A Cautionary Tale – FCRA “Miscommunication Can Become a Willful Violation”
A logical byproduct of the “great resignation” is the “desperate recruiting” that many employers are struggling through in an effort to keep the employee population at a functional level. Just as all components of the employee lifecycle bring on compliance challenges, the hiring process is one that has been evolving and becoming more complex over the past few years.
Exhibit A – The Fair Credit Reporting Act…
When employers hire a third party to conduct a background check or obtain reports from outside agencies, such background checks and reports are subject to the FCRA.
Under the FCRA, credit reporting and other investigative agencies may provide background financial and personal information to an employer about an employee or applicant for a permissible “employment purpose” (15 U.S.C. § 1681 et seq.). An “employment purpose” means for the purpose of evaluating an individual for employment, promotion, reassignment, or retention.
As a well-known California employer has been learning, the notice and authorization signed by an applicant or newly hired employee authorizing the employer to obtain a consumer or investigative consumer report should inform the employee that such reports may be obtained at any time during employment. However, incorrect or unnecessary communication in these disclosures can easily open the door to a “willful violation.”
Please continue to our blog for a cautionary tale about the travails of a California employer’s inability to shake itself free from what it considers a “miscommunication,” but may be found to be a willful violation.
California Employer Dealing with Harsh Terms of Fair Credit Reporting Act
Many employers conduct a consumer credit report as part of the application process. Consequently, they owe the applicants several duties under the Fair Credit Reporting Act (FCRA), including the requirement of a “standalone notice” to the individuals about their rights under the statute. As a California court of appeal recently held, it doesn’t take much to allow an FCRA willful violation claim to reach a jury.
The Disclosure and Nothing but the Disclosure
In 2018, Vicki Hebert applied to work for Barnes & Noble. During the application process, the company’s consumer reporting agency, First Advantage, e-mailed Hebert a link to a website that displayed Barnes & Noble’s consumer report disclosure and requested her authorization to procure a consumer report. She clicked the link, viewed the disclosure, and authorized the report.
Barnes & Noble’s consumer report disclosure read as follows:
Barnes & Noble, Inc. (“the Company”) may obtain information about you for employment purposes from a third party consumer reporting agency. . . . [Y]ou may be the subject of a “consumer report” and/or an “investigative consumer report” which may include information about your character, general reputation, personal characteristics, and/or mode of living, and which can involve personal interviews with sources such as your neighbors, friends, or associates. You have the right, upon written request made within a reasonable time after receipt of this notice, to request disclosure of the nature and scope of any investigative consumer report. The scope of this notice and authorization is continuing allowing the Company to obtain consumer reports and investigative consumer reports now and throughout the course of your employment to the extent permitted by law.
Please note: Nothing contained herein should be construed as legal advice or guidance. Employers should consult their own counsel about their compliance responsibilities under the FCRA and applicable state law. First Advantage expressly disclaims any warranties or responsibility, or damages associated with or arising out of information provided herein.
Herbert claimed the disclosure’s final paragraph violated the FCRA because it addressed information extraneous to the disclosure. Therefore, it didn’t constitute “a clear and conspicuous disclosure made in writing to the consumer before the report is procured, in a document that consists solely of the disclosure, that a consumer report may be obtained for employment purposes.” Under the Act, a consumer is entitled to:
- Actual damages for a negligentviolation of its terms; and
- Statutory damages ranging from $100 to $1,000, punitive damages, and attorneys’ fees and costs for a willful
In 2019, Hebert sued Barnes & Noble on behalf of a putative class of individuals from whom the company had procured or caused to procure a consumer report in the preceding five years. The complaint asserted a single claim for a willful violation of the FCRA’s standalone disclosure requirement. It alleged the disclosure contained extraneous information unrelated to the procurement of a consumer report. It sought statutory damages, punitive damages, and attorneys’ fees and costs.
Trial Court Finds Innocent Mistake
Barnes & Noble asked for judgment without going to trial because it said Hebert couldn’t establish one element of her claim, namely, that the company’s violation of the standalone disclosure requirement was willful. The employer argued:
- The extraneous language was the result of an inadvertent drafting error that occurred while it was revising the disclosure to ensure it complied with the FCRA; and
- It reasonably and in good faith relied on outside legal counsel’s advice when it included the extraneous language in the disclosure.
Hebert opposed the request for dismissal arguing Barnes and Noble “knowingly approved and implemented a revised disclosure form that included . . . extraneous and confusing language” in violation of the FCRA. She also contended the employer couldn’t rely on an advice-of-counsel defense because the advice would be “patently implausible,” and the company’s reliance on it would be reckless.
The trial court granted Barnes & Noble’s request, finding Hebert couldn’t establish the element of willfulness because “the facts here show[ed] nothing more than a mistake.” The court concluded “the alleged violations resulted from a miscommunication over what amounted to a document stamp or watermark on a vendor-supplied form,” and the employer’s “good-faith reliance on the advice of counsel negate[d] a showing of willfulness.” Hebert appealed.
Court of Appeal Finds Evidence of Willful Violation
As the court of appeal framed it, the question was whether Barnes & Noble’s violation wasn’t willful, as a matter of law, because it was an “innocent mistake” that resulted “from a miscommunication” among its employees, its outside counsel (Jackson Lewis), and its consumer reporting agency (First Advantage). But, “[w]illfulness under the FCRA is generally a question of fact for the jury.” Because “summary judgment is ‘seldom appropriate’ on whether a party possessed a particular state of mind,” courts have frequently held willfulness is a question of fact for the jury.
The court of appeal noted willful violations encompass both knowing statutory violations and reckless ones, e.g., an action entailing an unjustifiably high risk of harm that is either known or so obvious that it should be known. It also pointed out the law clearly and unambiguously prohibits a prospective employer from including terms on a disclosure form in addition to those mandated by the FCRA. When a party’s action violates an unambiguous statutory requirement, that fact alone may be enough to conclude its violation is reckless and therefore willful.
Following a long line of rulings from other courts, the court of appeal found Barnes & Noble’s inclusion of extraneous language on its disclosure form, and its ostensible violation of the FCRA’s unambiguous prohibition, is indicative of willfulness.
Barnes & Noble was trapped in a Catch-22. If it argued its employees were trained and well-versed in the FCRA, then they should have known a standalone notice was required, and the failure to provide it was willful. But, if the company argued the employees weren’t lawyers and therefore weren’t aware of all the technicalities, the failure to provide competent review of its disclosures would be evidence of recklessness and therefore willfulness.
Barnes & Noble argued a lack of willfulness because it took the improper notice down after less than two years. But, the court suggested a jury could find willfulness from the fact that it was kept online for nearly two years before it was removed. Similarly, its good-faith reliance on the advice of counsel isn’t a complete defense but is merely one factor a jury may consider when determining whether a party acted willfully.
Considered collectively, the court found the evidence creates a triable issue of material fact about the element of willfulness, and so it reversed the dismissal and sent the matter back for trial. Hebert v. Barnes & Noble, Inc. (CA4/1 D079038, filed 4/19/22, pub. ord. 5/12/22).
Many employers limit their inquiry to an in-house check on an applicant’s job references, a step carrying relatively few regulatory burdens. But, others go beyond an employment reference into a credit report performed by third parties. That circumstance carries a wide range of rules that must be adhered to, and statutory penalties at every turn. As noted here, a violation of any of the rules often yields a nearly automatic finding of willfulness with accompanying fines, penalties, and attorneys’ fees. Make sure you partner with a knowledgeable and competent credit reporting agency because you might be on the hook for their failures of statutory compliance.
Before embarking on that road, be certain you really want a credit report and that you’re prepared to act on it and be fully transparent about it to the applicant. Throughout the application process, don’t ask a question if you don’t intend to use the information.
Article courtesy of content partner BLR. Author, Mark I. Schickman is Editor of the California Employment Law Letter and the founder of Schickman Law in Berkeley, California.