Employment Law Update: Risks from Faulty Background Check Disclosures Growing in Texas

In a January decision out of the Northern District of Texas, Southwest Airlines escaped liability in a class action lawsuit over the company’s background check documents. Lewis v. Southwest Airlines Co., No. 3:16-cv-01538 (N.D. Tex. Jan. 11, 2018). What is easily overlooked from that victory, however, is that Southwest’s win likely reduces the chances that another Texas company will be so lucky.

In the Lewis case, Southwest was accused of violating the Fair Credit Reporting Act (FCRA) by incorporating the disclosure required by the FCRA into a two-page “Consent Form” that contained additional information, rather than in a separate document containing only the disclosure.  The FCRA is the primary federal law that governs an employer’s ability to conduct background and credit checks on job applicants and employees, and contains numerous restrictions and requirements before an employer can legally obtain or use such checks.  The Lewis plaintiffs alleged that Southwest’s failure to provide the disclosure in a “stand-alone” document was a willful violation of the FCRA.  The Court had ruled earlier in the case that the plaintiffs had abandoned their claims that Southwest had negligently violated the FCRA.

The Lewis Court, following guidance from a 2015 decision out of the Southern District of Texas, held that the FCRA required that the disclosure called for in the federal statute must be in a separate document that includes nothing except the disclosure itself.  By including additional information – and language that the plaintiffs claimed amounted to a release of liability – in the same document as the legally required disclosure, Southwest in fact had violated the FCRA.  However, because the plaintiffs’ case at this point required a willful violation to establish liability, rather than a negligent violation, the Court held that Southwest could not be held liable because it did not willfully violate the law.

The Court’s ruling on willfulness was based, in large part, on the fact that when plaintiff Lewis received the faulty FCRA disclosure in January 2015 there was very little case law or administrative guidance addressing just what the FCRA’s “stand-alone” provision actually required, including no case law from any federal appeals court.  However, the Lewis Court acknowledged that, in 2017, the Ninth Circuit Court of Appeals ruled that a violation of the “stand-alone” provision could be a willful violation of the FCRA. Syed v. M-I, LLC, 853 F.3d 492, 503 (9th Cir. 2017). And while the Southern District of Texas had twice ruled that “stand-alone” violations were not willful, both of those rulings came before the Ninth Circuit’s ruling, as noted by the Lewis Court.

While it is far from certain that Texas federal courts or the Fifth Circuit Court of Appeals will follow the Ninth Circuit’s Syed ruling on willfulness going forward, one thing that Texas employers likely cannot rely on any longer is an open question regarding whether inclusion of additional language beyond the FCRA-required disclosure within the disclosure document violates the law.  With both the Northern and Southern District courts now having ruled that the disclosure document may not contain any other language, employers facing future legal challenges in Texas over additional language in their FCRA disclosure documents face a greatly increased risk that such violations will be deemed willful and that they will owe liability for those violations accordingly.

In light of the changing landscape of how Texas (and other) courts view the disclosure requirements of the FCRA, employers who use background or credit checks in the hiring process should consult with qualified labor and employment counsel to review their documents related to such checks for compliance with the latest legal developments.

About the Author:  J. Shannon Gatlin is Senior Counsel in the Houston office of Cokinos | Young, P.C (View Bio).  Mr. Gatlin has been Board Certified in Labor and Employment Law by the Texas Board of Legal Specialization since 2014, and has practiced labor and employment law on behalf of companies nationwide since 2009.  Mr. Gatlin also spent one year as a Briefing Attorney for the Texas 14th Court of Appeals.

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