What is adverse action?

Inevitably, as an employer who operates a background check program, you will have candidates who have criminal records, inconsistencies in verification information, or failed drug tests. When these findings prompt a decision to turn down an applicant or dismiss an employee, you are required to follow federal and state regulations in utilizing that information. This action, called adverse action, can be confusing for employers. Our goal in this blog post is to provide an overview of adverse action and review the adverse action steps involved in the background check process.

What Is Adverse Action?

Adverse action is any action you take based on the information in a background check report that negatively affects someone’s employment. This could mean denying them employment, but can also include denying a promotion or transfer or offering employment in a lesser position. The Fair Credit Reporting Act (FCRA) and specific jurisdictions require that you follow certain procedures if you decline to hire, engage, or promote a candidate on the basis of information contained in a background report.

Why Is Adverse Action Important?

Because adverse action adversely affects consumers, it is a frequent area of litigation and compliance risk for you. Failures to follow adverse action procedures can result in class action lawsuits. The risk of class action litigation should serve as a strong motivator for employers to review their background check procedures and ensure that they are complying with the FCRA. For example, in 2019 a lawsuit resulted in Petco having to pay over $1 million to the plaintiff because it allegedly did not provide applicants with the notices required by the FCRA. Compliance risk aside, errors do occur in background checks, and you want to do the right thing by your job candidates to ensure that you are using accurate information. 

What Is An Adverse Action Process?

Once a background check is completed, if any of its findings may be grounds for declining a job application or dismissing an employee, the employer must let the applicant know via a notice called a pre-adverse action letter.

Along with the pre-adverse action notice, the employer, or the company it has hired to conduct the background check, must also provide each candidate with a copy of the background check report and a summary of his or her rights under FCRA.

The employer must then give the candidate reasonable time to review the background check report and allow them to address any information they consider inaccurate. The employer also must give the candidate a chance to offer clarifying information to correct the record or otherwise explain the report’s findings. No specific waiting period is specified under FCRA, but courts have accepted five days as a reasonable amount of time for this process.

If, after considering the candidate’s response and any corrections to the record, the employer still decides against hiring or promoting the candidate based on the background check contents, the employer must issue an adverse action notice that explains their decision. The adverse action notice may be delivered in hard-copy form or electronically. 

The adverse action notice must inform the candidate of their right to dispute the decision, and offer them a chance to get another copy of their background check report any time within 30 days of receiving the notice. 

If the employer outsourced the background check to an outside company, such as a Consumer Reporting Agency (CRA), the notice must specify that the hiring decision was made by the employer, not the contractor, and include the name, address, and phone number of the CRA.

In addition to federal mandates, employers may be subject to additional adverse action notification requirements under state and local fair chance or ban-the-box laws designed to reduce hiring discrimination against ex-offenders. 

Certain healthcare and financial-industry jobs are off-limits to ex-offenders, but federal equal employment opportunity laws, as well as state and local regulations otherwise forbid excluding job candidates solely on grounds of past legal issues. Employers must obey these laws as well as the FCRA.

What Is Individualized Assessment?

In 2012, the Equal Employment Opportunity Commission (EEOC) issued guidelines advising employers to consider the specifics of each candidate who may be denied employment based on a background check, known as individualized assessment. Specifically, you should consider the nature and gravity of the offense or conduct, for example:

• The time that has passed since the offense, conduct and/or completion of the sentence
• The nature of the job held or sought

You are also encouraged to keep in mind other factors such as the number of offenses, employment history before and after the offense, rehabilitation efforts, and other circumstances.

The cities of New York and Los Angeles specifically require this type of individualized assessment as part of the hiring process, including that you “show your work” to the candidates to document your decision making. Make sure you work with a qualified counsel to help design your adjudication and adverse action procedures.

What If A Consumer Disputes Their Report?

Employers and background check companies are committed to accuracy, transparency, and promoting fairness in the hiring process. Sometimes, though, the information reported by county courts, credit reporting agencies, and other sources contain errors.

These errors might result from:

• Transcription/typing errors at the courthouse
• The confusion resulting from common names
• Outdated information from credit reporting agencies
• Identity theft

This is why you should always advise candidates to closely review their results. If a candidate believes there is an inaccuracy, they should contact the background check company on the adverse action notice to begin a dispute process. While the background check company has 30 days to complete their investigation, we encourage you to try and resolve consumer disputes much faster. 

What Are Common Mistakes In An Adverse Action Process?

The most common mistakes we see in an adverse action process are:

• Clients do not issue pre-adverse action notices.  Believe it or not, some employers (often those that don’t work with a background check company), simply issue an adverse action notice that does not give the consumer an opportunity to dispute the findings.
• Pre-adverse action notices do not contain a full report or a copy of the FCRA summary of rights. We have seen employers issue a pre-adverse action notice, but then not provide a copy of the report or a summary of rights. Often, the excuse is to save on paper and postage, but this violates the FCRA.
• Clients do not wait long enough between issuing pre-adverse and adverse action notices. In a rush to fill a position, we have seen companies with lackadaisical adverse action procedures wait fewer than five days between the notices. This is almost always a recruiter who is anxious to get onto the next candidate.
• Clients or background check companies do not respond quickly to consumer disputes.  While legally background checks companies have up to 30 days to investigate a dispute, good firms prioritize disputes and resolve them much more quickly. Conversely, we have seen other background check companies deprioritize consumer disputes and “forget” to engage long after 30 days.
• Clients do not follow jurisdiction-specific adverse action procedures. With Fair Chance Hiring laws growing, we continue to see more jurisdictions requiring specific adverse action procedures. These can be confusing and frequently change. You want to make sure you are working with outside counsel to follow the correct procedures.  

Have A Question About Adverse Action?

Background check compliance is a confusing topic that can have serious consequences for employers. You should work with a partner that helps to keep you up to date on the changing compliance landscape.  Have a question or need help understanding your background screening program compliance? Click below to work with one of our Scouts and we’ll help you in any way we can.

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ScoutLogic is not a law firm. You should always check with qualified counsel before you make any changes to your background check program. If you need a qualified attorney, we would be happy to make a referral for you.