The Pre-Adverse And Adverse Action Process
Two Steps For Proper Compliance
The Fair Credit Reporting Act (FCRA) establishes a defined process that employers must follow when taking “adverse action” or denying employment to a potential job applicant or employee. When a background check is produced by a Consumer Reporting Agency (CRA – a background screening firm such as EBI), and the information obtained is used in whole or in part as a basis for an employment, promotion or retention decision which adversely affects any candidate or even current employee, the adverse action process would apply and should be followed. For example, if an employer rejects a candidate based on a criminal conviction within a background report, even if there are other factors that would not qualify the candidate such as lack of experience or education to properly fill the position, the adverse action process must be followed because the criminal conviction came into play “in part” within the decision-making process.
Some employers assume that based on the name “Fair Credit Reporting Act” that the adverse action process is only utilized when making a hiring decision based on information contained within a credit report. The adverse action process affects any report information obtained within a background check that affects an employment decision.
When a potential adverse action decision is made, an employer should follow the following steps to ensure proper compliance:
- Provide a “pre-adverse action letter” on your company letter head that provides the candidate/employee with the option to respond to, and clarify, any information contained in the report that may not be accurate or complete.
- Include the name of the CRA that conducted the report along with their complete address and toll-free number.
- Include a copy of “A Summary of Your Rights Under The Fair Credit Reporting Act” so the subject understands the entire adverse action process.
- Include any state specific disclosures or attachments as required by your state. Seek HR Legal Council advice to determine your state specific responsibilities.
- Include a copy of the background check obtained on the applicant/employee.
- Include a minimum timeline of five (5) business days for the applicant/employee to respond to this notice. Although the FCRA does not state a specific timeline, only "a reasonable waiting time", federal and legal sources suggest five (5) business days. This timeline may vary depending on additional state specific regulations.
The above notification process can be achieved via mail, fax, email, or any other delivery mechanism that provides for confidential delivery. All correspondence should be addressed and received only by the subject of the report. Delivery confirmation by registered letter or other means is recommended.
An exception to this process is an employer within the transportation industry that hires under the regulations of the Department of Transportation (DOT). Under DOT guidelines, a “pre-adverse” action notice is not required.
If the subject disputes information contained within the report, the Credit Reporting Agency (CRA), your background screening company, has thirty (30) days to re-investigate the disputed information. This timeline may be extended if additional information is discovered and/or disclosed during the re-investigation process.
If the subject does not dispute the information contained within the report, and a reasonable timeline has elapsed (minimum of five business days), an employer can proceed to Step Two, and send the “adverse action notification.”
When an employer decides to take adverse action based in whole or in part of a background check, the “adverse action notification” process should include the following steps and documentation:
- A copy of the "adverse action letter" with a description of the specific adverse action being taken, such as rejection of an application, denial of employment, inability to promote the individual, or termination of employment. This letter should also state that the decision was based in whole or in part on information contained within the report.
- The name of the CRA that conducted the report along with their complete address and a toll-free number for contact.
- A statement that the CRA conducting the report did not make the decision to take adverse action and is unable to provide the reason for such action.
- A notice of the subject’s rights to obtain a free copy of the background check from the CRA and the ability to dispute the information contained within the report.
- Include any state specific disclosures or attachments as required by laws or regulation in your state. Seek HR Legal Council to determine your state-specific responsibilities.
Confirmation of delivery of the adverse action notification is recommended and provides the employer additional documentation if the applicant disputes the information used to make the adverse decision.
As a CRA, EBI strictly conforms to federal guidelines and partners with Seyfarth Shaw LLP, one of the leading legal experts in the background screening industry to insure that we are compliant. The basic steps described within this article should be used as a guideline and should not be taken as legal advice. Always seek legal counsel for further clarification within your state and industry. Additional resources can be located within the FTC’s website at www.ftc.gov. Additional forms and resources are also located within the down load section of the EBI website at www.ebiinc.com/downloads.html.
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All information contained herein is provided by Employment Background Investigations solely for the convenience of its clients. EBI is not providing legal advice or counsel and nothing provided on this document should be deemed as legal guidance or advice. Readers should consult with their own legal counsel to determine their legal responsibilities or if they have questions on any information provided by EBI.