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What Adverse Action is and Why You Should Care

You may not know this, but background screening is a highly regulated industry. If your organization gets background checks from a screening company, it’s important to be aware of the various laws and regulations that affect the industry. It’s especially important to know what Adverse Action is and why you should care.

Due in large part to some high-profile class action lawsuits in the past couple years, Adverse Action has become more visible but we still think it’s a good idea to educate people with this blog. Employers who rely on information provided to them from a background screening company need to understand Adverse Action and its procedures as defined in the Fair Credit Reporting Act (FCRA).

The FCRA defines Adverse Action as a denial of employment or any other decision for employment purposes based in whole or in part on a consumer report that adversely affects any current or prospective employee. 

Before rejecting a job applicant, denying a promotion, reassigning or terminating an employee based in whole or in part on information obtained in a consumer report (i.e., a background check), employers must follow a two-stage process; pre-adverse action and adverse action. This process provides the applicant or employee the opportunity to review and dispute information in the report, if they so choose. Employers must follow the process correctly in order to protect their organization, as well as the rights of the applicant or employee.



Stage1: Pre-Adverse Action

If a background check reveals information which might lead you to take adverse action against the individual, you will begin with Pre-Adverse Action.

In this stage, you must provide the applicant or employee with a pre-adverse action notice, which consists of a letter indicating that adverse action may be taken as a result of information contained in the report. The letter will include the name of the background screening company and its contact information, informs the consumer that the screening company did not make the decision to take the adverse action, and informs them about their right to dispute the completeness/accuracy of the information. In addition, a copy of the report, as well as a copy of “A Summary of Your Rights Under the FCRA” must be included. 

In the SafestHires screening system, a user can implement this stage of the Adverse Action process very easily. They must login and select “My Reports” from the top menu. On the “My Reports” screen, they would scroll down to any of the searches on this screen for the candidate they will be initiating Adverse Action on. Click on the status button for any search with the appropriate candidate’s name and a dialogue box will appear. Inside the dialogue box, there will be a link for Pre Adverse Action and another link for Post Adverse Action.

To initiate Pre-Adverse Action, the user clicks this link. Another dialogue box will open and they will be able to enter the candidate’s street address. At this point, they simply click the “Submit” button and a PDF will be downloaded to their desktop. The PDF will contain all three documents that must be transmitted to the candidate. And because the law allows the information to be transmitted electronically, the PDF can be emailed to the candidate.

Following the initial notice, the FCRA requires that consumers be afforded a reasonable amount of time to respond to the pre-adverse action notice. Although the FCRA does not specify a time frame, most companies wait 5-10 business days. During this time, the applicant or employee can contact the prospective employer or the screening company to dispute the information contained in the report.

Stage 2: Adverse Action

After the applicant or employee has received adequate time to respond, employers are required to notify them again if they choose to proceed with adverse action (i.e. denying the application, reassignment or termination).

The employer is required to send an adverse action letter informing the individual that adverse action has been taken based information revealed in the background check. The letter will also include the name of the screening company and its contact information, informs the consumer that the screening company did not make the decision to take the adverse action, and informs them about their right to dispute the completeness/accuracy of the information.

To initiate this process in the SafestHires system, the user repeats the process described above and clicks the link for Post Adverse Action. When the dialogue box opens, the user can enter the candidate’s address and click the “Submit” button. At this point, the final Adverse Action notice is downloaded to the user’s desktop and the user can email this PDF to the candidate, which satisfies their Adverse Action requirements.

It’s very important the employers comply with these adverse action procedures because litigation is increasing and non-compliance carries stiff penalties.

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