Adverse Action Questions Answered

Posted Thursday, October 12th, 2017 by Debbie Lamb, Sterling Talent Solutions

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Adverse Action Questions Answered

When a company decides not to hire a candidate based on what’s found in their employment background screening report provided by a Consumer Reporting Agency (CRA), they are required by law to initiate the two-step adverse action process.

Sterling Talent Solutions surveyed 500+ US-based employers in 33 industries about their use of background screening to gain key insights into emerging trends, technology and more for The 2017 Background Screening Trends & Best Practices Report. The survey found that only 50% of companies send out both pre-adverse and adverse action notices to their candidates when they decide not to hire based on the outcome of a background screening check provided by a CRA. Employers who do not follow the correct adverse action steps are exposing themselves to the risk of lengthy and costly legal action.

What is Adverse Action?

Adverse action is “an action that denies an individual or business, credit, employment, insurance or other benefits. An adverse action is generally taken by a business based on a criminal past.” Adverse action regulations apply to new hire candidates who have been offered a position with a company on a conditional basis or current employees. When using consumer reports to make employment decisions, including hiring, retention, promotion or reassignment, a company must comply with the Fair Credit Reporting Act (FCRA). The Consumer Financial Protection Bureau (CFPB) enforces the FCRA. To be compliant, companies must follow a two-step process before they take any adverse action based on the findings in a consumer report:

  • Pre-Adverse Action Notification
  • Adverse Action Notification

Each of the adverse action steps, state and local law considerations and unique circumstances that can occur in the hiring process were discussed in detail during the “Employment Laws for HR, Part 2: Adverse Action Compliance” webinar presented by Pam Devata and Stacey Blecker of Seyfarth Shaw LLP.

Adverse Action Questions and Answers

Sterling Talent Solutions feels that it is important to be a source for the latest updates about employment law compliance changes and how this can affect the hiring and background screening process. After the “Employment Laws for HR, Part 2: Adverse Action Compliance,” webinar, we received quite a few questions about the adverse action process. We compiled the top seven questions from the webinar below:

  1. What type of background screening services does the FCRA apply to. Is it just criminal record checks, or does it include motor vehicle checks, education checks, credit checks, etc.?

    The FCRA applies to all services that Sterling offers, not just criminal history searches or credit checks

  2. Does the FCRA apply to failed drug screens if the drug results are reported on the same report as the criminal results and does that mean the adverse action process must be followed?

    Drug screen results that are being used to deny employment should go through the Adverse Action process.

  3. If I conduct reference checks myself and find negative information, do I still need to send an adverse action letter?

    No. Information provided by a Consumer Reporting Agency utilized to deny employment should go through the Adverse Action process.

  4. Which state regulations should you follow if the company is headquartered in one state and the employee works in another?

    Generally, the state with the more restrictive law.

  5. What should one do if the adverse action letter is returned due to an incorrect address?

    The client should attempt to contact the individual to obtain the correct address.

  6. What happens when a candidate decides to dispute?

    Sterling re-investigates the information that the applicant is disputing.

  7. If we use Sterling’s Pre-Adverse Action services, are all the required forms included when they send the package over?

    Yes, with the exception of New York City and Los Angeles where an individual review form must be completed by the employer. The employer can complete the form and send it to Sterling and Sterling would send the form with the Pre-Adverse letter.

Always review with legal counsel all state and local regulations around the adverse action process. Find out more about the adverse action process and how they affect the workplace by downloading the OnDemand version of “Employment Laws for HR, Part 1: Adverse Action Compliance.” Sterling also conducts a quarterly FCRA Compliance webinar series to keep attendees current on the latest FCRA compliance updates. Sign up for these very informative webinars today!

PLEASE NOTE: Documents/presentations should NOT be construed as legal advice, guidance or counsel. Employers should consult their own attorney about their compliance responsibilities under the FCRA and applicable state and municipal law. Sterling Talent Solutions expressly disclaims any warranties or responsibility for damages associated with or arising out of this document/presentation or other information provided.