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What is Adverse Action?

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With regard to the hiring process, an adverse action is when an organization receives information from a background check that, “in whole or in part,” is a factor in determining not to hire an applicant, not promoting a current employee, or terminating a current employee. The adverse action process is governed by the Fair Credit Reporting Act (FCRA), which contains certain strict rules regarding how employers must act in these situations to encourage transparency, accuracy, and fairness throughout the hiring process.

We understand compliance with all of the adverse action requirements can be daunting to some and confusing to others. To that end, we’ve compiled some frequently asked questions to help navigate the process.

  1. What is the first step in the adverse action process?

After an applicant is notified about, and provides written permission for, a background check to be performed, and the check uncovers grounds for not hiring the applicant, the hiring company must first send a pre-adverse action letter.

  1. What is a pre-adverse action letter?

A pre-adverse action letter serves as notice to the applicant that information was obtained during the background check process that may negatively affect the hiring decision. It also must include a copy of the report, along with a summary of the applicant’s rights under the FCRA and an opportunity to respond.

  1. What should an employer do after they send the pre-adverse action letter?

Employers must give applicants a reasonable time to dispute the information found and provide clarifying information. Courts have found that seven to ten business days is reasonable for this purpose.

If the applicant disputes the report or sends clarifying information, the employer must review the information and the report again. If the employer still decides not to hire the applicant, then they must send an adverse action letter that explains their decision.

  1. What is an adverse action letter?

An adverse action letter is a written notice required by the FCRA that informs an applicant that he or she will not be hired for a position because of something found in the background check.

The adverse action notice must clearly inform the applicant of his or her right to dispute the decision and offer a chance to get another copy of the report within 60 days of receiving the notice.

Additionally, if the employer used a background screening company, the notice must specify that the hiring decision was made by the employer, not the third party, and include the name, address, and phone number of the background screening company.

  1. What else should employers do?

Employers should document the date the adverse action letters are sent, and actively try to resolve any consumer disputes as soon as possible. Employers must also dispose of the background check reports and any sensitive information in a secure manner.

  1. Could there be errors in the report?

Yes, there could be errors relating to outdated information reported by a credit reporting agency, confusion with a common name, identity theft, and human or typographical errors. Reports should always be carefully reviewed by all involved.

  1. What are some common mistakes employers make?

With regard to adverse action, common mistakes include:

  • Forgetting to issue the pre-adverse action notice.
  • Not waiting long enough before issuing the adverse action notice.
  • Not addressing disputes in a timely manner.
  1. Why should employers care about adverse action?

The adverse action process is a frequent source of litigation and poses a significant compliance risk for employers. Employers who violate the FCRA face stiff financial penalties, as well as increased exposure to unfair hiring lawsuits.

With so much at stake, it’s crucial for employers to work with a background screening company that is certified by the Professional Association of Background Screeners (PBSA) and to have an attorney review all of their policies and procedures.

Hire Image strives to be your trusted background screening resource. If you have any questions about your own background screening processes, please reach out at contact@hireimage.com.

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