Your Guide to Simplifying and Understanding Adverse Action

Most employers conduct background checks on new hires and periodically rescreen employees as part of their standard employment practices. These checks sometimes reveal information about your candidates and employees that can impact their employment status. In other words, certain information in a background report can lead to an employer taking adverse action, meaning the denial of employment or any other decision for employment purposes that adversely affects a candidate or employee.  

The Fair Credit Reporting Act (FCRA) provides guidance employers must follow when taking adverse action based, in whole or in part, on information in a background report.  This blog summarizes the general guidance imposed by the FCRA that all employers should understand, but it is not intended to be all-inclusive, and state and local laws can change the equation.  It is also important to be aware of all your obligations as an employer under the FCRA before taking any action. Always consult your attorney if you have questions about the adverse action process. 

Adverse action process

Suppose information uncovered during a background check requires adverse action.  Are you confident that you know where to start?  Let’s break down the adverse action process—what it is, and what steps you may want to take to help stay compliant. 

The adverse action process has three general steps. 

Step 1 – Pre-Adverse Action Notice 

Before taking any action, you must notify the candidate or employee of your intent to take adverse action so the individual has a chance to review the background report and dispute any inaccuracies found within before a final decision is made.  Your pre-adverse action notice should include: 

1. A copy of the background report you used to make your decision.
2. A copy of the Summary Rights Under the Fair Credit Reporting Act. 

Step 2 – Wait 

Giving the candidate or employee time to review and dispute the content of a background report is critical. The FCRA does not specify what constitutes a reasonable amount of time, but the Federal Trade Commission has stated that waiting five business days is generally reasonable.  Some state and local laws may extend this waiting period, so be sure to check with your attorney for specific guidance. 

Step 3 – Adverse Action Letter 

If you decide to move forward after the waiting period, send a final adverse action notice, which should include: 

• The name, address, and phone number of the consumer reporting agency that supplied the report. 
• A statement that the consumer reporting agency did not make the decision and cannot explain why the decision was made. 
• Notice of the individual’s right to dispute the accuracy or completeness of any information in the background report and to get an additional free report if requested within 60 days. 

Adverse action made simpler

All these steps can be a challenge to tackle alone or even with a robust team. It takes time and energy to put the correct materials together and send them at the proper intervals, and whenever a team member carries these out, there is a risk of human error. Doing your due diligence to follow through and make sure you are following all steps and procedures possible is important – but it certainly doesn't hurt to have the right resources on your side, too. 

• Technology built to help you fulfill adverse action requirements: Verified Credentials simplifies the adverse action process for employers through our employment screening platform, which enables clients to quickly create and deliver pre-adverse action notices, adverse action notices, and other compliance documents. 
• An up-to-date resource library at your fingertips: Keeping up to date with the latest laws and amended rules is no easy task. Verified Credentials maintains a regularly updated resource library to help our clients stay current on the latest regulations, including adverse action laws at the federal, state, and local level across the United States. 

Like all regulated employment practices, it is best to review your policies and procedures with your organization’s legal counsel. Ensuring that your adverse action documents are compliant is a great place to start, but employers also need to have a strategy in place if adverse action is required. 

** This is a broad overview of the FCRA’s adverse action process. The FCRA and state and local laws may place additional obligations on users of background reports. Consult your legal counsel to ensure that your adverse action process and other employment and hiring practices comply with all applicable laws. **