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Failure to Comply Strictly with Federal Credit Reporting Law Subjects Employer to Penalties

February 10, 2017 by

Employers routinely perform background checks on job applicants. The federal Fair Credit Reporting Act (FCRA) requires prospective employers to provide job applicants with written notice that the employer intends to obtain a “consumer report” on an applicant’s credit report as part of the employment application process. A consumer report includes a credit-rating report as well as information about the applicant’s “character, general reputation, or personal characteristics.” The employer must also get the applicant’s written authorization before requesting a consumer report about the applicant.

In a case of first impression, the Ninth Circuit Court of Appeals recently considered whether an employer willfully violated the FCRA by including within the same required disclosure a waiver of liability for claims arising from the use of information in a job applicant’s credit report. (Syed v. M-I, LLC (9th Cir. 14-17186)) It is not uncommon for the information in a consumer’s report to be incorrect, and the employer did not want to be held liable for any errors by a third-party credit reporting agency. However, the Court found that including the waiver within the disclosure-notice document violated the FCRA. (Nothing in the Court’s decision prevents an employer from demanding an applicant sign a waiver that is contained in a document separate from the mandatory FCRA disclosure document.)

The Court emphasized that the FCRA clearly states that the disclosure and authorization are the only things that may be included in the disclosure document, nothing else. Because the law is clear and the employer included a waiver of liability in the same document as the disclosure and authorization, the Court found the employer willfully violated the Act, thus subjecting the employer to statutory damages (of between $100 and $1,000), punitive damages, and attorneys’ fees and costs.

If you are applying for a job and your potential employer wants to check your credit report, be sure you understand your rights.

Read the decision here:


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