Avoiding FCRA Lawsuits: Adverse Action

Posted: December 15, 2022

Companies must take the necessary steps to reduce their risk of FCRA lawsuits, so we’ve been reviewing numerous best practices to minimize risk, including consistency and obtaining disclosure/consent from applicants. Next up: Following the adverse action process.

What is Adverse Action?

“Adverse action” is the FCRA-defined process that employers must follow if they consider not hiring a job candidate based, in whole or part, on information in a candidate’s background report. Adverse action must be followed for other employment matters, such as denying a promotion, demoting an employee, or terminating an employee.

While disclosure and consent must occur before a background report is obtained by an employer, adverse action occurs after the background report has been prepared by a background check company and reviewed by the employer. The adverse action process is broken into several parts:

Step 1:  Pre-Adverse Action

If an employer is considering not hiring a candidate based on information in a background report, there are a few actions to take:

• Provide a copy of the background report to the candidate.Provide the Federal Summary of Rights and applicable state notice.
• Inform the candidate that an adverse employment decision is possible, of the candidate’s right to dispute, how to dispute and the number of days during which a dispute may be initiated.

Step 2: Wait

• The employer must wait the specified number of days specified after the pre-adverse notice is sent for the candidate to initiate a dispute. The FCRA does not specify the number of days, although the FTC suggests five days as a reasonable time frame. Sometimes the candidate will initiate a dispute and the background check company will re-investigate, the background report will be changed, and the employer proceeds with the hire. In this situation, no actual adverse action is being taken, so no additional notices are required.

Part 3:  Adverse Action

If the job candidate does not dispute the report, the dispute may not change the content of the background report, or the candidate simply does not respond to the pre-adverse notice. If the employer decides to take the adverse employment action, a second notice – the actual adverse action notice – must be provided to the candidate.

What is included in the final adverse action notice?

The FCRA requires specific information be included in the final adverse action notice, including the adverse decision made, the contact information of the CRA that supplied the report, a statement that the CRA that supplied the report did not make the decision to take the unfavorable action and can’t give specific reasons for it, a Federal Summary of Rights, and a  notice of the person’s right to dispute the accuracy or completeness of any information the consumer reporting company furnished, and to get a free report from the company if the applicant requests it within 60 days. It is important to note the adverse action notice is required even if information in the consumer report wasn’t the primary reason for the decision.

Need Help?

Info Cubic offers fully compliant Adverse Action services, where we handle issuing the Pre-Adverse and Final Adverse Action letters. If an applicant disputes the reported information, Info Cubic will also reinvestigate the results and report our findings to both the applicant and you at no cost.

With our automated, compliant solution, we can help you streamline your adverse action notification process and create an audit trail that may protect your company against litigation. Please contact us at (877) 360-4636 for more details.

Please consult with qualified legal counsel when developing hiring and background screening procedures.