Fair Credit Reporting Act compliance: New court opinion clarifies stand-alone disclosure

Fair Credit Reporting Act compliance: New court opinion clarifies stand-alone disclosure

Excerpted from an Atkinson Andelson Loya Ruud & Romo blog by Iris Kristoff, Jennifer Grock and Jonathan Judge

The federal Fair Credit Reporting Act (FCRA) permits background checks for employment purposes, so long as employers obtain authorization from and provide the appropriate “stand-alone” disclosure to the applicant or employee regarding the background check.

Willful violations of the FCRA’s stand-alone disclosure requirement can lead to recovery of statutory damages ranging from $100 to $1,000 per violation. Thus, a central issue in FCRA cases is whether the employer’s violation is “willful,” which requires showing that the defendant’s conduct was “intentional” or “reckless.”

A recent opinion issued in Hebert v. Barnes & Noble, Inc., 2022 WL 1165858 (California Court of Appeal, April 19, 2022) provides clarity on the FCRA’s willfulness standard. In Hebert, the plaintiff filed a class action alleging defendant Barnes & Noble’s background check disclosure form included extraneous language unrelated to the background check and therefore willfully violated the FCRA’s stand-alone disclosure requirement. Specifically, Barnes & Noble used a sample disclosure form provided by its background check company that included the following footnote:

    “Please note: Nothing contained herein should be construed as legal advice or guidance. Employers should consult their own counsel about their compliance responsibilities under the FCRA and applicable state law. The background check company expressly disclaims any warranties or responsibility or damages associated with or arising out of information provided herein.”

The plaintiff alleged that Barnes & Noble failed to provide applicants with a “stand-alone” disclosure as required under the FCRA and sought class-wide statutory damages for the alleged “willful” violation. The defendant moved for summary judgment, arguing that any non-compliance was due to an inadvertent drafting error when it attempted to update its FCRA disclosure, and was not willful (i.e., not knowing or reckless). The trial court agreed and granted Barnes & Noble’s motion for summary judgment.

On appeal, the California Court of Appeal reversed, concluding that there was sufficient evidence by which a reasonable jury could find a willful violation of the FCRA. The court focused on the facts that:

    (1) one of Barnes & Noble’s employees, as well as outside counsel, was aware the extraneous language would be included in the disclosure and reviewed the disclosure before it was issued;

    (2) Barnes & Noble used the disclosure for nearly two years and only updated the disclosure when it switched background check companies, and not because of any kind of internal FCRA compliance efforts.

The court rejected Barnes & Noble’s arguments that their employee who reviewed the disclosure form for compliance purposes was a “non-lawyer” who was not well-versed in FCRA requirements and received only “general” training on the FCRA and that Barnes & Noble had no reason to know its disclosure form violated the FCRA because it received no complaints from job applicants.

The court noted that Barnes & Noble may have acted recklessly by “delegating all of its FCRA compliance responsibilities to a human resources employee who, by his own admission, knew very little about the FCRA” and reasoned that Barnes & Noble’s “continued and prolonged use” of the “problematic” disclosure form could suggest recklessness because Barnes & Noble had no proactive, routine monitoring system for FCRA compliance.

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