No Waiver Allowed in Background Check Disclosure Form

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By Kevin McGowan

An oil and gas services company can’t use its background check disclosure form to force job applicants to waive potential claims against the company, a federal court ruled ( Syed v. M-I, LLC , 2017 BL 16499, 9th Cir., No. 14-17186, 1/20/17 ).

On an issue of first impression, the U.S. Court of Appeals for the Ninth Circuit said under the Fair Credit Reporting Act, an employer must solely inform a job applicant the company intends to check the applicant’s “consumer reports” in the hiring process.

The form can’t also include a provision waiving the employer’s liability for any damages potentially resulting from the background check process, the court said Jan. 20.

No federal appeals court previously decided that issue under the FCRA. The Federal Trade Commission issued three relevant “informal staff opinion letters” on extra material placed in disclosure forms but no “authoritative” agency decision, the Ninth Circuit said.

Good News for Workers, Consumers

It’s a “great decision” protecting the privacy of workers and consumers that “came down exactly the way it should,” said Peter Dion-Kindem, the lawyer who represented Sarmad Syed in his class action against M-I LLC.

There are “lots of cases” pending elsewhere that challenge employers’ addition of extraneous language to the required FCRA disclosure form, Dion-Kindem told Bloomberg BNA Jan. 23.

The Ninth Circuit’s ruling that an attempted liability waiver runs afoul of the FCRA’s disclosure form requirements is “great news” for those other cases too, Dion-Kindem said.

Cautionary Tale for Employers

The decision isn’t “really a surprise” because the FTC, in its informal guidance letters, previously said the FCRA doesn’t allow a waiver to be included in a disclosure form, said Angela Kleine of Morrison Foerster in San Francisco, who represents financial companies in FCRA matters.

Many employers that were putting such waivers in the forms stopped doing so after the FTC addressed the matter, Kleine told Bloomberg BNA Jan. 23.

But the court’s conclusions that an M-I LLC employee who wasn’t actually harmed by the form still has standing to sue and that M-I can be sued for a “willful” violation are surprising, Kleine said. The FCRA imposes statutory penalties of $100 to $1,000 per willful violation, so damages could “really add up” if thousands of applicants received the same form and are potential class members, she said.

The decision “underscores the importance” of employers reviewing their FCRA-required forms extremely carefully to ensure they comply with the act, Kleine said.

The more an employer puts into the disclosure form, the greater the legal risk, she said. A waiver is a particular hot-button item that would draw a court’s attention, said Kleine, who didn’t represent any party in the Ninth Circuit case.

Statute’s Meaning Called Clear

The FCRA “unambiguously bars the inclusion of a liability waiver” in the same document as the mandated disclosure to an individual undergoing a background check, Judge Kim McLane Ward wrote in an opinion joined by Judges Mary M. Schroeder and John B. Owens.

M-I argued that even if it violated the act in procuring Syed’s background report, it didn’t commit a willful violation because no appeals court or federal agency previously had ruled on the waiver issue.

The company said its interpretation that the FCRA permitted the insertion of a waiver in the disclosure form wasn’t “objectively unreasonable.”

But the Ninth Circuit said a previous “lack of guidance” from the federal courts didn’t make M-I’s interpretation of the law reasonable.

The inclusion of an employer waiver of liability in a document intended to warn an applicant that background information may be sought is at odds with the statute’s protective purpose, the court said.

The FCRA can’t be reasonably interpreted to provide an employer complies with the disclosure requirement when it requires the applicant simultaneously to waive any legal claims against it, the court said.

Peter R. Dion-Kindem PC and the Blanchard Law Group represented Syed. Morgan Lewis & Bockius LLP represented M-I LLC.

To contact the reporter on this story: Kevin McGowan in Washington at kmcgowan@bna.com

To contact the editors responsible for this story: Peggy Aulino at maulino@bna.com; Terence Hyland at thyland@bna.com; Christopher Opfer at copfer@bna.com

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

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