By: James B. Sherman, Esq.
A federal district court in Minnesota was recently presented with what appears to be a case of first impression concerning workplace background checks used to make hiring decisions. The case was brought under the Fair Credit Reporting Act ("FCRA"), which applies to consumer credit reports to ensure fair and accurate reporting and protect consumer privacy. The Federal Trade Commission (FTC) has long held that the FCRA also applies to background checks for job applicants involving credit reports as well as criminal history and other reports performed by a covered third-party reporting agency. Among other things the FCRA requires advance written notice to the "consumer" before an "adverse action" may be taken. In the context of background checks the required notice must be given to the applicant before he or she may be rejected based on information obtained through a covered consumer report (e.g. credit, criminal history, etc.). In Johnson v. ADP Screening and Selection Services, Inc. and Robert Half Intl., Inc., the court was presented the following issue: how long must an employer wait before it may lawfully reject a job applicant based on information covered under the FCRA? The Johnson decision does not specify a definitive number of days employers must wait between giving notice to an applicant and taking adverse action, it does provide employers with the best guidance available to date for complying with this otherwise ambiguous federal law.
As background, the FCRA requires that prior to performing a covered background check an employer must first provide a disclosure to the applicant and obtain the applicant's written authorization (and, under Minnesota state law, must also offer the applicant the choice to receive a free copy of the consumer report generated). The FCRA also requires that if the employer intends to take any "adverse action" (typically, in the context of hiring, rejecting the applicant), based "in whole or in part" on anything generated in a covered consumer report, before doing so it must provide the applicant with: (1) written notice of such intent; (2) a copy of the report relied upon; (3) the name, address and phone number of the consumer reporting agency and (4) a summary of the individual's rights under the FCRA, including the right to contest the report. This required notice is commonly referred to as a "pre-adverse action" letter. However, the FCRA does not say how long an employer must wait between the time it provides a pre-adverse employment letter and when it rejects the applicant or otherwise takes adverse employment action. The Federal Trade Commission has been equally vague on this issue, stating in an opinion letter: "The amount of time an employer should wait [after issuing a pre-adverse action letter] before taking adverse action will vary depending upon the circumstances, such as the nature of the job and the way that the employer does business." The court in the instant case was confronted with this very issue, an issue that has engendered differing opinions from employers across the country since the FCRA was first applied in the employment context.
The Johnson case involved a job applicant whose background check revealed "numerous criminal convictions in Minnesota, Texas and Virginia." Because the employer used a third-party reporting agency (ADP) to perform the background check, it wisely proceeded in accordance with the FCRA's requirements and issued Johnson a FCRA compliant pre-adverse action letter. Thereafter, the employer, Robert Half, put Johnson's application "on hold." In response to the notice Johnson asserted his FCRA rights and contested the criminal background report, but after two weeks - when no new information had become available through ADP - the employer went ahead and rejected his application. It was only after his application had been rejected that new information became available, raising questions about the accuracy of at least some of the several convictions in Johnson's report (for example, in two instances race was listed as different from Johnson's.)
Based on these facts, Johnson (with legal assistance from a Twin Cities area consumer advocacy group) sued both ADP and Robert Half alleging they violated the FCRA. Specifically, despite the fact that Robert Half had put his application "on hold" and waited a full 14 days before rejecting his application, Johnson contended it should have waited even longer because the additional information from ADP following his objections was not yet available. Thus, the outcome of the case boiled down to timing and whether the employer waited long enough after sending its FCRA pre-adverse action letter before it took the "adverse employment action" of rejecting Johnson's application.
The court in this case noted: "[t[he FCRA places an employer in a position where it cannot hire and cannot reject an applicant; it must give notice that it intends to reject him." However, the court also noted that the FCRA fails to provide how long an employer must remain in what is essentially a state of limbo before it can act. Johnson's lawyers argued that employers should be required to wait a "reasonable time" of 30 days to correspond to the time agencies are given to investigate disputed reports under the FCRA. The employer, on the other hand, argued there should be no waiting between the pre-adverse action letter and an adverse action because the only requirement under the FCRA is that the pre-adverse action notice must be sent "before" any adverse action is taken.
The employer's argument was easily rejected by the court because it would allow employers to provide applicants with FCRA compliant pre-adverse action notices and then reject them immediately, even seconds later. This approach, the court determined, would give no effect to the applicant's statutory right under the FCRA to contest the report in any meaningful way. Similarly, the court rejected the applicant's 30-day "reasonable" time period argument, stating it would "create untenable constraints on employers" where they would have to place the entire hiring process on hold and leave the position unfilled for 30 days or more. In rejecting the parties' positions the court adopted a sort of middle-of-the-road approach since Congress provided no guidance in the language of the statute. The court declared that it must construe a remedial statute such as the FCRA liberally so as to give effect to Congress' intent in mandating the advance notice, which was to give individuals a legitimate opportunity to contest the results of background check reports covered under the FCRA.
In the end, the court did not declare how long an employer must wait in order to provide an applicant with such an opportunity; it simply found that the 14 days Robert Half waited in this case between its pre-adverse action notification and its rejection of his application presented Johnson with an adequate opportunity to contest the report. Significantly for other employers and reporting agencies alike, it did not matter to the court that ADP had 30 days under the FCRA to investigate Johnson's objections to its report and had not yet responded at the time Robert Half relied on the report to reject his application. Instead, the court observed that in this particular case, waiting two weeks before disqualifying the applicant provided "ample opportunity to dispute the report..."
Thus, for want of a better standard, this case at the very least provides guidance that employers must wait long enough to give an applicant an "ample opportunity to contest" a report that is to be relied on in making a hiring decision. At the same time it is clear at least from this one decision that employers are not required to wait until an applicant's objections are fully resolved before taking adverse employment action. This decision represents the only precedent on this issue; however, it is subject to being appealed and it is not out of the realm of possibilities that an appellate court, or another trial court judge in Minnesota or elsewhere, could adopt the applicant's argument for a minimum 30-day or some other waiting period.
Consequently, given the lack of any clear statutory or court guidance under the FCRA, what are employers to do? Cease using third-party reporting agencies when performing background checks? Impractical. Wait a full 30 days following a pre-adverse action letter before making a hiring decision? Probably equally impractical.
Until the issue is more clearly resolved either by Congress or some higher court, the safest bet to comply with the FCRA by is to follow the lead of this case and wait at least 14 days if it is practical to do so. Of course as previously mentioned, the FTC has said the timing may vary depending on the circumstances, and employers who are not in the temporary services industry, as is Robert Half, may not be in a position to wait a full two weeks in the sort of limbo required by the FCRA before making a hiring decision. Still, it seems an employer would be hard pressed to argue that waiting less than a minimum of one week (7 days) would satisfy the FCRA's objective of giving an applicant an "opportunity to contest" a report.
Thus, in the absence of any real guidance on this issue, the safest bet would be to wait at least 14 days after issuing the required pre-adverse action letter before ruling out an applicant based on this decision in Johnson. Waiting 30 days would be safer yet, since it would be in sync with the time period agencies are given to respond to an applicant's objection made pursuant to the FCRA. Finally, waiting fewer than 7 days would seem to be insufficient under the Johnson court's (and the FTC's) articulated standard of providing the applicant with an adequate "opportunity to contest" a covered background report. Imprecise as this is, at least for now, this is the best information employers have to go by.
