Job applicants who were deemed “noncompetitive” during background checks can sue LexisNexis under the Fair Credit Reporting Act for not giving the prospective workers a chance to respond, a federal judge has ruled.

When their jobs are on the line, workers have a right to address accusations against them regardless of whether their employer is making the decision or a third-party “consumer reporting agency” is, U.S. District Court Judge Jan DuBois of the Eastern District of Pennsylvania ruled in Goode v. LexisNexis .

In making his ruling, DuBois allowed the bulk of the consumer class action claims against LexisNexis to survive a motion to dismiss.

The litigation centers around LexisNexis Risk and Information Analytics Group Inc., which performed the background checks for employers.

DuBois said that LexisNexis could be sued for allegedly violating the Fair Credit Reporting Act (FCRA) when it judged people to be “noncompetitive” before it had given them the required notice.

However, DuBois said the plaintiffs couldn’t sue LexisNexis for “a willful failure to comply with the FCRA” because they hadn’t pled sufficient facts to sustain that claim.

But DuBois did say the plaintiffs could sue for a willful violation of the FCRA and seek punitive damages for allegedly failing to turn over all the information the company had on the workers.

In ruling in favor of the plaintiffs, DuBois said that by providing a report to the employers, LexisNexis had taken an “adverse action” against the plaintiffs.

“LexisNexis did more than simply send the report to plaintiffs’ employers,” DuBois wrote in his 22-page opinion. “LexisNexis also adjudicated plaintiffs. The member employers did not conduct any review of the adjudication, and thus the adjudication of plaintiffs is, quite literally, a ‘decision for employment purposes that adversely affects’ plaintiffs.”

Further, he said, LexisNexis classified the employees as noncompetitive before sending out the “pre-adverse action” letters, which means that there was no opportunity for the employees to contest the judgment — a system that “undermines the goal” of the FCRA.

According to the opinion, two women, Keesha Goode and Victoria Goodman, worked in retail jobs for companies that contracted with LexisNexis, which runs a system called Esteem that “helps organizations identify applicants with [a] history of theft or fraud.”

Employers can subscribe and get background checks on current and potential employees, DuBois said. Subscribers are also required to give the company “new records of theft incidents involving their own employees,” the opinion said. Those records can be either incident reports from criminal investigations or a report from the company if the “employee admits guilt,” DuBois said.

When a subscriber requests information about a person, LexisNexis searches the system and “classifies the employee in accordance with adjudication scores agreed upon” by the subscriber and LexisNexis, the opinion said, going on to explain that if someone meets a certain threshold, he or she is assigned a “noncompetitive score.”

The FCRA requires that before “adverse action” is taken against an employee, he or she must be provided with a copy of the report on which the action is based and notice of the consumer’s rights under the FCRA, according to the opinion.

When Goode got a “pre-adverse action” letter from LexisNexis after she had applied for a job at Family Dollar Stores, she requested a copy of the file on which it based its decision, DuBois said. She was not furnished with one.

In Goodman’s situation, she had applied for a promotion at Rite Aid in November 2009 after having worked at the store for three years. She was fired by the store at the end of the month, the opinion said. On Dec. 2, 2009, she got her “pre-adverse action” letter from LexisNexis and on Dec. 7, 2009, she got her “final adverse action” letter.

LexisNexis had argued that it did not actually make “adverse” decisions regarding people’s employment by adjudicating the employee. DuBois disagreed.

As for providing employees with all the information in their files, DuBois said, “under a plain reading of the statute, the admission statement is clearly part of the file and defendant was required to turn it over to plaintiffs upon plaintiffs’ request,” referring to the admissions of guilt to which the plaintiffs were denied access.

LexisNexis contended that it did not commit a willful violation because the law wasn’t settled at the time. It cited the 7th U.S. Circuit Court of Appeals’ 2007 decision in Gillespie v. Trans Union, in which the credit reporting agency had refused to provide employees with the dates on which it would “purge” information from an employee’s file.

“Internal record-keeping data is wholly different than the admission statement in this case, which is the central piece of information relevant to the report that LexisNexis generates,” DuBois held.

The plaintiffs’ attorney, Irv Ackelsberg of Langer Grogan & Diver in Philadelphia, said, “The employment background industry has become an enormous part of the employment landscape and there are aspects to that system that are of particular concern.”

He likened the system used by CRAs as a “private blacklist,” which affects low-income workers who are branded as thieves without being criminally charged or convicted.

“This will be a growing area in the law because of the prevalence of background checks in many employment sectors,” he said.

Andrew J. Soven of Reed Smith in Philadelphia, who represented LexisNexis, could not be reached for comment.

Saranac Hale Spencer can be contacted at 215-557-2449 or sspencer@alm.com. Follow her on Twitter @SSpencerTLI.

(Copies of the 22-page opinion in Goode v. LexisNexis, PICS No. 12-0629, are available from The Legal Intelligencer. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •