ad-verse ac-tion \ad-'vers 'ak-shən\ verb: In terms of background checks, an action that denies an individual employment, promotion, transfer, or other benefits based on information found on a consumer credit report (aka background check), frequently a result of omitted, exaggerated or inaccurate information and/or a criminal past.
We talk a lot about the variations between states, industries, etc. regarding background screening requirements and laws; however, one very important regulation from the Fair Credit Reporting Act (FCRA) applies to everyone: Adverse Action Letters… both of them.
Recently, an increasing number of employers have been subject to class action lawsuits alleging adverse action non-compliance and, when found liable, are paying millions. Lawfully compliant language, timing, documentation, proper supporting documents (a copy of the report, a summary of rights), disclosures improperly included in other documents, and inconsistencies in practice are the allegations du jour as of late. However, any deficiency could result in costly non-compliance allegations.
It is imperative to review your disclosure forms and policies if you are not 100% certain you are compliant. And even if you are, check it out just in case.
The 2 Stages of Adverse Action
Stage 1: Pre-Adverse Action Letter.
Sent to the employee once the employer determines the applicant will not be hired (or employee won’t be promoted or transferred) based on the results of the background check. A Pre-Adverse Action Letter serves two specific functions: (1) advises the employee a decision not to hire (or promote) has been made base solely or in part as a result of the background check, and (2) allows the employee to dispute any information on the report. The latter ensures the employer is making a decision based on correctinformation. Considering the fact a human, such as a court clerk or university registrar personnel, enters data into the databases, even the most diligent of searches can produce inaccurate information. The employee, who is the only one who knows his past, should have the opportunity to say, this is not correct, and fix it.
Between stage 1 and stage 2, when the employer is waiting to finalize the decision or waiting on the results of a dispute, the applicant or employee should be treated as still under consideration.
Stage 2: Post-Adverse Action Letter.
Sent to the employee to finalize the decision not to hire/promote/transfer/etc., the Post-Adverse Action Letter communicates this decision when the results of the background check are confirmed as accurate, still disqualify the applicant or are not disputed. The Federal Trade Commission (FTC) has ruled that employers must wait 5 business days following the Pre-Adverse Letter to send the final notice of adverse action (San Francisco, for example, requires a 7 business day wait so be sure to check your local regulations). To drive home why your Adverse Action policy deserves attention, courts recently ruled in the plaintiffs’ favor regarding Post-Adverse Action Letters that were sent 4 days following the Pre-Adverse Action Letters, which was 1 day too soon – yes, a very costly 24 hours.
The Pre- and Post-Adverse Action Letters typically include:
- A stand alone, Adverse Action Letter (Pre is separate from Post and from other information) containing all required compliant language sent within the required timeframe
- A summary of the employee/applicant’s rights per the FCRA, including the right to dispute
- A copy of the background check results
- The contact information (name, address, phone) of the Consumer Reporting Agency (CRA, aka Choice Screening) who performed the background check for questions or to facilitate a dispute
- A statement advising the CRA did not make the decision not to hire and therefore cannot provide the reasoning behind this decision
- Many companies also include the specific item(s) from the background check that contributed to the decision not to hire
Pre and Post: similar components, different purpose; both are required, can be facilitated by your background screening company and should be reviewed by your attorney to ensure the language, components and your policy strictly follow FCRA Guidelines.
Similar to your right to investigate your employees’ and applicants’ background, employees and applicants have rights to ensure adverse decisions made regarding their employment are based on correct information and are handled in a fair, anti-discriminatory, consistent and compliant manner.