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Thursday, February 14, 2008


Pre-Adverse Action Letters

I got this from the National Association of Professional Background Screeners' (NAPBS) Thursday Letter. It provides some insightful updates on a court ruling that held that an employer can use a blanket or template applicant release and that an employer could refuse to hire anyone that did not agree to provide authorization to conduct a background check. No one should be surprised by these rulings. However, the court did provide some guidance on the use of Pre-Adverse Action letters and the timing employers and CRA's should use when making the ultimate hiring decision. See the excerpt below taken directly from the NAPBS email.

An employer is required to provide a Pre-Adverse Action Letter before taking action against a consumer that is based in whole or in part upon information contained in the consumer report. The unanswered question in the FCRA is: What period of time must lapsed between the sending of the Pre-Adverse Action Letter and the sending the Adverse Action Letter? The FTC has acknowledged that there is no clear standard and that the amount of time that would be reasonable depends upon many factors such as: the nature of the job, how the employer does business etc., but the purpose of this Section is to allow the consumer time to discuss the report with the employer before adverse action is taken. FTC Opinion Letter, Lewis, June 11, 1998.

Normally, a few days should be sufficient for the consumer to inform the prospective employer where he believes the criminal record is not his or other information in the report is inaccurate. The law does not require that the employer do anything with the information the consumer provides, but we hope that the employer will be rationale and listen to the consumer. However, some jobs must be filled immediately or the employer will be damaged, e.g. truck driver is needed to haul a load now and there is no time to investigate the dispute but an employer may work with the consumer for the next available position.

However, a recent case held that time between the Pre-Adverse Action Letter and the Adverse Action Letter should be a sufficient amount of time so that the consumer can receive a copy of his "draft report" and "correct" any inaccuracy in the report before any decision or action is commenced against the consumer. Beverly v. Wal-Mart Stores, Inc., 2008 WL 149032 (E.D.Va.). In support of it's position it cited the case of: Kelchner v. Sycamore Manor Health Center, 305 F.Supp2nd , 429, 435 (M.D. Pa. 2004) for the position that there must be enough time to correct the inaccuracy. However, the court in Kelchner did not say that no adverse action can be taken until a dispute has been resolved. Rather, the Kelchner court simply followed the reasoning of the FTC in the Lewis opinion by stating that only a reasonable time needs to pass between the two letters and that such period would not exceed five (5) days. To be accurate, the Kelchner's court comments are part of what lawyers call "dicta", that is a discussion that has nothing to do with the real issue being decided by the court. The real issues in Kelchner were two fold. The first was whether an employer can use a blanket release for the authorization of consumer reports that extends over the consumer's entire period of employment? The court answered that such releases are permissible. The second issue was whether an employer could refuse to hire someone who would not consent to obtaining a consumer report? Again, the court stated that the employer had this prerogative.

Thus, the court's position in Beverly is not supported by the case it cited but that does not change it's holding that can cause problems for CRAs. In fact, it appears the employer in the case, Wal-Mart, may have attempted to follow the "five (5) day rule" noted in the Kelchner case. Wal-Mart contracted the providing of Adverse Action Letters to it's consumer reporting agency. In this case, the first letter was mailed on September 1, 2005, and the second letter was mailed on September 6, 2005. However, Labor Day fell between these two dates and the consumer received both letters on the same day. The court held that this raised an issue for the jury to determine whether the process complied with the FCRA. One would assume the jury would be instructed that the time necessary would include the concept that the time must allow for the correction of any disputed information. Clearly, five days would often not suffice. If a court file is not available, which happens from time to time, these type of corrections can take considerably longer than five days.

The lesson to be learned in this case is that an automated system that sends out a second letter XXXX days after the first should be flexible to accommodate intervening conditions such as holidays, bad weather etc. and if such occur then the sending of the second letter should be delayed. In this case the Labor Day holiday delayed the delivery of the first letter, essentially depriving the consumer of any pre-adverse action notification. Thus, although the court's interpretation of the FCRA is subject to substantial criticism, the method to supply Pre- Adverse Action and Adverse Action letters is also subject to criticism.

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