Disclosure document that includes liability waiver is willful FCRA violation

By Joy Waltemath and Cynthia L. Hackerott, J.D. — A prospective employer violates the Fair Credit Reporting Act (FCRA) when it procures, or causes to be procured, a job applicant’s consumer report after including a liability waiver in the same document as a statutorily mandated disclosure, a Ninth Circuit panel ruled, addressing an issue of first impression in the circuit courts. Therefore, a federal district court erred in dismissing a job applicant’s putative class action suit claiming that an employer violated the FCRA by including a liability waiver as part of its requisite disclosure statement. In addition, because the statute unambiguously bars the inclusion of a liability waiver on the same document as a disclosure made pursuant to the FCRA, the type of violation presented here was “willful,” meaning that the plaintiff may recover statutory damages ranging from $100 to $1,000, punitive damages, as well as attorney’s fees and costs. Accordingly, the appeals court reversed the district court’s order and remanded the case (Syed v. M-I, LLC, January 20, 2017, Wardlaw, K.).

The document. When the named plaintiff applied for a job in 2011, the defendant company gave him a document labeled “Pre-employment Disclosure Release.” The document informed him that his credit history and other information could be collected and used as a basis for the employment decision, authorized the company to access his consumer report, and stipulated that, by signing the document, he was waiving his rights to sue the prospective employer and its agents for violations of the FCRA. Thereby, his signature served simultaneously as an authorization for the company to procure his consumer report and as a broad release of liability.

The lawsuit. The plaintiff filed a putative FCRA class action complaint on behalf of himself and any person whose consumer report was obtained by the company after receiving a disclosure in violation of the FCRA within the two-year limitations period. He did not seek actual damages, which would have required proof of actual harm; however, he did seek statutory and punitive damages, along with attorney’s fees and costs.

The district court dismissed his first complaint with leave to amend, ruling that the allegation of willfulness consisted only of “labels and conclusions.” His amended complaint set forth the same factual and legal allegations as did the original complaint, but also included citations to Federal Trade Commission (FTC) staff opinion letters and district court opinions that he claimed supported his position that the employer “knew or should have known about its legal obligations under the FCRA,” thereby rendering the alleged statutory violation willful. The court dismissed the amended complaint—this time without leave to amend. The plaintiff had still not sufficiently pleaded willfulness because the FTC letters were informal staff opinions rather than authoritative guidance, the court reasoned, and the judicial opinions he cited were issued after the employer had provided him the Disclosure Release, in 2011.

Statute not ambiguous. Reversing and remanding, the Ninth Circuit first ruled that Section 1681b(b)(2)(A) of the Act unambiguously requires a document that “consists solely of the disclosure.” The company unsuccessfully argued that the statute’s requirement that the disclosure appear on a “document that consists solely of the disclosure” is ambiguous because subsection (ii) of the provision provides that the consumer may authorize the procurement of a consumer report on the document containing the disclosure. In the defendant’s view, if the statute allows for an authorization on the same document as the disclosure, then the statute must not really require the document to consist solely of the disclosure. Therefore, the employer asserted, Section 1681b(b)(2)(A) is internally inconsistent, and the court should give no effect to Congress’s use of the term “solely.”

In rejecting this assertion, the appeals court ruled that the two clauses are consistent because the authorization clause is an express exception to the requirement that the document consist “solely of the disclosure.” Even though the statute does not specifically designate it as such, the authorization clause immediately follows the disclosure clause, and makes express reference to it, the court pointed out. Thus, it was clear to the court that Congress intended the two subsections to work together.

Moreover, allowing an authorization on the same document as the disclosure is consistent with the FCRA’s stated purpose of protecting consumers from improper invasions of privacy, and these two requirements “fit hand in glove to achieve that purpose,” the court said, adding that each would be largely ineffective on its own. “Congress reasonably could have concluded that permitting the consumer to provide an authorization on the same page as the disclosure would enhance the effectiveness of each clause,” the court explained. “A job applicant may read a disclosure more closely if he understands that the potential employer may obtain his consumer report only if he signs an authorization for it to do so. The decision to authorize or deny the prospective employer’s use of his report to accept or reject his employment application may be better informed if the authorization immediately follows the disclosure.” On top of this, the fact that other FCRA provisions mandating disclosure omit the term “solely” was further evidence that Congress intended that term to carry meaning in Section 1681b(b)(2)(A)(i), the court added.

Liability waiver. Nor did the appeals court buy the employer’s argument that a liability waiver is an implicit exception to the “solely” requirement in Section 1681b(b)(2)(A)(i). The statute’s express exception to the “solely” requirement, that allows the disclosure document to also contain the authorization to procure a consumer report, does not mean that the statute contains other implicit exceptions as well. Further, an implied exception permitting the inclusion of a liability waiver on the same document as the disclosure does not comport with the FCRA’s basic purpose, but rather would frustrate Congress’s goal of guarding a job applicant’s right to control the dissemination of sensitive personal information.

“An authorization requiring the job applicant’s signature focuses the applicant’s attention on the nature of the personal information the prospective employer may obtain, and the employer’s inability to obtain that information without his consent,” the court stated. “But a liability waiver does just the opposite—it pulls the applicant’s attention away from his privacy rights protected by the FCRA by calling his attention to the rights he must forego if he signs the document.” Indeed, under the document at issue here, a job applicant could reasonably conclude that his signature was not consent to the procurement of the consumer report, but to a broad release absolving the employer of claims arising from the totality of the “investigative background inquiries” referenced in the first sentence of the form.

“Authorization.” Asserting that a liability waiver is one type of “authorization” under the statute, the employer asserted that the FCRA contains an explicit exception allowing for the inclusion of a liability waiver. Again disagreeing, the court found that the statute’s explicit language cannot be interpreted as permitting the inclusion of a liability waiver because Congress stated exactly what it meant when it described the authorization as encompassing only “the procurement of [a consumer] report” in Section 1681b(b)(2)(A)(ii). Also, the employer’s interpretation is inconsistent with the plain meaning of the term “authorize.” A consumer may authorize the procurement of a consumer report or waive an employer’s liability, but he may not “authorize” a “waiver,” the court explained.

“Clear and conspicuous” disclosure. The employer also argued that its inclusion of a liability waiver was permissible because even with the waiver, the disclosure was still “clear and conspicuous.” Yet, whether the disclosure is “clear and conspicuous” was irrelevant to its analysis. The question of whether a disclosure is “clear and conspicuous” within the meaning of Section 1681b(b)(2)(A)(i) is separate from the question of whether a document consists “solely” of a disclosure, and thus, was not presently before the court, which decided only that including the waiver violated the statute’s “solely” requirement. “It is inexplicable to us that a court would find that including a waiver violated the FCRA, but because the disclosure was ‘clear and conspicuous,’ an additional requirement under the FCRA [citation omitted], the disclosure was nonetheless ‘adequate,’ the court observed.

Violation willful. Ruling that the employer’s violation was willful as a matter of law, the appeals court first found that the employer’s interpretation of the statute was not objectively reasonable. As the court held, the FCRA unambiguously bars a prospective employer from including a liability waiver on a disclosure document provided a job applicant pursuant to Section 1681b(b)(2)(A).

Nevertheless, the employer maintained that its interpretation of the statute was objectively reasonable in light of the dearth of guidance from federal appellate courts and administrative agencies. The lack of “guidance,” however, did not itself render the employer’s interpretation reasonable, the court said, pointing out that at least one circuit court of appeals (the Third Circuit in its 2010 ruling in Cortez v. Trans Union, LLC) has concluded that, in the FCRA context, a lack of definitive authority does not, as a matter of law, immunize a party from potential liability for statutory damages. The U.S. Supreme Court’s 2007 ruling in Safeco Ins. Co. v. Burr also appears to indicate that such guidance is not required where the conduct at issue is patently violative of the statute.

Furthermore, because the statute unambiguously barred the interpretation, whether or not the employer actually believed that its interpretation was correct was immaterial. “Notwithstanding that we are the first federal appellate court to construe Section 1681b(b)(2)(A), this is not a ‘borderline case,’ the court wrote, finding that the employer acted in “reckless disregard of statutory duty,” and its FCRA violation was therefore willful.

Statute of limitations. Finally, dismissal of the plaintiff’s complaint as time-barred under the FCRA’s two-year statute of limitations was unwarranted. The plaintiff did not allege that the employer procured his consumer report at the same time it made its disclosure, which would have meant that he could have discovered the statutory violation when he received the Disclosure Release. Rather, he alleged that he was unaware that the company had procured his consumer report until he reviewed his personnel file “within the last two years.” Thus, there was no basis to find the claim untimely at the motion to dismiss stage.

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