The Ninth Circuit U.S. Court of Appeals has become the first federal circuit court to hold an employer liable for including a liability waiver in a credit report disclosure form. The decision is Syed v. M-I, LLC, 9th Cir., No. 14-17186 (Jan. 20, 2017).
Many employers have a policy of running a credit check on all job applicants prior to making an offer of employment. Such employers must provide each applicant with a written disclosure of rights under the Fair Credit Reporting Act (FCRA) and obtain a signed authorization before running the credit check. (Many states have even stricter provisions than the FCRA and some even prohibit running a credit check on applicants except in limited circumstances.) The FCRA carries heavy penalties for willful noncompliance, including punitive damages and attorneys’ fees, and penalizes negligent violations with an award of actual damages.
Under the FCRA, an employer can combine the required disclosure form with the authorization form so that the applicant need only read and sign one document before the employer can run a credit check. However, careful employers have tried to exceed the FCRA’s requirements by including a waiver of liability in the disclosure and authorization form, hoping to further insulate themselves and their credit reporting agencies from legal claims. Ironically, the Ninth Circuit has ruled that this protective measure itself creates FCRA liability for willful noncompliance.
In the Syed case, the district court dismissed the plaintiff’s lawsuit because he could not show that he was actually harmed by the waiver language in the form he signed, and because it believed the inclusion of waiver language was not a willful violation of the FCRA. The Ninth Circuit disagreed, however, and found that the FCRA dictates that the form may only include a disclosure of rights and authorization. Adding an additional term willfully violates the statute.
While employers can still require applicants to sign a separate liability waiver when running a credit check, such a waiver is likely a bad idea anyway. Many states bar or limit “pre-liability waivers” by which an entity seeks to absolve itself of the consequences of its actions by requiring parties to waive claims before any harm occurs. Additionally, these waivers are potentially meaningless if they only waive liability for running a credit report, which is permitted if done in compliance with the FCRA and other federal and state laws.
The FCRA also requires additional disclosures by an employer when making an adverse employment decision based on a credit report. Employers are thus well-advised to consult with a knowledgeable employer lawyer before creating a credit check policy.