The United States Court of Appeals for the Ninth Circuit recently issued two decisions regarding requirements under the Fair Credit Reporting Act for employers who wish to run background checks on potential or current employees. These decisions should prompt employers to take a look at their current background check disclosure and authorization forms to assess whether they conform to the views stated in these two cases. As FCRA disclosures are a source of both compliance confusion and litigation, these decisions deserve attention and review.

In the first case, Walker v. Fred Meyer, Inc., the Ninth Circuit addressed the “standalone” requirement for disclosures under Section 1681b of the FCRA. In the second case, Luna v. Hansen & Adkins Auto Transport, Inc., the Court addressed the presentation of “standalone” disclosures and also whether there is any FCRA requirement for separate presentation of a consumer authorization for a background check.

These decisions were the third and fourth cases in a series of Ninth Circuit decisions handed down in recent years that relate to what can and cannot be included in a FCRA disclosure form. Taken together, the Ninth Circuit has taken the most rigorous view of the FCRA requirements, a view which will likely shape how companies interpret and implement their disclosure obligations under the FCRA. Below we examine both Walker and Luna and summarize the key takeaways for employers moving forward.

Walker v. Fred Meyer, Inc.

The case in Walker was brought by an employee who was hired contingent upon a background investigation. A vendor of the employer conducted a background investigation after the applicant signed a disclosure and authorization form. When the employee was dismissed from his position following an unsatisfactory result on his background check, he sued, arguing that the disclosures given to him by the employer describing the background check process violated the FCRA.

The FCRA requires that before an employer pulls a consumer report for employment purposes that the employer give the applicant a “clear and conspicuous” disclosure that the employer may obtain such a report. The disclosure must be “in a document that consists solely of the disclosure.” 15 U.S.C. 1681b(b)(2)(A)(i). What can and cannot be included in such a disclosure has been the subject of much debate, including recently in the Ninth Circuit.

In Walker, the district court previously had dismissed the employee’s claim that the disclosure form he signed was not standalone (see our previous coverage of this case here). However, the Ninth Circuit reversed the lower court on this claim, finding that certain provisions in the disclosure form referenced other rights under federal and state law and, in doing so, violated the FCRA’s requirement that the document consist “solely of the disclosure.” The Court said that while the extraneous information likely was included in good faith, in order to provide an applicant with information about the right to inspect his or her file, including such additional information could potentially pull an applicant’s attention away from the privacy rights protected by the FCRA.

The Ninth Circuit held that in addition to a “plain statement,” a report may be obtained for employment purposes and employers may include a “concise explanation” of what that statement means. The Court gave the example that a properly limited disclosure could include what a consumer report entails, how it would be obtained, and for what type of “employment purpose” the report might be used. The Court cautioned, however, that the explanation must not be so long or confusing such that it detracts from the disclosure or in any way makes the disclosure not clear and conspicuous. The Court emphasized that the purpose of any type of explanation is to help the consumer understand the disclosure.

Specifically, the Court performed a paragraph by paragraph review of the employer’s existing disclosure form and found that:

• The portion of the employer’s disclosure that referenced both investigative consumer reports as well as standard consumer reports was permissible, as investigative consumer reports are a specific category of consumer reports.

• Paragraphs that describe who the consumer reporting agency is, how to contact them and what type of information they will review (such as education, work history, address history, criminal records, and driving records) also do not violate the FCRA standalone disclosure requirement.

• An explanation of how a consumer may obtain and inspect files from a consumer reporting agency, and a reference to obtaining a disclosure on the scope and nature of any investigation performed, conflicts with the standalone requirement as it potentially distracts the consumer from the privacy rights under the FCRA. The Court held that this type of information should be provided in a separate document because it is not part of the disclosure that a consumer report would be obtained for employment purposes but, rather, related to separate consumer rights.

Although the Court engaged in a paragraph by paragraph review of the employer’s disclosure form, opining on which provisions could be included in a standalone disclosure, because it found that certain language violated the standalone requirement, it declined to engage in a discussion of whether the employer’s language met the FCRA’s requirement that the disclosure be “clear and conspicuous.” The Ninth Circuit previously addressed the “clear and conspicuous” question in Gilberg v. Cal. Check Cashing Stores, LLC, issued in 2019. As the parties in Walker had not been able to fully brief the “clear and conspicuous” question, in light of the Gilberg decision, the Ninth Circuit left this question to the district court.

Separately, the Ninth Circuit also affirmed the portion of the district court’s decision which found that employers, in a pre-adverse action letter sent before taking action against an applicant or employee, are not required to provide employees or applicants with an opportunity to directly discuss a consumer report with the employer. Rather, it is sufficient for the employer to have a notice in a pre-adverse action letter that describes the consumer’s ability to dispute the completeness or accuracy of the information with the consumer reporting agency.

Luna v. Hansen & Adkins Auto Transport, Inc.

Shortly after the Walker decision, the Ninth Circuit issued its ruling in Luna. While in Walker the Ninth Circuit looked at the language of a required disclosure, the Luna decision focused on the format of such a disclosure and its accompanying authorization.

In Luna, an employee filed a putative class action alleging that the employer’s disclosure and consent forms for background checks violated the FCRA. The disclosure form was a separate page within a larger group of application materials, and the authorization appeared on a page at the end of the packet along with other notices, waivers, and consents that were unrelated to the consumer report.

The plaintiff employee first argued that by including the disclosure together with other application materials, despite being on its own page, the disclosure should not be considered a “standalone” disclosure and, in doing so, violates the FCRA. The Ninth Circuit pushed back against this interpretation of “standalone” disclosures, finding that such an interpretation was not supported by the text or case history of the FCRA. The Court stated that while a disclosure must not contain other unrelated information (as discussed in Walker), “no authority suggests that a disclosure must be distinct in time, as well.” The Court also pointed out the practical concerns with such an interpretation, questioning how under the plaintiff’s view an employer could ever provide application materials without violating the FCRA. The employer providing the background check disclosure in its own document, despite being alongside other application materials, was “precisely what [the] FCRA requires.”

The Court in Luna also weighed in on the “clear and conspicuous” prong of the FCRA disclosure requirement – one of the issues left open in Walker. The Court reiterated its previous guidance that a disclosure be “readily noticeable” and in a “reasonably understandable form.” Here, the employer’s form had a bold, all-caps header reading simply “FAIR CREDIT REPORTING ACT DISCLOSURE STATEMENT.” The form itself consisted of a short statement describing the background check process, saying that “reports verifying your previous employment, previous drug and alcohol test results, and your driving record may be obtained on you for employment purposes” and citing the applicable statutory sections. The page contained no other information besides employer logos and a signature block for the applicant. The Court found the disclosure to meet the clear and conspicuous requirement saying “applicants, such as big-rig truckers, can be expected to notice a standalone document featuring a bolded, underlined, capital-lettered heading.

Finally, the Ninth Circuit also dispensed with the employee’s claim that the authorization for an employer to acquire a consumer report on an applicant also needed to be in a clear and conspicuous standalone document. The Court found no statutory support for this position, pointing to the separate subsection of the FCRA that requires an authorization in writing, but that does not use the language found in the disclosure subsection that refers to “a document that consists solely of the disclosure.” Compare 15 U.S.C. 1681b(b)(2)(A)(ii) with 15 U.S.C. 1681b(b)(2)(A)(i).

Takeaways

Together, the Walker and Luna decisions have further refined and clarified the Ninth Circuit’s stance on employer disclosures under the FCRA, namely:

• The Ninth Circuit has taken a very strict and narrow view of what information may be contained within the disclosure. Along with a “plain statement” that a report may be obtained for employment purposes, employers also may include a “concise explanation” of what that statement means. References to other rights, such as the right to review related documents under state law, should not be included in such a disclosure.

• If an employer presents the disclosure in a separate document with a clear heading, even if that document is part of a larger group of application materials, the standalone requirement is met.

• The authorization for an employer to pull a consumer report does not need to be in a standalone document.

These decisions, and the Ninth Circuit’s continued focus on the FCRA’s requirements for standalone consumer disclosures, present an opportunity for employers to review their disclosure and authorization forms with legal counsel and ensure they are in the strongest position possible to avoid future litigation.