Understanding Adverse Action

The background screening process is simple, right? You obtain the candidate’s consent, initiate the background check, and your job is done. Well…not exactly. There are certain steps that need to be taken if an applicant is turned down for a job because of the background check. You would be surprised how many employers are getting this major component of the background screening process wrong.

Companies are simply missing the mark on this part of the process, which is referred to as adverse action. Adverse action means that you intend to deny the applicant employment based upon information obtained from the background check.  

Before taking an adverse employment action, the candidate must receive a pre-adverse action letter, a notice that includes:

• A copy of the consumer report you relied on to make your decision
• A copy of "A Summary of Your Rights Under the Fair Credit Reporting Act”

This notice allows the applicant to review and dispute the findings of the report. Before a final determination is made and the adverse action letter is sent to the applicant, you must allow an appropriate amount of time for the applicant to respond to the pre-adverse action notice (According to the FTC, employers should wait 5 days).

After you have taken an adverse employment action, the candidate must be informed (orally, in writing, or electronically). We recommend informing the applicant in writing by using an Adverse Action Letter, a notice that tells the applicant:

• He or she was rejected because of the information in the report
• The name, address, and phone number of the credit reporting agency (CRA)
• The CRA did not make the adverse decision and cannot give reasons for the decision     
• He or she has a right to dispute the accuracy or completeness of the report, and to get an additional free report from the reporting company within 60 days.

With class actions continuing to pop up in 2016, we recommend that you review your adverse action process. Skipping any of these steps not only hurts your company and its reputation, but also infringes upon the rights of the applicants you are screening. For more information, check out this joint publication from the FTC and EEOC. Let us know if you have any questions.