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 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, a “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 process very easily. They must login and click on the HTML link to open a candidate’s report. They can either download and mail the Pre Adverse notice themselves (Manual Process) or they can click the link to initiate the automated Adverse process.

If using the automated process, an email message will be sent to the candidate with some instructions and a link to our portal. They will login, read the Pre Adverse notice with it’s disclosures and a copy of the completed background check. The notice advises them to contact us if they want to dispute the report or contact the employer if they want to provide an explanation of the circumstances. 

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. With our automated Adverse process, we wait 10 business days, giving them time to file a dispute or provide an explanation.

When using our automated process, if they contact you to explain the circumstances and you feel the explanation is satisfactory, you will notify us and we will disable the Adverse process so they do not receive the final notice. We will also disable the automated process if they file a dispute.

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 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.

If using our manual process, you can download and send this notice to the individual. If using our automated process, we will send a second email to the individual on the 10th business day, with a link to our portal, where they would login and read their final Adverse notice.

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