February 21, 2017

Federal Appeals Court Teaches Important Lessons for Nonprofit Employers That Use Pre-Employment Background Checks

3 min

Pre-employment background checks serve an important function for many nonprofit employers, but the legal requirements for such checks can present nonprofits with a problem.

In a case of first impression, the Ninth Circuit U.S. Court of Appeals recently revived a class action for an employer's pre-employment background check disclosures. See Syed v. M-I, LLC, No. 14-17186 (9th Cir. Jan. 20, 2017). Under the federal Fair Credit Reporting Act (FCRA), employers must provide job applicants with a "clear and conspicuous disclosure" that the employer intends to procure a background check for employment purposes. There was no dispute in Syed that employer M-I, LLC (M-I) complied with this requirement.

Syed instead focused on the FCRA's additional requirement that the disclosure document consist "solely of the disclosure." M-I's pre-employment background check disclosure included a liability waiver under which job applicants purportedly waived their right to sue M-I for FCRA violations. The court concluded that the inclusion of the liability waiver within the disclosure document violated the FCRA.

But so what? What damages could a job applicant possibly suffer from M-I's violation? Not so fast, says the FCRA. If a plaintiff can establish a willful violation, he or she need not prove actual damages. Instead, a plaintiff may be entitled to statutory damages from $100 to $1,000, punitive damages, and costs, including attorneys' fees. The FCRA's statute of limitations extends two years from an individual's discovery of the violation or five years from the date of the violation, whichever occurs earlier. For some nonprofit employers, that may mean quite a large (and expensive) potential class action.

One of the principal issues in Syed, therefore, was whether the plaintiff could establish a willful violation. The court answered this question in the affirmative. It held that M-I's alleged belief that the FCRA permitted the inclusion of a liability waiver within the disclosure notice was "objectively unreasonable." Indeed, it went so far as to say that "this is not a 'borderline case.'" Accordingly, the court determined that "whether or not M-I actually believed that its interpretation was correct [was] immaterial" to the willfulness issue.

The Syed decision offers some valuable lessons for nonprofit employers that use pre-employment background checks. Moving forward, courts may begin to hold employers strictly liable for adding any additional content—not just liability waivers—included within background check disclosure documents. Nonprofit employers should take a hard look at their background check procedures, including documents used by their background check vendors. If a disclosure document contains anything apart from the disclosure and the applicant's authorization to conduct a background check, nonprofits should consider removing the additional content to comply with the holding in Syed.