Here is this week’s Deal Report for private equity and venture capital activity for US-based PE and VC firms and portfolio companies, brought to you by Scherzer International.
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Manage your Scherzer International subscription(s).
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Here is this week’s Deal Report for private equity and venture capital activity for US-based PE and VC firms and portfolio companies, brought to you by Scherzer International.
|
Manage your Scherzer International subscription(s).
|
|
|
|
Here is this week’s Deal Report for private equity and venture capital activity for US-based PE and VC firms and portfolio companies, brought to you by Scherzer International.
|
Manage your Scherzer International subscription(s).
|
|
|
|
Here is this week’s Deal Report for private equity and venture capital activity for US-based PE and VC firms and portfolio companies, brought to you by Scherzer International.
|
Manage your Scherzer International subscription(s).
|
|
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On January 29, 2019, the U.S. Court of Appeals for the Ninth Circuit in Gilberg v. California Check Cashing Stores, LLC instructed employers about the importance of complying with background check disclosure requirements found in the Fair Credit Reporting Act (FCRA).
Pursuant to the federal statute, employers who want to obtain a consumer report (commonly referred to as a background check report) on a job candidate must provide to the candidate a “clear and conspicuous disclosure” about the report in a document that consists “solely of the disclosure.” 15 U.S.C. § 1681b(b)(2)(A).
But when Desiree Gilberg applied for a job with CheckSmart Financial, she received something different. First Gilberg completed a three-page form containing an employment application, a math screening and an employment history verification. She then signed a separate form entitled, “Disclosure Regarding Background Investigation.”
The one-page form included the required FCRA disclosure as well as mandated state disclosures for California, Maine, Minnesota, New York, Oklahoma, Oregon and Washington.
Gilberg worked for CheckSmart for five months before voluntarily leaving the job. She then filed a putative class action against the company, alleging that it failed to make proper disclosures as set forth in both the FCRA and California’s Investigative Consumer Reporting Agencies Act (ICRAA).
A district court sided with the employer and dismissed the case. The judge agreed with CheckSmart that its disclosure form complied with both statutes. Gilberg appealed to the Ninth Circuit. She argued that the standalone requirement didn’t permit the combination of state and federal disclosures as CheckSmart had tried.
Considering the issue, the Ninth Circuit recalled a 2017 decision in Syed v. M-I, LLC. In that case, which also involved the standalone requirement, the federal appellate panel held that a prospective employer violated the FCRA when it included a liability waiver in the same document as the mandated disclosure. The statute means what it says, the court emphasized: the required disclosure must be in a document that “consist
In an effort to distinguish its disclosure from that in the Syed case, CheckSmart told the court that the additional information in its form actually furthered the FCRA’s purpose.
“We disagree,” the court wrote. “Syed’s holding and statutory analysis were not limited to liability waivers; Syed considered the standalone requirement with regard to any surplusage. Syed grounded its analysis of the liability waiver in its statutory analysis of the word ‘solely,’ noting that FCRA should not be read to have implied exceptions, especially when the exception – in that case, a liability waiver – was contrary to FCRA’s purpose. Syed also cautioned ‘against finding additional, implied exceptions’ simply because Congress had created one exception. Consistent with Syed, we decline CheckSmart’s invitation to create an implied exception here.”
Plain meaning trumps purpose, the Ninth Circuit said, rejecting the employer’s contention that its disclosure form was consistent with the intent of the FCRA. Since the surplus language included disclosures required by various state laws that were inapplicable to Gilberg, the court was unable to understand how the CheckSmart form comported with the purpose of the federal statute.
“Because the presence of this extraneous information is as likely to confuse as it is to inform, it does not further FCRA’s purpose,” the court declared.
“Syed holds that the standalone requirement forecloses implicit exceptions,” the panel wrote. “The statute’s one express exception does not apply here, and CheckSmart’s disclosure contains extraneous and irrelevant information beyond what FCRA itself requires. The disclosure, therefore, violates FCRA’s standalone document requirement. Even if congressional purpose were relevant, much of the surplusage in CheckSmart’s disclosure form does not effectuate the purposes of the FCRA.”
In addition to ruling that the district court erred in concluding that the employer’s disclosure form satisfied the FCRA’s standalone document requirement, the Ninth Circuit also held that CheckSmart’s disclosure form was not “clear and conspicuous” under either FCRA or ICRAA.
The court grudgingly found the form to be “conspicuous” (despite characterizing the font as “inadvisably” small and cramped) but held it was not “clear.” The disclosure contained language a reasonable person would not understand, the court said, and its content would confuse a reader with the combination of federal and state disclosures.
As “CheckSmart’s disclosure form was not both clear and conspicuous, the district erred in granting CheckSmart’s motion for summary judgment with regard to the FCRA and ICRAA ‘clear and conspicuous’ requirements,” the panel wrote. The Ninth Circuit reversed dismissal of Gilberg’s complaint and remanded the case to the California district court. (As of this writing, there is a petition for rehearing and rehearing en banc pending before the 9th Circuit.)
For employers, the Ninth Circuit opinion could not be more clear: ensure that the FCRA disclosure form provided to job candidates contains no extraneous or surplus language. The decision also provides an important reminder about keeping disclosures forms clear and conspicuous in order to comply with both federal and state laws.
Pursuant to the federal statute, employers who want to obtain a consumer report (commonly referred to as a background check report) on a job candidate must provide to the candidate a “clear and conspicuous disclosure” about the report in a document that consists “solely of the disclosure.” 15 U.S.C. § 1681b(b)(2)(A).
But when Desiree Gilberg applied for a job with CheckSmart Financial, she received something different. First Gilberg completed a three-page form containing an employment application, a math screening and an employment history verification. She then signed a separate form entitled, “Disclosure Regarding Background Investigation.”
The one-page form included the required FCRA disclosure as well as mandated state disclosures for California, Maine, Minnesota, New York, Oklahoma, Oregon and Washington.
Gilberg worked for CheckSmart for five months before voluntarily leaving the job. She then filed a putative class action against the company, alleging that it failed to make proper disclosures as set forth in both the FCRA and California’s Investigative Consumer Reporting Agencies Act (ICRAA).
A district court sided with the employer and dismissed the case. The judge agreed with CheckSmart that its disclosure form complied with both statutes. Gilberg appealed to the Ninth Circuit. She argued that the standalone requirement didn’t permit the combination of state and federal disclosures as CheckSmart had tried.
Considering the issue, the Ninth Circuit recalled a 2017 decision in Syed v. M-I, LLC. In that case, which also involved the standalone requirement, the federal appellate panel held that a prospective employer violated the FCRA when it included a liability waiver in the same document as the mandated disclosure. The statute means what it says, the court emphasized: the required disclosure must be in a document that “consist[s] ‘solely’ of the disclosure.”
In an effort to distinguish its disclosure from that in the Syed case, CheckSmart told the court that the additional information in its form actually furthered the FCRA’s purpose.
“We disagree,” the court wrote. “Syed’s holding and statutory analysis were not limited to liability waivers; Syed considered the standalone requirement with regard to any surplusage. Syed grounded its analysis of the liability waiver in its statutory analysis of the word ‘solely,’ noting that FCRA should not be read to have implied exceptions, especially when the exception – in that case, a liability waiver – was contrary to FCRA’s purpose. Syed also cautioned ‘against finding additional, implied exceptions’ simply because Congress had created one exception. Consistent with Syed, we decline CheckSmart’s invitation to create an implied exception here.”
Plain meaning trumps purpose, the Ninth Circuit said, rejecting the employer’s contention that its disclosure form was consistent with the intent of the FCRA. Since the surplus language included disclosures required by various state laws that were inapplicable to Gilberg, the court was unable to understand how the CheckSmart form comported with the purpose of the federal statute.
“Because the presence of this extraneous information is as likely to confuse as it is to inform, it does not further FCRA’s purpose,” the court declared.
“Syed holds that the standalone requirement forecloses implicit exceptions,” the panel wrote. “The statute’s one express exception does not apply here, and CheckSmart’s disclosure contains extraneous and irrelevant information beyond what FCRA itself requires. The disclosure therefore violates FCRA’s standalone document requirement. Even if congressional purpose were relevant, much of the surplusage in CheckSmart’s disclosure form does not effectuate the purposes of the FCRA.”
In addition to ruling that the district court erred in concluding that the employer’s disclosure form satisfied the FCRA’s standalone document requirement, the Ninth Circuit also held that CheckSmart’s disclosure form was not “clear and conspicuous” under either FCRA or ICRAA.
The court grudgingly found the form to be “conspicuous” (despite characterizing the font as “inadvisably” small and cramped) but held it was not “clear.” The disclosure contained language a reasonable person would not understand, the court said, and its content would confuse a reader with the combination of federal and state disclosures.
As “CheckSmart’s disclosure form was not both clear and conspicuous, the district erred in granting CheckSmart’s motion for summary judgment with regard to the FCRA and ICRAA ‘clear and conspicuous’ requirements,” the panel wrote. The Ninth Circuit reversed dismissal of Gilberg’s complaint and remanded the case to the California district court. (As of this writing, there is a petition for rehearing and rehearing en banc pending before the 9th Circuit.)
For employers, the Ninth Circuit opinion could not be more clear: ensure that the FCRA disclosure form provided to job candidates contains no extraneous or surplus language. The decision also provides an important reminder about keeping disclosures forms clear and conspicuous in order to comply with both federal and state laws.
Must employers provide the protections required by the Fair Credit Reporting Act (FCRA) to prospective independent contractors?
Not according to a new decision from an Iowa court (see Smith v. Mutual of Omaha Insurance Company, No. 4:17-cv-00443 (S.D. Iowa Oct. 4, 2018)) which grappled with the question in the context of a lawsuit filed by an individual against an insurance company where he applied to contract as a salesperson but was rejected because of a falsely reported felony in his background check. The plaintiff accused the insurance company of violating the FCRA by failing to provide him with the statutorily required prior notice that the background check resulted in his not being hired.
The insurance company asked the court to dismiss the lawsuit, claiming that the FCRA only requires such notice when an applicant seeks to be hired as an employee, and not as an independent contractor. Since the plaintiff applied for an independent contractor position, he was not entitled to the protections of the statute, the insurance company argued.
The plaintiff countered that he was applying to be an employee of the insurance company and that it was too early to dismiss the case, as further discovery was needed. In the alternative, he argued that the FCRA should still govern his relationship even as an independent contractor.
In ruling on the FCRA issue, Judge John Jarvey began with the language of the law. The FCRA is a broad statute, Judge Jarvey said, and some of its most stringent protections apply when a background check is being obtained “for employment purposes.”
The definitions section of the FCRA, at 15 U.S.C. § 1681a(h), states that “
Notably, the Federal Trade Commission (FTC) in its 2011 staff report entitled “40 Years of Experience with the Fair Credit Reporting Act” provided a seemingly contrasting interpretation. The FTC stated that “the term ‘employment purposes’ is interpreted liberally to effectuate the broad remedial purpose of the FCRA and may apply to situations where an entity uses individuals who are not technically employees to perform duties. Thus, it includes a trucking company that obtains consumer reports on individual drivers who own and operate their own equipment; a title insurance company that obtains consumer reports on individuals with whom it frequently enters into contracts to sell its insurance, examine title, and close real property transactions; or a nonprofit organization staffed in whole or in part by volunteers.”
The FTC’s view can be reconciled with that of Judge Jarvey’s by taking the approach that the applicability of FCRA’s requirements depends on the facts and circumstances of the particular relationship, rather than the formal designation of someone as an independent contractor.
Given the still remaining disputed issue of whether or not the plaintiff would have been an employee or an independent contractor for the insurance company, the court ordered limited discovery on the issue and declined to dismiss the suit.
Since the adoption of the General Data Protection Regulation (GDPR) by the European Union (EU) in May 2018, businesses established outside of the EU have grappled with the question of whether the GDPR’s strict rules apply to them. Many commentators have noted that the GDPR provisions and recitals do not have an easy answer. The European Data Protection Board (EDPB) recently attempted to provide some clarification by publishing draft guidelines that include a commentary on the territorial scope of the GDPR. The EDPB’s guidelines also address the related issue of whether a non-EU company subject to the GDPR must have an EU-based representative.
GDPR’s Targeting Criteria
Arguably the most significant change to the regulatory landscape affecting an individual’s data privacy is the territorial scope of the
GDPR Compliance and an EU-based Representative
A significant point clarified by the EDPB’s guidelines is that a non-EU company subject to the GDPR must appoint an EU-based representative, even though the not have a physical location within the EU. A company’s Data Protection Officer, who can be an existing employee of the company under the GDPR, cannot fulfill the requirements for an EU-based representative. The purpose of the requirement is to ensure that a qualified individual or entity is located within the EU to whom regulatory authorities can address compliance issues. The guidelines also make clear that the EU-based representative can even be held liable for any non-compliance, including being fined or otherwise sanctioned.
Consultation Period
The territorial scope and appointment of an EU-based representative poses two of the most critical issues that a non-EU based company faces regarding GDPR compliance. The EDPB’s draft guidelines address several other GDPR issues in addition to these, and a full version of the guidelines can be found here. The EDPB is taking public comments on the draft guidelines until January 18, 2019. Comments should be sent to the EDPB at EDPB@edpb.europa.eu.
For many years, employers have struggled with California’s overlapping statutes governing the use of background checks. Now, the state’s highest court has weighed in, ruling that compliance with the requirements of both laws is mandatory, even where the laws overlap.
A little history is necessary to understand the situation. In 1970, Congress passed the Fair Credit Reporting Act (FCRA). The law defined the term “consumer report” to include an individual’s “credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living.” The FCRA distinguished between consumer reports that contained information obtained by personal interviews and consumer reports gathered by other means.
The California legislature responded with two state analogues in 1975: the Investigative Consumer Reporting Agencies Act (ICRAA) and the Consumer Credit Reporting Agencies Act (CCRAA). Modeled on the FCRA, the statutes had similar purposes and were intended to serve complementary goals.
As originally enacted, the ICRAA applied to consumer reports that included character information obtained only through personal interviews. It defined an “investigative consumer report” as one “in which information on a consumer’s character, general reputation, personal characteristics, or mode of living is obtained through any means.” The statute requires that the person procuring the report provide the consumer a “clear and conspicuous disclosure in writing” and that the consumer in turn provide a written authorization for the report’s procurement.
Lawmakers took a slightly different approach with CCRAA, which defined a “consumer credit report” as “any written, oral or other communication of any information by a consumer reporting agency bearing on a consumer’s credit worthiness, credit standing, or credit capacity, which is used or is expected to be used … for … employment purposes.” The definition excluded “any report containing information solely on a consumer’s character, general reputation, personal characteristics, or mode of living which is obtained through personal interviews with neighbors, friends, or associates of the consumer reported on, or others with whom he is acquainted or who may have knowledge concerning any such items of information.”
In 1998, the California legislature amended ICRAA to eliminate the personal interview limitation and expand the statute’s scope to include character information obtained under CCRAA or “obtained through any means.”
Since then, CCRAA continues to govern consumer reports that include character information obtained from a source other than personal interviews, as long as those reports contain information “bearing on a consumer’s credit worthiness, credit standing, or credit capacity.”
What does all this mean for employers? And how did the California Supreme Court get involved?
The two statutes came to the attention of the court when a group of current and former school bus drivers filed suit against their employers, First Student and First Transit, as well as the investigative consumer reporting agency (ICRA) that conducted background checks on the drivers. Eileen Connor led the class action.
After First Student acquired the company where Connor worked as a driver, it requested that the ICRA run background checks to confirm that Connor and the other workers were properly qualified to perform their job duties. The background reports elicited information about the employees’ criminal records, sex offender registries, address history, driving records and employment history.
Prior to conducting the background checks, First Student sent Connor a “Safety Packet” booklet. The booklet included an “Investigative Consumer Report Disclosure and Release” that provided authorization for the ICRA to prepare a consumer report or investigative consumer report. The notice included a checkbox that generally described Connor’s rights under ICRAA, informed her that she could check the box if she wanted to receive a copy of the report and released First Student from all claims and damages arising out of or relating to its background investigation if the box was checked.
Connor filed suit, arguing that the notice failed to satisfy ICRAA’s specific requirements and that First Student neglected to obtain her written authorization to conduct the background check, as required by ICRAA.
First Student asked the court to dismiss the suit, arguing that ICRAA is unconstitutionally vague as applied to the lawsuit because it overlaps with CCRAA and that the notice satisfied CCRAA.
The California Supreme Court found that while the statutes overlap to some degree, achieving compliance with both did not render ICRAA unconstitutional. The two statutes were not intended to be exclusive of each other, the court said, and potential employers can comply with both statutes without undermining the purpose of either.
“If an employer seeks a consumer’s credit records exclusively, then the employer need only comply with CCRAA,” the court explained. “An employer seeking other information that is obtained by any means must comply with ICRAA. In the event that any other information revealed in an ICRAA background check contains a subject’s credit information and the two statutes thus overlap, a regulated party is expected to know and follow the requirements of both statutes, even if that requires greater formality in obtaining a consumer’s credit records.”
First Student complained that because the ICRAA and CCRAA cover the same subject matter, it was unclear which statute applied in the context of employment background checks. But the court disagreed. Connor’s report, for example, fell within the scope of both statutes and “such a duality does not make legal compliance particularly difficult, must less impossible,” the court said.
“Any partial overlap between the statutes does not render one superfluous or unconstitutionally vague,” the court wrote. “They can coexist because both acts are sufficiently clear and each act regulates information that the other does not.”
The California Supreme Court opinion was a loss for First Student and the ICRA, as the court found the defendants had no excuse for not complying with both statutes. For employers more generally, the decision sends an important message: compliance with the requirements of both ICRAA and CCRAA is mandatory, even where the two statutes overlap.
In April 2018, the San Francisco Board of Supervisors passed an amendment to the Fair Chance Ordinance (FCO), which takes effect on October 1, 2018. The full text of the amendment can be found here.
The FCO notice/poster has also been updated and can be accessed here. Employers must provide this notice to applicants and employees prior to conducting a criminal background check, and post it in English, Spanish, Chinese, and any other language is spoken by at least 5% of the employees at the workplace or job site.
Effective September 21, 2018, section 605A(i) of the Fair Credit Reporting Act (FCRA), added by the Economic Growth, Regulatory Relief, and Consumer Protection Act requires that a new notice (which explains consumer rights about placing fraud alerts and credit freezes with nationwide consumer reporting agencies (NCRAs)) be included whenever a consumer is required to receive a summary of rights under FCRA’s section 609. Although the new notice requirement is aimed at NCRAs and potentially consumer reporting agencies, the Consumer Financial Protection Bureau published a revised “FCRA Summary of Rights” form on September 13, 2018 (which includes the new notice and updates certain contact information) and the conservative approach for employers is to use the new form also.
The new version of the “FCRA Summary of Rights” form can be accessed HERE.
