Adverse Action: Everything you need to know

Sep 22, 2022

During the employee hiring process, most applicants are put through some level of a background screening process. If any information from a background check or consumer report negatively impacts the employer’s decision to hire, the employer must follow the steps as outlined by the Fair Credit Reporting Act (FCRA) for notifying the applicant. Federal law requires employers to send applicants written notices of adverse action, informing the candidate of their decision to not move forward in the employment process on the grounds of negative findings in their history. Knowing the outlined steps for taking adverse action is crucial in mitigating the risk of litigation. 

What is Adverse Action? 

Adverse action is the denial of employment, credit, insurance, or other benefits based on findings of a consumer background report. In the employee hiring process, adverse action is the denial of employment due to negative findings in the applicant’s history. 

What are Examples of Adverse Action?

Although adverse action is typically referred to within the hiring process, adverse action also includes anything that negatively changes an employee’s current work status. Examples of adverse actions include laying off the employee, denying promotion, discharging, demoting, reprimanding, blacklisting, transferring to another job, denying overtime, lowering pay, or denying benefits.

Do I need to follow adverse action rules?

Inherently, the adverse action process adversely affects applicants making it a very common subject for lawsuits. If you, as the employer, fail to follow adverse action guidelines, you can find yourself wrapped up in a lawsuit. Risking the consequences of lawsuits is often enough to motivate employers to carefully follow outlined procedures and regulations of the adverse action process. While even a single lawsuit can be costly, some class action lawsuits have had to pay out millions of dollars for neglecting to provide applicants with required notices. 

What are the steps for providing notice of adverse action?

Employers must follow specific steps in order to stay in compliance with FCRA guidelines. If you have any questions we advise reaching out to an expert

1 Send a Notice for Pre-Adverse Action

After reviewing a background check with results that are evidence for denying an applicant of the job opportunity or dismissing a current employee, you must issue a pre-adverse action letter to inform the candidate that the information found may impact the decision of their employment. 

Pre-Adverse Action Notices inform the applicant that you are considering not moving forward with the employment process based on the findings of their background check. This offers them a chance to respond to any incorrect information in their background check or provide clarifying information. The Pre Adverse Action Notice must include a full copy of the background check, a summary of their rights under the FCRA, and the contact information of the reporting agency. 

2 The Waiting Period

Next, you must allow a reasonable amount of time for the applicant or employee to review and respond to the documents they received.  This is when the applicant has the opportunity to provide clarifying information to either explain the findings within the report or correct any potentially incorrect information. The FCRA does not have a specific amount of time outlined for the waiting period, however 5 to 7 days is typically considered a reasonable amount of time, but some jurisdictions require more. 

3 Review the Report Results Again

Review any clarifying information provided by the applicant. If there was an inaccuracy in their report (see common inaccuracies below), you will have to continue waiting until the inaccuracies have been disputed and resolved with the screening company. If the applicant provides clarifying information for any past incidents on their background check, consider elapsed time or if they have been through rehabilitation for the incident. Always make the best decision for keeping your business safe. If after reviewing the provided information, you still decide to not hire the applicant or take adverse action against the employee, then you must give the recipient a notice of adverse action either electronically or as a hard copy letter. 

4 Provide the Notice of Adverse Action

Once you have waited the required amount of time for review and if necessary, the required amount of time for resolution of disputes, then you can send a notice of Adverse Action. The notice must inform the candidate of their ability to dispute the decision within 60 days and include a copy of their background report. If the background check was completed by a third-party company, the employer must state the decision was made by them and not the contracted company. Contact information for the background screening company must also be included.

Always keep a copy of any notice you send for your own records. 

5 Properly Dispose of Sensitive Information

The FCRA requires employers handling sensitive information to dispose of the documents securely.  Paper copies must be shredded or destroyed and electronic files must be erased irretrievably.

What happens if an applicant disputes their background check?

Employers and background check companies do their best to maintain transparency and provide accurate information, however, inaccuracies can still occur that candidates may need to dispute. 

Common inaccuracies include:

  • Identity theft
  • Outdated information from a credit reporting agency or credit score
  • Transcription errors in courthouse reports
  • Confusion resulting from a common name

If there is an error the applicant or employee should immediately contact the employer or background screening agency to dispute the error.

Common Mistakes to Avoid

1 Not issuing a Pre-Adverse Action Notice 

This mistake is most common for employers who do not outsource their background checks to an experienced screening agency. The consumer loses the opportunity to dispute any findings and the employer can face litigation.

2 Pre-Adverse Action Notice missing information

To avoid violating the FCRA, Pre-Adverse Action Notices need to include a summary of rights under the FCRA as well as a full copy of the background check report.

3 Not waiting long enough before issuing the Adverse Action Notice

This mistake is common among employers and recruiters who are trying to quickly fill a position. It is important to allow time for the applicant or employee to review their documents, dispute inaccuracies, and provide any clarifying information.

4 Consumer disputes not addressed in a timely manner

While most reporting agencies prioritize fixing errors as quickly as possible, they legally have up to 30 days to investigate a claim, but employers should take expert legal advice on how to quickly address the issue. 

Screening is a necessary process to maintain a safe work environment and thus a successful business. Avoiding unnecessary risk is also critical to a successful business, so if you have any remaining questions about drug screening, background checks, adverse action notices, or FCRA compliance reach out to APTOS Screening today.

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