Court Says Liability Waivers Can’t be Part of Background Screening Disclosures

The Ninth Circuit Court of Appeals recently ruled that an employer’s inclusion of a liability waiver in a background check disclosure is a willful violation of the Fair Credit Reporting Act (FCRA). This is an important finding and will affect any third party company who performs background screening.

In Syed v M-I, LLC, Mr. Syed signed a “Pre-Employment Disclosure Release” provided by M-I which told him that his credit history and other information might be collected by the company for the purposes of employee screening. The form allowed M-I to order a background check on Mr. Syed and further stated that the applicant (or employee) would be waiving his rights to sue the employer and its agents for violations of the Fair Credit Reporting Act (FCRA).

Mr. Syed brought a class action lawsuit against M-I in the United States District Court of Eastern California alleging that M-I’s inclusion of a liability waiver in its disclosure form was a willful violation of the FCRA’s “sole disclosure” requirement. The court dismissed the lawsuit in favor of M-I. On appeal the Ninth Circuit Court reversed the judgment and reinstated the lawsuit.

What the appeals court said

The Ninth Circuit Court held that a prospective employer violates the FCRA when it procures a job applicant’s consumer report after including a liability waiver in the same document as the statutorily mandated disclosure. The opinion also held that, in light of the clear statutory language, the disclosure document must consist “solely” of the disclosure.

To give some background, the FCRA’s disclosure requirements, encompassed in 15 U.S.C.§ 1681b(b)(2)(A), requires that a person may not procure a consumer report, or cause a consumer report to be procured, for employment purposes with respect to any consumer, unless a clear and conspicuous disclosure has been made in writing to the consumer at any time before the report is procured or caused to be procured. The document should consist solely of the disclosure that a consumer report may be obtained for employment purposes.

FAQ’s for the ruling

Here are a few frequently asked questions about the case and its findings:

What did the case conclude? — The court found that a background check disclosure that includes a liability waiver violates the Fair Credit Reporting Act (FCRA).
Why is the liability waiver a violation of the FCRA? — Under the FCRA, an employer cannot procure a consumer report (background check) on an applicant/employee without providing a clear and conspicuous disclosure that consists solely of the disclosure. The court found that any extraneous information can render the disclosure invalid.
What is a liability waiver on the disclosure? — A liability waiver is a legal document that a person may sign to acknowledge the risks involved in their participation. Regarding this case, the liability waiver on the disclosure stated that the applicant/employee was waiving their right to sue the employer and the consumer reporting agency for violating the FCRA.
What should employers do to comply with this ruling? — Employers should have their background disclosure and authorization forms reviewed by counsel to ensure compliance with the FCRA and state and local laws.

This article was originally published on the Sterling Talent Solutions blog.