April 18th, 2018 | Debbie Lamb, Sterling Talent Solutions

Your Adverse Action Checklist: Getting It Right

When using consumer reports to make employment decisions, including hiring, retention, promotion or reassignment, a company must comply with procedures listed as part of the  Fair Credit Reporting Act (FCRA). The variety of laws/rules can be overwhelming to an employer, and if regulations are not complied with properly, an organization might have to deal with penalties. Adverse action regulations apply to new hire candidates who have not been offered a position with a company on a conditional basis or current employees.

Adverse Action Process

The decision to start adverse action can be in whole or in part on the findings of the consumer report, but it must come from the employer. The employer must state the decision for adverse action was not made by the consumer reporting agency (CRA) or third-party background check provider. The candidate has a right to dispute the information in their report with the CRA and to ask for a free copy of the report within 60 days from the consumer reporting agency. If an applicant disputes the findings of the employment background screening report, then the adverse action process needs to be stopped.

Companies must follow an FCRA mandated two-step process before they take any adverse action based on the findings in a consumer report. The two steps consist of a pre-adverse notice, sent prior to making a final decision followed by a notification of adverse action, sent if a decision is made not to hire. To start the process, a Pre-Adverse Action Notice/Letter is sent to the candidate along with the copy of the background screening report, federal summary of rights and any appropriate state summary of rights. In the last step, an Adverse Action letter is sent to the candidate with another copy of the federal summary of rights and any appropriate state summary of rights. If the specific Adverse Action steps are not followed, it could lead to litigation.

  • Pre-Adverse Action: Pre-adverse action is not an opportunity for the individual to argue that the client should change their hiring decision but it is solely a challenge to the accuracy of the information on which the client is using to make their conclusion. An individual has at least five days to contest the results. FCRA mandates that the candidate’s dispute must be resolved by the CRA within 30 days. If the individual does not contest the accuracy of the report within five days or does contest the information but the re-investigation confirms the original findings, the client may take adverse action.
  • Adverse Action: Adverse Action is an action that denies an individual employment or promotion, etc. When giving adverse action, an employer must give written notification to the applicant stating what action is being taken and what the decision was based upon, such as the criminal history in the background screening report findings.

Some states and cities have even more stringent processes and require more information from the employer when a hiring decision is made based on the findings of a background screening report. Some states such as New Jersey, New York, Washington and Massachusetts require specific state summary of rights in addition to the Federal Summary of Rights. In New York City, if there is adverse action based on criminal history, employers must complete and provide a copy to the applicant of the New York City Fair Chance Act Form. In Los Angeles, employers must provide a written assessment required by the Los Angeles Fair Chance Initiative for Hiring Ordinance to the applicant.

Best Practices for Adverse Action Compliance

Companies should always document their adverse action process. Pre-Adverse and Adverse notices are required by the FCRA for purposes of accuracy and compliance. An individualized assessment is recommended by the EEOC to prevent discriminatory practices. It allows a candidate to explain why a criminal record shouldn’t disqualify them for the job they seek. It may also be required under state or local law.

Sterling Talent Solutions has created a checklist for employers to help guide them when proceeding with the adverse action process. Download the “Your Adverse Action Checklist: Getting It Right” for more information.

This publication is for informational purposes only and nothing contained in it should be construed as legal advice. We expressly disclaim any warranty or responsibility for damages arising out this information. We encourage you to consult with legal counsel regarding your specific needs. We do not undertake any duty to update previously posted materials.