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What Is Adverse Action?

February 10, 2022


February 10, 2022

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When an employer orders background screening services from a Consumer Reporting Agency (CRA) like Crimcheck, there are numerous legal obligations automatically assigned to the employer by the Fair Credit Reporting Act (FCRA). With FCRA-related litigation on the rise, unintentional mistakes resulting from overlooking or misunderstanding these legal obligations may significantly increase an employer’s exposure to legal vulnerabilities. A popular litigation focus is an employer’s noncompliance with adverse action requirements.

Adverse action, a frequently occurring event when employers use consumer reports from CRAs to make their hiring decisions, is exclusively an employer’s responsibility. This responsibility has shown to create avoidable risks to employers, so it is progressively more important to be knowledgeable of the recommendations and requirements of federal, state, and local law when implementing adverse action procedures.

What Is Adverse Action?

Adverse action is any decision that is made against the interest of an employee or prospective employee. Most often, employers utilize adverse action in the context of denying employment to a candidate based in whole or in part on the background screening results provided by the CRA. When in the position of making a negative hiring decision based on the information revealed in a consumer report, employers must follow the three stages of adverse action: (1) pre-adverse notice; (2) the waiting period; and (3) adverse action.

(1) Pre-adverse Notice: A pre-adverse notice must be sent to the candidate to inform them that based on the contents of the applicant’s consumer report, the employer is contemplating taking adverse action. The purpose of the pre-adverse notice is to provide the candidate the opportunity to dispute the accuracy or completeness of the consumer report. The notice must include a full copy of the candidate’s consumer report, a summary of the consumer’s rights under the FCRA, and a written notice containing all required notifications under federal, state, or local law. It is also common practice to include a statement that no final decision has been made regarding the applicant’s employment, an explanation of the candidate’s right to dispute the information being reported, the candidate’s timeframe to dispute, the contact information of the CRA that provided the consumer report, and a statement informing the candidate that the adverse decision is made solely by the employer and not the CRA.

(2) The Waiting Period: After providing the candidate with a pre-adverse notice, the employer must wait a reasonable time period before taking adverse action, to guarantee the candidate had sufficient time to dispute any information contained in their consumer report. While the FCRA does not explicitly define what is considered a reasonable waiting period, it is understood to be a minimum of one week, and at least five business days. If a dispute is initiated by a candidate during this time, the CRA shall notify the employer and the CRA will begin a reinvestigation based on the disputed information. The employer must wait for the CRA to complete the reinvestigation before moving forward in the adverse action process. If no contact is made by the applicant during the waiting period, or upon the completion of the reinvestigation, the employer can move to the next step by taking adverse action.

(3) Adverse Action: To take adverse action against a candidate based on the contents of their consumer report, employers must provide the candidate with oral, written, or electronic notice of the adverse action that includes the following: (a) the name, address, and phone number of the CRA that prepared the report; (b) a statement that the CRA did not participate in the adverse action decision and cannot provide the candidate with the reasons why such action was taken; (c) a statement that the candidate has a right to receive a free copy of their consumer report within 60 days; and (d) a statement that the candidate has a right to dispute the accuracy or completeness of the consumer report. It is recommended employers also include a summary of the consumer’s rights under the FCRA and a statement that references the previous opportunity that was given to the candidate to dispute or explain the circumstances of the adverse information reported in their consumer report.

Throughout the adverse action process, it is important to consider other sources of possible legal procedures as well. Multiple states and localities have expanded on the FCRA’s adverse action requirements that must be met depending on the location of the employer or the location of the applicant. Additionally, keep in mind suggestions from agencies, such as the Equal Employment Opportunity Commission’s recommendation that employers consider the candidate’s reported adverse information against the job position being filled before taking adverse action.

With varying federal, state, and local laws, recommendations from other agencies, and sometimes vague FCRA requirements, the process of adverse action can quickly become convoluted. Crimcheck understands the challenges of this process, so it offers a complementary adverse action administration through its proprietary online platform. While viewing an applicant’s report, employers can click to start the process, then Crimcheck will email the applicant required notices, a copy of their consumer report, and the summary of rights under the FCRA. Crimcheck also offers sample pre- and post- adverse action notices for clients to use and customize

While Crimcheck makes a great effort to keep all sample documents up to date with the various legal requirements, it is an employer’s responsibility under the FCRA to ensure the employer is using legally compliant forms. Crimcheck suggests consulting with legal counsel before utilizing Crimcheck’s offered adverse action services or when working through adverse action independently.

Understanding an employer’s role when making hiring decisions and the legal duties that come with it, can ensure compliance, and help limit the risk of facing costly legal repercussions.

* This time period is based off of the FCRA only; verify with conflicting state and local laws.

This information is provided for informational purposes only. Crimcheck does not provide legal advice. Reader retains full responsibility for the use of the information contained herein.

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