What Does “Pre-Adverse Action Letter” Mean?

Posted By: John Albanese September 16, 2016

The Fair Credit Reporting Act provides for protections for job applicants who may be denied a job based on a background check. One of the core protections is the pre-adverse action notice requirement which provides that before taking any adverse action based in whole or in part on a consumer report, an employer intending to take such adverse action must provide the consumer:

(i) A copy of the report; and

(ii) A description in writing of the rights of the consumer under this subchapter.”

15 U.S.C. § 1681b(b)(3)(A). “Section 1681b(b)(3)(A) thus requires an employer to provide job applicants with their background report, summary of rights, and a ‘real opportunity’ to contest the contents of the background report before the employer relies on the report to take an adverse action against the applicant.” Moore v. Rite Aid Hdqtrs Corp., No. 13 Civ. 1515 (JED), 2015 WL 3444227, at *12 (E.D. Pa. May 29, 2015).

Who conducts background checks?

Many employers have outsourced their pre-adverse action notice obligations to background check companies. Once an employer receives a background check and grades the consumer as “ineligible” or “not recommended” on the basis of the background check, the background check company, on behalf of the employer, will automatically send the consumer a copy of the report, a summary of rights, and a letter stating that the employer is considering taking adverse action on the basis of the background check. If the applicant does not dispute the report, after about a week, the background check company will automatically generate another letter to the applicant stating that the applicant has failed the background check and will not be eligible to work.

A question that has arisen in litigation is whether the immediate grading of the background check as a “ineligible” or “not recommended” qualifies as an adverse action under the FCRA or does it merely signify an intent to take an adverse action in the future. Courts have divided on the issue.

Case examples

In Manuel v. Wells Fargo, 123 F. Supp. 3d 810 (E.D. Va. 2015). Wells Fargo graded the plaintiff as “ineligible” and that grade automatically set off the pre-adverse action and adverse action processes at Wells Fargo’s background check company, First Advantage. The court found that the act of grading the plaintiff as “ineligible” could be a final adverse action under the FCRA:

Wells Fargo’s use of the ineligibility code was the only communication that Wells Fargo made to First Advantage about the applicant unless the applicant disputed the background check after he received the “pre-adverse action notice.” A reasonable jury could find that Wells Fargo’s adverse hiring decision was final when it was first relayed to First Advantage because Wells Fargo was comfortable adhering to that decision without reviewing it if the individual did not file a dispute.

Id. at 823.

On the other hand, in Costa v. Family Dollar Stores of Virginia, Inc., No. 3:14-CV-00731-JAG, 2016 WL 3919458, (E.D. Va. July 19, 2016), the court found that Family Dollar’s coding of the plaintiff as “Not Recommended” was not an adverse action under the FCRA:

[T]he plaintiffs’ argument fails because the act of coding an applicant as not recommended during Family Dollar’s process is the formation of intent to take adverse action—the action that triggers the § 1681b(b)(3)(A) notice requirement—not the adverse action itself. Further, the act of coding is an internal decision from which the applicant does not suffer any adverse effect. See Williams, 2015 WL 9692872, at *8–9; Javid v. SOS Int’l, Ltd., No. 1:12cv1218, 2013 WL 2286046, at *4 (E.D.Va.2013); Obabueki, 145 F.Supp.2d at 392. The adverse effect does not come until Family Dollar denies the application through the Second Letter, as in Sanders’s case, or fires the employee, as in Costa’s and Duncan’s cases. As Judge Schwartz aptly illustrated in Obabueki v. IBM, “[h]olding that an employee may suffer an adverse action as a result of an internal decision by the employer is akin to finding that a party’s summary judgment motion is denied before the Opinion is composed and issued, following discussions between the judge and his law clerk.” Id.

Other district courts have disagreed with this conclusion, albeit mostly at the motion to dismiss phase. See Moore v. Rite Aid Headquarters Corp., No. 13–1515, 2015 WL 3444227, at *5 (E.D.Pa. May 29, 2015); Goode v. LexisNexis Risk & Info. Analytics Grp., Inc., 848 F.Supp.2d 532, 539 (E.D.Pa.2012). Most notably, this Court recently came to a different conclusion in Manuel v. Wells Fargo Bank, N.A., a case where the employer, Wells Fargo, followed a similar background check process. 123 F.Supp.3d 810 (E.D.Va.2015). In denying Wells Fargo’s motion for summary judgment, the Court held that “[w]hether or not a reasonable jury could determine that Wells Fargo’s act of coding an applicant as ineligible was an adverse action under the FCRA is a fact question.” Id. at 822–23. Nothing in the record here creates any such jury question. The facts are not at issue, only the legal effects of the facts. And in this case, the act of coding an applicant as not recommended is not adverse action under the FCRA as a matter of law.