Two Recent FCRA Decisions: Good and Not-So-Good News for Employers

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Two Recent FCRA Decisions: Good and Not-So-Good News for Employers


Our Closer Look articles offer an in-depth analysis of background screening topics currently affecting employers. Today, we review the impact of two recent FCRA decisions.

Paramount_Pictures_logo_2013Let’s begin with the “good” news. In a March 25, 2015 decision, the Federal District Court Northern District of California dismissed a class action lawsuit against Paramount Pictures (Michael Peikoff v. Paramount Pictures Corporation). The alleged violation in this case was one common to many FCRA cases against employers, specifically the disclosure used by Paramount failed to meet the “in a document that consists solely of the disclosure” requirement of the FCRA and that such violation was willful. The disclosure and authorization used by Paramount provided:

I understand that I am entitled to a complete and accurate disclosure of the nature and scope of any investigative consumer report of which I am the subject upon my written request to Kroll, if such is made within a reasonable time after the date hereof. I also understand that I may receive a written summary of my rights under 15 U.S.C. § 1681 et. seq. I agree that this authorization shall remain valid for the duration of my employment with Company. I certify that the information contained on this Authorization form is true and correct and that my application may be terminated based on any false, omitted, or fraudulent information. (Emphasis added)

The sentence regarding truthfulness was alleged to violate the “solely” requirement of the FCRA. In dismissing the complaint, the Court wrote:

The one-sentence certification Paramount included in its disclosure form, if not a part of the statutorily permitted authorization, was closely related to it, and would similarly serve to “focus the consumer’s attention on the disclosure.”… Therefore, even if inclusion of the certification in Paramount’s disclosure form did not comply with a strict reading of § 1681b(b)(2)(A)’s requirement that the document consist solely of the disclosure and the authorization, it is not plausible that Paramount acted in reckless disregard of the requirements of the FCRA by using this language.

Although the complaint was dismissed, it is worth noting that the Court acknowledged the possibility that including certification language in the disclosure and authorization may violate the “solely” requirement of the FCRA. Even this employer-friendly decision, therefore, reinforces the need for caution and qualified legal counsel when crafting disclosure and authorization language.

And the “not-so-good” news…

In a March 30, 2015 decision in the Federal District Court Middle District of Florida, the Court denied a motion to dismiss in Colin Speer v. Whole Foods Market Group. The alleged violation in this case also involved willful failure to meet the “solely” requirement of the FCRA, but included a new twist as explained below.

By way of reminder, although the FCRA requires the disclosure be in a document consisting solely of the disclosure, it does allow the authorization and disclosure to be combined. When presented separately from the disclosure, presumably there is no “solely” requirement for the authorization. In the Speer case, the disclosure and authorization were presented to the applicant in separate one-page documents, each document requiring the applicant’s signature, with the authorization containing a waiver of liability. (Numerous cases have been filed alleging FCRA violation when such a waiver is included in a combined disclosure and authorization document; the Federal Trade Commission has opined against the practice.)

The Defendant argued that the disclosure was separate from the authorization, and therefore, inclusion of a waiver of liability in the authorization did not violate the “solely” requirement of the FCRA nor did it render the authorization invalid. Plaintiff’s complaint, however, provided that although the disclosure and authorization documents were presented to the applicant on two separate pages, those pages were simultaneous which “renders [the disclosure form] meaningless in terms of FCRA compliance.” The complaint provided that both the disclosure and authorization had to be read and reviewed at the same time and therefore, “The mere fact that the documents are both single page documents does not ipso facto make Defendant’s [disclosure form] compliant with the FCRA.” (Ipso facto is Latin for “by the fact itself.”)

In denying the motion to dismiss, the Court leaves open the question of “simultaneous documents.” This case warrants future attention.

Setting aside the new questions raised in this case, the inclusion of a waiver of liability in the disclosure and authorization, whether separate documents or combined, positions an employer as a litigation target. Employers would be well served by ensuring liability waivers are removed from documents used in a background check. As noted earlier, caution and legal counsel is a wise choice.

EBI has a number of sample documents, including disclosures and authorizations, available to clients and other interested parties. To receive a copy of a disclosure and authorization or to obtain additional information about EBI products and services, please click here.

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