Hunton Employment & Labor Perspectives

In a positive development for employers, the California Court of Appeals affirmed summary judgment for an employer in a class action alleging willful violations of the Federal Fair Credit Reporting Act (“FCRA” or “Act”).  In Culberson v. Walt Disney Parks and Resorts, the plaintiffs alleged Disney willfully violated two provisions of the FCRA: (1) plaintiffs alleged Disney’s disclosures letting job applicants know they may be subject to a consumer report were not contained in a standalone document; and (2) plaintiffs alleged Disney rejected some applicants based on information in their consumer reports without first providing the notice required by the FCRA.  In affirming summary judgment, the court concluded that it need not decide whether Disney violated the FCRA, because the court found that any such violation was not willful. 

The FCRA in Employment Decisions

The FCRA regulates, among other things, the manner in which employers can consider consumer reports when making employment decisions.  The FCRA requires prospective employers to disclose to a job applicant, in a standalone document, that it may obtain a consumer report for employment purposes.  The Act also requires an employer to provide an applicant a copy of the report and a description of the applicant’s rights under the Act before taking any adverse employment action based on the consumer report.  An employer who negligently violates the FCRA may be liable for actual damages, but an employer who willfully violates the FCRA may be liable for statutory penalties and punitive damages.  To be willful, an employer’s violation of the FCRA must be either knowing or reckless.  (You can find more of our FCRA coverage here.)

The Court of Appeals Decision

 Disney’s standalone disclosure form included a description of the scope of the report, a statement that Disney may share the information with affiliated companies, an explanation of the applicant’s rights, an explanation that a third party would produce the report, and the third party’s contact information.  The plaintiffs claimed Disney’s disclosure form violated the FCRA because it contained extraneous information, and argued that the standalone report could contain only the following ten-word disclosure: “that a consumer report may be obtained for employment purposes.”  The court of Appeals rejected plaintiffs’ arguments, because the FCRA does not make clear what information may be included in the disclosure, and because, at the time of the disclosures at issue (i.e., in 2011 and 2013), there was no authoritative guidance to warn Disney away from its position.  Accordingly, the court concluded that no reasonable trier of fact could conclude that Disney’s standalone disclosure willfully violated the FCRA.

Disney’s pre-adverse-action notice told applicants, in relevant part, “Based on [the reported] information, subject to you successfully challenging this information, we have decided to revoke your conditional offer of employment.”  The plaintiffs argued this statement communicated a final decision and thus constituted an adverse action without allowing applicants to dispute the contents of the report, but the court of Appeals disagreed.  The court held that the notice did not constitute an adverse action because the action was “subject to” a successful dispute by the applicant.  Disney’s interpretation of the FCRA was reasonable, so there was no triable issue as to whether the alleged violation was willful.

Looking Ahead

 The court’s holding regarding the standalone disclosure is particularly important because it shores up employers’ “willfulness” defense and provides a useful distinction from recent pro-employee decisions from the Ninth Circuit.  In Gilberg v. California Check Cashing, the standalone disclosure included various state disclosure requirements along with the FCRA disclosure, and the Ninth Circuit held the state information was clearly beyond what was permitted in the disclosure.  Similarly, in Syed v. M-I, LLC, the standalone disclosure included a liability waiver, which was also clearly beyond what was permitted in the disclosure.  (You can read more about the Gilberg and Syed decisions here.) In light of these recent decisions, employers should review their FCRA processes to ensure they reflect a reasonable interpretation of the Act.