In Limon v. Circle K Stores, Inc., the Fifth Appellate District court issued a favorable ruling for California employers regarding the Federal Credit Reporting Act (FCRA) and employer background checks.  The appellate court held that a former employee for Circle K, Ernesto Limon, could not pursue a proposed class action against Circle K for allegations that Circle K violated the FCRA by providing Limon faulty disclosures prior to obtaining a background check for employment.  While the employer won in this case, it is a great reminder for California employers to approach background checks very carefully.  Here are five key points for California employers to understand about the ruling in Limon v. Circle K Stores:

1. The Federal Credit Reporting Act (FCRA) and background checks.

The court explained in this case that the FCRA was enacted by Congress to protect certain interests of job applicants and employees.  The law seeks to “ensure fair and accurate credit reporting” and “protected consumer privacy.”  Moreover, the law provides job applicants with “(1) the knowledge their prospective employer ‘may obtain the applicant’s consumer report for employment purposes’; (2) the knowledge they can withhold their authorization; and (3) ‘an opportunity to warn a prospective employer of errors’ in the consumer report before an adverse hiring decision is made based on incorrect information.”  The FCRA requires the employer to provide certain disclosures to the applicant or employee prior to obtaining a background check, and the information contained in the disclosures used by Circle K were being challenged by plaintiff.

2. Plaintiff alleged employer had a technical violation of the FCRA by including additional information in the background consent form.

Limon brought the proposed class action lawsuit alleging that he “was not presented with all the [FCRA] required information in a clear manner to enable him to understand his rights and give informed consent for Circle K to procure his consumer report.”  The FCRA requires that an employer provide a “clear and conspicuous disclosure” in writing that “consist solely of the disclosure, that a consumer report may be obtained for employment purposes[.]”

Plaintiff alleged that Circle K’s disclosure did not comply with the FCRA because it violated the “standalone” requirement and “clear and conspicuous” requirement of the FCRA.  Specifically, plaintiff alleged that the language bolded below in Circle K’s disclosure violated the FCRA:

“I authorize, without reservation, any person or entity contacted by Circle K … or its agent(s) to furnish the above stated information, and I release any such person or entity from any liability for furnishing such information;

Copy:  If you are applying for a job in or live in California, Minnesota, or Oklahoma you may request a copy of the report by checking this box.”  (Bold type added.)

Circle K countered plaintiff’s argument in that Limon suffered no injury because: (1) he was willing to submit to the background check; (2) he knew that by checking a box on the employment application that he agreed to Circle K’s obtaining a background check; and (3) he admitted in his deposition that he would have signed an indisputable FCRA compliant disclosure consenting to a background check.  In addition, Plaintiff obtained all of the information required under the FCRA, and any alleged “confusion” suffered by Limon is insufficient to establish an injury because there were no “downstream consequences” that impacted Limon in his employment.  Because plaintiff had no injury, he could not continue with any claims against Circle K.

3. A plaintiff must show an actual injury to pursue a FCRA claim.

The court agreed with Circle K in holding that plaintiff was unable to show he was injured, and therefore, had no claim.   The court disagreed with plaintiff’s argument that a “concrete or particularized injury is never required in order for a plaintiff to have standing to sue in California.”

In addition, the court explained that the statutory language found in the FCRA refers to both “damages” and “penalties” and these terms have a significant meaning.  “Damages” are to compensate for a loss or injury, and “penalties” are to punish the wrongdoer.  As such, plaintiff in this case was seeking damages permitted under section 1681n(a)(1)(A) of the FCRA.  Therefore, plaintiff must show an injury to be eligible for these damages.  Because plaintiff was unable to show that he suffered an injury as a result of the extra language added to the FCRA disclosure, the court found that plaintiff failed to establish any of the following: that he suffered an adverse employment action because of any inaccuracies found in his background check, that Circle K failed to notify him that it would be conducting a background check, that Circle K failed to inform him that he could withhold authorization, or that he did not receive a copy of the background report ordered by Circle K.  Therefore, the court in dismissing Limon’s case explained that “Limon has not alleged a concrete or particularized injury to his privacy interest sufficient to afford him an interest in pursuing his claims vigorously.”

4. Penalties under the FCRA are substantial.

Employers must be aware that any violations of the FCRA carry substantial penalties, especially if the plaintiff is able to bring a case on a class-wide basis.  The FCRA provides that plaintiffs are entitled to their actual damages, but in no event less than $100 and not more than $1,000 for violations, as well as punitive damages, and costs and attorney fees.

5. California employers must also comply with state and local background check requirements.

In addition to the FCRA discussed above, California employers must also comply with California’s versions of the law: the California Investigative Consumer Reporting Agencies Act (ICRAA) and the California Consumer Credit Reporting Agencies Act (CCRAA) (see our prior article here for more information about the ICRAA and CCRAA).  In addition, since January 1, 2018 California employers cannot ask an applicant to disclose information about criminal convictions.  The law added as Section 12952 to the Government Code and applies to employers with 5 or more employees.  Once an offer of employment has been made, employers can conduct criminal history background checks, but only when the conviction history has a “direct and adverse relationship with the specific duties of the job,” and requires certain disclosures to the applicant if employment is denied based on the background check.  In addition, local governments, such as Los Angeles and San Francisco have implemented their own prohibitions on criminal history checks, and employers must also comply with these local requirements. As employers update their employee handbooks, new hire packets, and other policies for 2023, it is an excellent time to review policies and disclosures to ensure compliance when conducting background checks.