Court Determines Plaintiff Can Sue for Alleged Pre-Adverse Action Failures

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The landscape of litigation under the Fair Credit Reporting Act (FCRA) continues to evolve as questions of whether plaintiffs have “standing” to bring lawsuits before a federal court increase. In a recent example from August 2018, the Seventh Circuit Court of Appeals (“Court”) reversed an earlier district court judgement that dismissed the FCRA class action lawsuit for lack of standing.[1] In its opinion, the Court found the plaintiff did in fact have standing to sue.

In this recent case, the plaintiff alleged that an Indiana-based insurance company failed to follow the adverse action process.[2] Under the FCRA, employers are required to follow a two-step process: (1) provide a pre-adverse notification that an adverse employment decision may be made based in whole or in part on the background report that includes a copy of the report and “A Summary of Your Rights Under the Fair Credit Reporting Act” and (2) provide an adverse action notification if the decision becomes final.

The plaintiff alleged that a human resources representative from the company simply informed her that the offer was rescinded due to information contained in her background report without following the first step in the adverse action process. In response, she filed a class action lawsuit that later resulted in a settlement agreement. However, the district court pushed back and questioned whether there was even standing to bring the lawsuit. Noting the plaintiff did not claim the lost offer was related to the employer’s alleged failure to provide a copy of the background report, the district court dismissed the case.[3]

Upon review, the Court determined there was enough information to overturn the district court’s decision. The Court explained that the failure to provide the plaintiff a copy of her background report “deprived her of the chance to review it and present her side of the story…[which] is the very reason why the FCRA obligates employers to produce a copy of the report before taking adverse action.” Therefore, the plaintiff did suffer an injury which allows her to bring a lawsuit in federal court. It’s important to note that the Court did not rule on the actual merits of the adverse action claims but rather sent the case back to the district court for further proceedings.

Although employers are seeing a rise in more favorable FCRA rulings, the key takeaway here is to not simply rely on an argument as to whether there was actually an injury or not related to an alleged violation of the FCRA. Instead, employers should consult qualified legal counsel to thoroughly review screening and hiring practices, including adverse action procedures (and potential impacts to that process by way of ban the box or fair chance laws).

[1] In order to bring a lawsuit before a federal court, a plaintiff must have “standing” as provided for in Article III of the U.S. Constitution. For there to be standing, the plaintiff must have suffered an “injury in fact,” which can be traced to the defendant’s wrongdoing, If the plaintiff cannot show that the injury was concrete and particular, he/she does not have standing to bring a lawsuit before a federal court (unless the defendant infringed on a congressionally created right).
[2] The plaintiff also claimed the employer violated the FCRA’s disclosure requirements.
[3] The tentative settlement agreement was reached prior to the US Supreme Court decision in Spokeo, Inc. v. Robins. After the district court raised the issue of Spokeo’s impact, the Seventh Circuit also issued an opinion in Groshek v. Time Warner Cable, Inc. that simply alleging an employer violated the disclosure requirements was not sufficient to confer standing.