A new federal district court case demonstrates the importance of handling the adverse action process correctly when terminating an existing employee due to an unsatisfactory background check.

In the case decided on February 26, 2010 by the U.S. District Court for the Southern District of Ohio (2010 U.S. Dist. LEXIS 17373), an employer ran a credit check on all employees in the accounting department, including the plaintiff who had been working in the current location for seven years. For reasons not disclosed in the case, the employer decided to terminate the plaintiff due to the result of the credit report.

According to the plaintiff, a meeting was called on January 16, 2008 and she was told she would never work for the employer again, and to go home.  Shortly thereafter, she received a copy of the report as well as a letter stating that the information in the report may or may not affect employment.  On January 23, 2008, she received a second letter indicating that she was terminated.

The plaintiff sued on the basis that the federal Fair Credit Reporting Act (FCRA) requires that an employer provide a consumer with a copy of any consumer report and a statement of their rights BEFORE an adverse decision is made about employment. The plaintiff argued that she was both given the report and terminated all on the same day, so she did not receive a pre-adverse action notice. 

The employer disputed that account, and argued that the first meeting did not constitute a termination, and that it only indicted an intention to terminate.  In addition, the plaintiff was still paid for another week after the second letter and there was some discussion about tying to get her job back.

The court ruled that since there was a disputed issue of fact, it was up to the jury to decide what happened, and the employer’s motion to dismiss was denied.  In other words, if the jury accepted the plaintiff’s version of the facts, then the jury could find an FCRA violation.

This case illustrates an important point for employers, especially when it comes to terminating current employees.  Under the FCRA, when an employer receives a Consumer Report and decides not to hire the applicant based upon the report in any way, the applicant has certain rights. Before taking the adverse action, the employer must provide the following information to the applicant: 

The purpose is to give an applicant the opportunity to see the report that contains the information that is being used against them. If the report is inaccurate or incomplete, the applicant then has the opportunity to contact the Consumer Reporting Agency to dispute or explain what is in the report. Otherwise, applicants may be denied employment without ever knowing they were the victims of inaccurate or incomplete data.

A second letter is required if the decision is to be made final.  Although law does not dictate how much time should have between the pre-adverse and post-adverse action letters, employers should leave enough time for a consumer to meaningfully review the report and make known to the employer or the Consumer Reporting Agency any inaccurate or incomplete information in the Consumer Report.  Most authorities suggest there be at least 5 business days between letters.

Where a consumer is a job applicant not yet on the job, the timing issue is much simpler because the employer can send the first letter, and follow up with a second letter without dealing with a worker that is actually on premises.  In this case, where the consumer was already on the job, employers need to be much more careful.  To avoid any misunderstandings, an employer should make it absolutely clear in writing (and with witnesses) that the first letter is NOT a final decision, and that the consumer has the opportunity to review the report and make his or her objections known.  The difficulty in this case was that the employer allegedly made it clear that the termination was final all in the first meeting. Of course, the problem with an existing employee, especially one in a sensitive position such as accounting, is that an employer may not want them on premises  if it turns out the decision becomes final.

In this case, the employer did send the plaintiff home with salary being paid, but allegedly made the mistake of making the termination final immediately as opposed to the required waiting period. 

This case again underscores the fact that employment screening is a highly regulated area of employment law that requires specialized skills and knowledge. 

For more information on the FCRA, see: The FCRA in Four Easy Steps at https://www.esrcheck.com/articles/Complying-with-the-Fair-Credit-Reporting-Act.php.