(CN) - LexisNexis cannot dismiss claims that its background-check service violates the Fair Credit Reporting Act, a federal judge ruled.
LexisNexis Risk & Information Analytics Group offers a service called Esteem that informs employers when job applicants have a history of theft or fraud.
Subscribing employers pay LexisNexis a fee in return for its background checks on current and potential employees. Members must also inform LexisNexis when their employees and customers are implicated in new theft incidents.
Subscribers can submit incident reports only if they referred the incident for criminal prosecution, or if the employee admits guilt.
If the employee admits guilt, that individual must make an "admission statement," consisting of a signed statement describing the incident and admitting guilt. When a subscriber requests information on a current employee or prospect, LexisNexis searches its system for the employee's personal information.
Once LexisNexis verifies a match, it assigns an "adjudication score." If the employee falls below a certain standard, the employee gets a "noncompetitive score."
Clients never receive a subject's admission statement, but LexisNexis does send them a report and the adjudication score.
The Fair Credit Reporting Act gives employees the right to review such reports before their employer can take adverse action.
As an additional service, LexisNexis sends these letters, known as "pre-adverse action letters," on employers' letterhead to employees or prospective employees who match their records.
The pre-adverse action letters LexisNexis sends out contain a copy of the report, but do not include a copy of the admission statement.
LexisNexis' pre-adverse action letters also include a disclaimer that the company "did not participate in any employment decision and will be unable to provide any specific reasons as to why the [employer] may choose to take an adverse employment action."
Several days later these employees receive a final "adverse action letter" on the employer letterhead from LexisNexis. (ruling page 3)
Keesha Goode worked customer service in a Forman Mills store from November 2006 to October 2008.
After she was accused of theft, Forman Mills fired her and gave LexisNexis an incident report, including an admission statement.
When Goode applied for a job at a Family Dollar Stores location in May 2009, she received a pre-adverse action letter from LexisNexis telling her she matched information in its Esteem database relating to the Forman Mills incident report.
The letter was on Family Dollar Stores' letterhead, but told Goode to contact LexisNexis if she wished to contest the accuracy of information it provided.
Goode later sent LexisNexis a letter requesting her entire file, and disputing the alleged theft from Forman Mills. In the letter she stated: "I was accused of not reporting on a former employee who was stealing merchandise, but I did not steal anything myself."
LexisNexis responded by defending the accuracy of its background check on her. It ignored her subsequent request for copies of the information on which LexisNexis relied.
Victoria Goodman cashiered for a Dollar General Store from June 2005 to June 2006 until her boss told her she was being investigated for theft, and asked her to go home.
Goodman signed an admission statement at Dollar General's request, but the company never told her about the outcome of its investigation, and her application for unemployment benefits was approved.
Goodman later started working as a cashier for a Rite Aid drug store and applied for a promotion in November 2009.
Rite Aid in turn submitted Goodman's information to the LexisNexis and fired upon receiving the Esteem report.
LexisNexis sent Goodman a pre-adverse action letter on Rite Aid's letterhead with the report attached.
After Goodman received the final adverse action letter on Rite Aid letterhead five days later, she disputed the report in writing to LexisNexis. As it did in Goode's case, the company defended the accuracy of its background report. It ignored a request for Goodman's admission statement that a legal services company sent on her behalf.
Goodman won reinstatement at Rite Aid after filing a union grievance.
In a federal class action, Goode and Goodman said LexisNexis violated the Fair Credit Reporting Act by taking adverse action against them before providing them with a copy of their consumer reports.
They say LexisNexis takes an adverse action when it verifies an Esteem match and adjudicates them as noncompetitive, before sending pre-adverse action letters.
LexisNexis disputed this characterization in a motion to dismiss. It also argued that the employer is solely responsible for relaying the consumer report before taking adverse action.
As an agent for the employer, LexisNexis said it could not be held liable under the Fair Credit Reporting Act.
Another section of the FCRA requires consumer-reporting agency to clearly and accurately disclose all the information in a consumer's file upon request.
Goodman and Goode claim LexisNexis' refusal to turn over the admission statements in their files violated this provision.
LexisNexis argued that its interpretation of the law led it to believe it was required to turn over only the actual report, and nothing else.
U.S. District Judge Jan DuBois refused to dismiss both counts Friday, finding that the class has adequately defined their adjudication as noncompetitive, before receipt of the required notice, as an adverse action.
Since that action was not willful, however, DuBois said LexisNexis cannot be liable for punitive damages.
DuBois said the allegation pertaining to the admission statements is willful, however, which would entitle the class to punitive damages.
"If the admission statement is not 'information on the consumer,' the court cannot fathom what might be," DuBois wrote.
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