff only to actual damages. However, when a willful violation is established, the plaintiff may recover, in addition to actual damages, statutory damages between $100 and $1,000 per violation (which in a class action can add up quickly), punitive damages, costs and attorneys’ fees. Although the case has only persuasive application outside the 9th Circuit, given the remedial purposes of the Act, it is not unlikely other Courts of Appeal will hold in like fashion. Given the risk of liability versus the ease of avoiding that liability, compounded by the fact that the use of credit or consumer reports is so wide-spread, employers should be advised to carefully review with competent employment counsel the procedures, forms, and timing of obtaining such reports and an applicants’ permission to do so.