The roller coaster of employer liability under the background check provisions of the Fair Credit Reporting Act (FCRA) recently took an upswing with the California Court of Appeals’ decision in Culberson v. Walt Disney Parks & Resorts. The Culberson court considered two class claims, both of which are now-familiar spindles ready to prick the fingers of unwitting employers. First, Culberson alleged that he received a pre-background check notice from Disney that contained extraneous information, in violation of the FCRA’s requirement that the notice be provided in a document that “consists solely of the disclosure” (commonly known as the “standalone disclosure” requirement). Second, he alleged that Disney decided not to hire him without giving him adequate notice before making that decision, in violation of the FCRA’s “pre-adverse action notice” requirement.
Neither the trial court nor the California Court of Appeals decided whether Disney had complied with these requirements. Rather, both courts held that even if a violation had occurred, that violation was not “willful,” i.e., knowing or reckless. Because the FCRA only permits plaintiffs to recover statutory and punitive damages for “willful” violations, a ruling in an employer’s favor on willfulness is an elephant graveyard from which plaintiffs cannot easily escape. Absent a showing of willfulness, plaintiffs and the class must resort to actual damages, which they hardly ever have, and certainly not on a class-wide basis.
The Culberson court found that Disney’s notice forms did not recklessly violate the FCRA because both judicial and regulatory authorities have approved background check forms that contained similar information. Conversely, the court noted that no authority existed in 2011 (when Disney provided Culberson’s form) that might have warned Disney that its forms were not compliant. Importantly, the court recognized that despite the volume of judicial opinions discussing what may not appear in a pre-background check notice, employers still have received almost no guidance about what they may legally include in such a disclosure. The Court also distinguished the Ninth Circuit’s recent plaintiff-friendly opinions in Syed v M-I LLC and Gilberg v California Check Cashing Stores LLC, noting that the forms at issue in those cases were easily distinguishable from Disney’s, and that those decisions were not issued until several years after Culberson’s claim arose.
This decision may represent a whole new world for employers battling background check class actions in California state courts. For the last three years, those courts have been a wonderland for FCRA plaintiffs seeking to avoid the complex federal standing issues created by the Supreme Court’s 2016 decision in Spokeo, Inc. v. Robins. That issue, combined with the relative ease of obtaining class certification and the dearth of favorable opinions on willfulness, has presented defendants litigating these cases in California with a formidable uphill climb. If California courts continue to follow Culberson’s lead, however, plaintiffs will be forced to choose between litigating standing in federal court or litigating willfulness in state court. Even so, this decision is far from happily ever after—employers should continue to monitor developments in this area and assess their background check processes accordingly.