Syed v. M-I: 9th Cir. Finds Liability Waiver in Background Check Disclosure Form “Willful” Violation of FCRA

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On January 20, 2017, the Ninth Circuit Court of Appeals reversed a district court’s dismissal of a class action filed against an employer, holding that the inclusion of a liability release in an employment background check disclosure form violated the Fair Credit Reporting Act (FCRA). Syed v. M-I, LLC, No. 14-17186 (9th Cir. Jan. 20, 2017) (amended March 20, 2017) (slip op. available here). On a nationwide issue of first impression, a three-judge panel said that the FCRA requires that a disclosure form must “solely consist” of the disclosure and that inclusion of the liability waiver is a willful violation of the statute, entitling the plaintiff to statutory damages, punitive damages, and attorneys’ fees and costs. On March 20, 2017, the judicial panel unanimously voted to deny a petition for panel rehearing and a petition for rehearing en banc. The opinion was amended to clarify that Syed’s allegations were sufficient to establish standing under Spokeo Inc. v. Robins, 136 S. Ct. 1540 (2016).

In 2011, Syed applied for a job with M-I, LLC (“M-I”). M-I provided Syed with a document labeled “Pre-employment Disclosure Release.” In addition to the disclosure that Syed’s credit history and other information could be collected and used as a basis for the employment decision, the form contained a paragraph that authorized M-I to procure Syed’s consumer report, followed by the language:

I understand the information obtained will be used as one basis for employment or denial of employment. I hereby discharge, release and indemnify prospective employer, PreCheck, Inc., their agents, servants and employees, and all parties that rely on this release and/or the information obtained with this release from any and all liability and claims arising by reason of the use of this release and dissemination of information that is false and untrue if obtained by a third party without verification. (Emphasis added.)

Slip op., Appendix A. The document contained a single signature line, thus Syed’s signature served simultaneously as an authorization for M-I to procure his consumer report, and as a broad release of liability.

The court looked to the language of the statute to determine whether M-I violated the FCRA by including the liability waiver on the disclosure form. The court said that the relevant section, section 1681b(b)(2)(A), was unambiguous about the requirement that the form “consists solely of the disclosure” (emphasis added). M-I contended that the section was ambiguous about the term “solely” because subsection (ii) provides that a consumer authorization may appear on the same document as the disclosure. The court rejected that argument, holding 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.’ While the statute does not designate it as such, the authorization clause immediately follows the disclosure clause, and makes express reference to it.” Slip op. at 15. The court further explained that the purpose of the statute is to protect consumers from improper invasions of privacy, and the authorization and disclosure requirements work together to meet this purpose because the authorization to procure a consumer report would be less effective without a clear disclosure. Id. In other words, an applicant would be better informed if the authorization immediately follows the disclosure. Id. at 16.

While the court was willing to find that the authorization requirement was an exception to the “solely of the disclosure” clause, it was not willing to find an explicit or implicit exception that permitted a liability waiver on the same document. Referring back to the purpose of the FCRA as guarding the privacy rights of job applicants, the court stated:

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. 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.

Slip op. at 17.

After finding that the FCRA unambiguously requires that the disclosure “consist solely” of the disclosure language, and that the statute does not explicitly or implicitly allow a liability release in the disclosure, the court concluded the opinion finding that M-I’s interpretation of the FCRA was not objectively reasonable, and that M-I ran an “unjustifiably high risk of violating the statute.” Slip op. at 26. This “reckless disregard of the law” was therefore a willful violation of the FCRA. Id. Thus, the plaintiff could seek statutory penalties of $100 to $1,000 per willful violation, along punitive damages and attorneys’ fees and costs. As a case of first impression in the nation’s largest circuit, Syed is an important decision that protects the privacy of job applicants and that should discourage employers’ inclusion of liability waivers and other extraneous language in required FCRA disclosure forms.

Authored by:
Anthony Castillo, Associate