Legislation and Compliance update May 2010 - Adverse Action Agitation

By Michael Klazema on 5/18/2010

We all know the adverse action process: before making a negative hiring (or promotion, assignment, or retention) decision based on a consumer report, you must send a pre-adverse action notice that contains a copy of the report and a statement of consumer rights. At this point, an applicant may dispute the report. If the applicant doesn’t dispute the report, you must send an adverse action notice to the applicant, notifying him of the decision and his rights. This is all in addition to the various state-mandated letters often required.

If this process isn’t followed, severe fines could easily result as they did in July of 2004 for two casinos: Imperial Palace, Inc. and Imperial Palace of Mississippi, Inc. Each utilized credit reports in taking adverse action and each failed to supply applicants with the necessary notices, resulting in a $325,000 out-of-court settlement.

While this is well and good, a case recently appeared that is causing consternation in the business world because the employer is being sued even though they delivered adverse action notices. Why? Because of the timing.

In a lawsuit filed on March 14, 2008, Mandy Burghy alleged that her former employer, the Dayton Racquet Club, had taken adverse action against her without providing her with a copy of her report. According to the suit, Burghy was called in for a meeting with the general manager and her direct supervisor to “discuss the results of the credit check that had been performed and how it might affect Burghy’s employment going forward.” It seems likely that the general manager didn’t mean to do anything wrong and was proactively addressing a problem with an applicant. But Burghy argues that she was fired in this meeting, which occurred on the same day that her employer sent a pre-adverse action letter stating that she could dispute the report and that no decision had yet been made. If the general manager, in fact, told her that she was being fired without first giving her the pre-adverse action notice, those actions clearly violate the Fair Credit Reporting Act, despite any good intentions.

Of the five items delineated in the suit, this contention over adverse action is the only one that is being allowed to continue in litigation. This does not necessarily mean that the Dayton Racquet Club was in the wrong, but it means that the case is going to trial unless they settle.

All of this leads to one very simple conclusion: You have to be careful about who you are talking to, what you are saying and when you are saying it. Most importantly, you have to let the adverse action process take place before making a decision. To not do so means running the risk of a lawsuit and the cost of defending the suit, even if you later win it.

Source: Mandy Burghy V. Dayton Racquet Club, Inc. 2010 WL 728282 (S.D. Ohio). US District Court.  Westlaw. 20 June 2010

Tag Cloud
Recent Posts

Latest News

  • June 20 Repeat background checks are becoming more common, with companies in India leading the charge. What does this trend look like, and how can employers embrace it now to stay ahead of the curve?
  • June 19

    Every federal job involves a background check of some kind. These background checks and how they are evaluated vary based on job, department, and security clearance level.

  • June 18

  • June 14 Ban the box laws aim to improve opportunities for employment. Could they have the opposite effect instead?
  • June 13 Jacobs Petroleum Products is a regional petroleum company that operates throughout Pennsylvania, West Virginia, Ohio, and Maryland. Apart from their employees carrying much responsibility and have frequent contact with customers, the company’s hiring also tends to be segmented since individual store managers are responsible for hiring talent for their own stores. In this employment landscape, Jacobs Petroleum Products needed a reliable and effective way to screen its new hires for criminal infractions and other red flags.
  • June 12

    The University of Wisconsin System may tweak its hiring and reference check processes. The potential changes come after one of UW’s assistant deans was accused of sexual harassment.

  • June 07 Stories of abuse by coaches in youth sports leagues continue to crop up around the country, but rules and guidelines remain patchy and enforcement is often lacking. The struggle to implement an effective system continues nationwide.
  • June 07 Financial background checks, usually referred to as credit history checks, can be an effective way to find out if a candidate is fit to handle accounts, financial data, and other assets at your business.
  • June 06 The Society for Human Resource Management and the Charles Koch Institute recently commissioned a survey to find out how willing employers were to hire people with criminal records. The study indicates that managers, HR professionals, and employees themselves are becoming more comfortable with the idea of hiring and working with ex-offenders.
  • June 04 Are fingerprint background checks the gold standard for employee screening, or are they overhyped? We look at some of the myths and misconceptions surrounding these checks.