Proper Form for Your Disclosure

April 8, 2020

Recently, we had a webinar with Scott Paler, Partner and Attorney at DeWitt, LLP.  Scott serves as Chair of the Firm’s Background Screening Practice Group and is an active member of the Firm’s Litigation Practice.

Scott shared the following remarks, observations, and guidance to employers as they consider building compliant background screening programs.

Background screening class actions are the “Perfect Storm” and we expect them to continue to grow in number and for them to continue to be lucrative for the plaintiffs’ bar.

One thing to keep in mind is that background screening class actions continue to surge and there are different reasons for this.

  • Increased expertise in plaintiff’s bar.
  • Highly technical requirements.
  • Key ingredient for class actions (same procedures over and over).
  • Some favorable case law for plaintiffs.
  • Eye-popping settlements.
  • Generous damage structure under federal and certain state law (e.g., California)

The plaintiffs’ bar is focusing on two areas in the background screening process:  written consent and adverse action.  Today, we're going to focus on what's new in written consent and how to manage risk in this area a little better.

There is no background screening class action that is increasing in number more readily and more quickly than those related to written consent paperwork.

You might be surprised to learn that it really comes down to one piece of paper and that one piece of paper is called the disclosure.  It's a requirement under the Fair Credit Reporting Act (FCRA), which is the federal law that covers background screening checks.  The FCRA says in very limited detail that an employer must provide a standalone document or a document that consists only of the disclosure to the job applicant or employee.

The disclosure document states that the employer is going to obtain a consumer report on the candidate for employment purposes. That's about all it says.

So, plaintiffs’ attorneys have taken the position in the last six or seven years that the disclosure is invalid in the background screening consent process if the employer is inserting extraneous information into the disclosure.  If the employer is including information that doesn't have to be included, then that invalidates the consent process and it means that you're running a background check without consent. We are seeing a lot of these background screening consent cases; especially in California and New York.

There is a new case that came out this week, Monday, March 23, 2020 from the ninth circuit.  This is “hot off the press.”  The ninth circuit is “Ground Zero” for background screening consent cases, and it is one of the most, if not the most, insightful background screening consent case that I have ever seen.  It provides a lot of help in determining what should go into the FCRA disclosure and what should not.

The ninth circuit says it's okay to state that reports will be obtained by the employer for employment purposes.  It also states that it's okay for employers to include a definition of consumer reports.  That definition comes directly from the Fair Credit Reporting Act. It's okay to identify examples of the types of information that will be included in the background check.

For example, you're going to obtain criminal history information and credit information and education and employment verification information. It's also okay to include the name of the background screening company because that provides surrounding detail that helps the job applicant or employee know what's coming.

The court said it is not okay to discuss a job applicant’s or employee’s right to find out more information about the nature and scope of Investigative Consumer Reports. So, for example, if the background screening company is doing reference checks for the employer, there is certain additional information that must go to the job applicant or employee. In the past that additional information about Investigative Consumer Reports was combined with the information about ordinary consumer reports.  Regarding this, the ninth circuit has stated that including detail in the disclosure is considered extraneous information and that the document is invalid.

The court also said that it’s illegal for the employer to include language in the FCRA disclosure stating that the job applicant or employee has the right under federal law to gain access to information that the background screening company has in its files.  This is considered extraneous information.

At the same time, the ninth circuit also said that it's quite important to double-check that the disclosure is clear and conspicuous.  Therefore, employers want to be using subtitles and proper paperwork formatting e.g. bold print, to make sure that candidates and employees are really seeing it i.e. the language is clear and easy to read.

I constantly hear from employers, “This is all so technical.  Why does it matter if there's a few extra words included? The employee understands that they're consenting to the check and that's all that really matters, right?” 

Well, the following class action lawsuits have been settled recently.

  • Frito-Lay paid $2.4M (lawsuit claimed the company violated the FCRA and state law by using improper disclosure forms).

  • 7-Eleven paid $1.9M (lawsuit claimed the company violated the FCRA by failing to provide a “standalone” notice of background checks).
  • Omnicare paid $1.3M (lawsuit that claimed the company failed to provide standalone disclosures as required by federal and state law.)
  • A subsidiary of PepsiCo paid $1.2M (lawsuit that claimed the company violated the FCRA for its failure to make the necessary disclosures prior to obtaining background checks for employment purposes).

Companies are paying out enormous settlements related to highly technical background screening consent allegations.  This is the reason it deserves “Front Burner” attention.

So, what should an employer do?  Keep the disclosure paperwork short.

It’s counter-intuitive that employers get into trouble.  Most are trying to be helpful to the candidate by including additional information about the process and their rights.   This is not helpful at all.

Best Practice Pointers for Consent Forms

  1. Keep FCRA disclosure very “short and sweet.”
  2. Remove information that could be deemed “extraneous” from Disclosure. For example:
    • State law notices.
    • Discussion of “Investigative Consumer Report” rights.
    • Discussion of individual’s right to get file information from CRA (Credit Reporting Agency, or the background screening company).
    • Release of liability.
    • At-will statements.
    • “You better be honest” statements.
    • References to federal notice entitle “A Summary of Your Rights…”

Essentially anything that we think we need to cover that isn't absolutely necessary for the disclosure ought to go on a different document. That's the "end all be all" on this stuff.

How Orange Tree Can Help

  1. We provide sample authorization and disclosure forms for our client's use.
  2. Our consent process allows for completely separated authorization and disclosure forms.
  3. We provide regular updates to our on background screening regulation.
  4. To learn more about Orange Tree's legally defensible solutions, contact us now.
This information is not legal advice, either expressed or implied. Orange Tree recommends you seek the advice of your corporate legal counsel for all aspects of employment law.

Topics: Background Checks, Human Resources, Background Screening, Compliance

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