Time to Go Back to School on FCRA ‘Disclosure & Authorization’ Requirements

For all the Private Investigator firms that conduct background checks its time to go back to school.

How is it possible, at this point in time, that service providers and their clients are still getting it wrong when it comes to creating a legally compliant ‘disclosure and authorization form for job applicants to provide their consent to a background check being conducted? The lawsuits with ‘disclosure and acknowledgement’ forms central to the case are continuing to rise despite the high cost of not fully complying with the Fair Credit Reporting Act (FCRA). Just ask companies, like Domino’s Pizza, Wholesale Foods, Publix Groceries, Disneyland to name a few.

Its likely that many of you are thinking, no problem, I have this issue covered and know all I need to know about ‘disclosure and authorization’ forms. Okay, Ms/Mr Smarty Pants, here’ a pop quiz for you:

  • Is an employer compliant with the FCRA’s ‘standalone’ document requirement for the ‘disclosure and authorization’ form when they provide job applicants with a disclosure containing state disclosure requirements; and
  • Is a ‘disclosure and authorization’ form that states,”The scope of this notice and authorization is all-encompassing and allows the employer to obtain from any outside organization all manner of consumer reports and investigative consumer reports now and, if you are hired, throughout the course of your employment to the extent permitted by law” legally compliant with the FCRA?

The answer to both questions is a resounding no.

Congratulations if you got the correct answer to both questions. If not, you need to read this article very carefully and take notes.

The Standalone Requirement

David N. Anthony, a partner in the Richmond, Va., office of Troutman Sanders, in his article, ‘Background Check Disclosure Forms Must Be Clear, Standalone,’ said, “the Fair Credit Reporting Act (FCRA) requires employers who obtain a consumer report on job applicants to disclose that process”in a document that consists solely of the disclosure.”

In a recent case, Gilberg v. Cal. Checks Cashing Stores, LLC, No. 17-16263 WL 347027, the United States Court of Appeals for the Ninth Circuit made it clear that a prospective employer violates the standalone requirement of the FCRA by including extra material, such as state disclosure requirements, that goes beyond basic and clear authorization language.

The court found that, in addition to the disclosure required under the FCRA, the disclosure form used by the defendant at issue, CheckSmart Financial, LLC, included disclosures required under laws in the states of New York, Maine, Oregon and Washington that were largely related to consumer credit protection and associated rights. CheckSmart argued these state-level disclosures were distinguishable from the waiver of liability language considered by the Ninth Circuit in Syed because its state-mandated disclosures furthered, rather than undermined, the FCRA’s purposes.

The Ninth Circuit disagreed, taking a broad interpretation of the word “solely” and refusing to imply an exception into the statute for disclosures that explain additional state rights.

The Clear Requirement

According to the court, “clear” under the FCRA means “reasonably understandable.”

Attorney Anthony, added, “The Ninth Circuit also made several additional holdings with respect to the CheckSmart disclosure at issue. In addition to the standalone requirement, the FCRA and California’s FCRA-like disclosure requirements found in the Investigative Consumer Reporting Agencies Act both require the disclosure form to be “clear and conspicuous.” According to the court, “clear” under the FCRA means “reasonably understandable” and “conspicuous” means “readily noticeable to the consumer.”

The Ninth Circuit concluded that the CheckSmart disclosure was not clear because it included language that a reasonable person would not understand. The court took particular issue with the following sentence in the disclosure form, which it quoted in full: “The scope of this notice and authorization is all-encompassing; however, allowing CheckSmart Financial, LLC to obtain from any outside organization all manner of consumer reports and investigative consumer reports now and, if you are hired, throughout the course of your employment to the extent permitted by law.”

The Ninth Circuit held that telling the applicant the disclosure was “all-encompassing”—without more—was confusing and lacked connection to the applicant’s rights. It also included an incomplete sentence that lacked a subject. Finally, the combination of federal and state disclosures in the document would confuse a reasonable reader, under the Ninth Circuit’s view, because the state disclosures implied that only applicants in certain states were entitled to receive a copy of their report.

The Conspicuous Requirement

The Ninth Circuit held that the CheckSmart disclosure was conspicuous because it capitalized, bolded and underlined the headings of each section, labeled the form accurately, and contained legible (although small) font.

Key Takeaways From the Ninth Circuit Ruling

Montserrat Miller, Partner at Arnall Golden Gregory, LLP in the Atlanta office identified the following takeaways in her article, ‘Employment Background Screening–Compliance with the FCRA’

  • Maintain the job application (if one is used) separate and apart from the Disclosure & Acknowledgement (D&A) [form].  Do not embed the D&A into the job application, regardless of how “clear and conspicuous” you believe it to be.
  • Understanding that employers need flexibility to conduct future checks, clearly use complete sentences when addressing the scope of the D&A.
  • Do not include the state-mandated disclosures with the D&A (specifically on the same page). Include them separately and when doing so, be clear about which disclosure applies to what state residents.
  • Capitalize, bold and underline the D&A and use a font larger than Arial Narrow size 8.

In addition, to the above takeaways employers should heed the following with regards to their ‘disclosure and authorization’ form:

  • The FCRA doesn’t allow for employers to include “release of liability” statements within their ‘disclosure and authorization’ forms.
  • The ‘disclosure and authorization’ form is required to be separate from the rest of your job application. For online applications, you will need to separate the ‘disclosure and authorization’ from the rest of the application by having it on a separate web page.
  • The FCRA doesn’t allow for employers to include extraneous information in the ‘disclosure and authorization’ form. When there is extraneous information, the disclosure becomes convoluted, potentially complicated and lacks clarity.
  • The FCRA doesn’t allow for employers to include acknowledgements of other policies or certifications that the information that the applicant has provided is correct cannot be added to the ‘disclosure and authorization’ form. This includes “at-will” statements and acknowledgements.

Conclusion

FCRA lawsuits have been increasing since 2011 and many of these cases have dealt with ‘disclosure &authorization’issues. Maybe you should give your clients the pop quiz to see how they perform! Is it time for them to go back to school as well?

With ‘disclosure & authorization’ documents continuing to be problematic, now is the time to for you to have your clients ‘disclosure & authorization’ forms and process reviewed by competent legal counsel. You should remind them that it is very important for the review to be conducted by legal counsel that has in-depth knowledge and experience with background screening to be sure their process is in full compliance with the FCRA and recent court rulings. Employers outside of the Ninth Circuit would be wise to heed this ruling as well since it is just a matter of time before this same issue comes before the court in your circuit.

Post By Barry Nixon (72 Posts)

W. Barry Nixon is the COO, PreemploymentDirectory.com the leading background screening information portal and online worldwide directory of professional background screening firms and Suppliers to the background screening industry. He co-authored the landmark book, Background Screening & Investigations: Managing Hiring Risk from the HR and Security Perspective. He also is the publisher of award winning newsletters, The Background Buzz and The Global Background Screener, and the author of the Background Checks column in PI Magazine.

In addition, Barry is a past recipient of the elite ‘Top 25 Influential People in Security’ by Security Magazine and past Co-Chair, International Committee for the National Association for Professional Background Screeners (NAPBS). He currently serves as a Global Ambassador for NAPBS.

You can contact Barry at 1-949-770-5264 or online at wbnixon@preemploymentdirectory.com