If you use any information in a consumer report provided by a third party, e.g. a firm that delivers background checks, to make an adverse hiring decision you MUST comply with the Adverse Action Steps outlined in the Fair Credit Reporting Act (FCRA).
JDSupra has an excellent article here that describes in detail the steps you must follow. Below is a summary of the article. We recommend you read the article in its entirety.
What happens when the results of a background come back with a flag? You may decide to rescind the offer, but it’s not as simple as it seems.
Before making any final hiring decisions, you must follow the adverse action process.
While it may seem like a hassle, this process is crucial to protect your reputation and avoid hefty fines. [R&A comment – the process also allows the individual to let the background check firm know that a mistake has been made in the results.]
Many firms have been fined millions of dollars for not complying with these action steps when rescinding an offer based on information in the consumer report.
What is Adverse Action?
Adverse Action situations all involve consumer reports, which is why they must comply with the adverse action process under the FCRA. In the workplace context, a consumer report is equivalent to an employment background check.
Adverse Action refers to any decision that negatively impacts employment based on information uncovered during the screening process. This includes:
• Rejecting a job applicant
• Terminating a current employee
• Denying a promotion
• Any other employment decision negatively influenced by the consumer report.
Adverse action steps are designed to protect individuals from unjust outcomes.
Failure to comply with adverse action requirements exposes your organization to fines and lawsuits from individuals and other regulatory agencies.
What is Required for Employers?
Step 1: Pre-adverse Action Notice
A pre-adverse action notice or letter is the first step in the adverse action process. This notice informs the candidate that you may not proceed with their employment, promotion, etc., based on the information found in the background check. The information you have based this decision on must be relevant to the job itself and an inability to perform the job.
Additionally, either the employer or the screening company should send the candidate a copy of the background check and a summary of their rights.
Step 2: Waiting Time
After issuing the pre-adverse action notice, you must wait a reasonable amount of time, typically 5-7 business days—to give the candidate an opportunity to review the documents and dispute any inaccuracies.
There are several reasons for discrepancies in a consumer report that the candidate can dispute including:
• Identity theft
• Outdated information reported by a credit reporting agency or credit score
• Transcription or typing errors within courthouse reports
• Confusion resulting from a common name [R&A comment – Background check companies have only three identifiers to research public records i.e. name, address and date of birth. There are rare examples of an applicant with the same name as a person with a conviction in the same jurisdiction.]
Step 3: Review Candidate Response
If the candidate disputes the report, an investigation must be conducted by the consumer reporting agency (background screening provider), which has up to 30 days to resolve the issue. The hiring process should be paused during this time. [R&A comment – Our firm sets up a file and performs additional due diligence at no cost to our clients.]
Step 4: Adverse Action Notice
If no dispute is raised, or once the investigation is resolved, you can proceed with the final adverse action notice. This notice must include:
• The reason for not moving forward with employment
• Information on the candidate’s right to dispute and obtain a free copy of their background report within 60 days.
If you use a third party for background screening, then you must also include:
• Name, address, and contact information for the agency
• A statement acknowledging that the hiring decision was made by the employer and not by the third-party agency
Step 5: Dispose of Sensitive Information
The FCRA requires that all sensitive information be disposed of properly as outlined in the Disposal Rule. Note: There may be additional steps to the adverse action process, depending on the state.
Adverse Action Best Practices
To ensure your organization stays compliant and avoids legal pitfalls, it’s essential to follow best practices when handling adverse action. Here are some key strategies to keep in mind:
• Inform candidates that you are conducting a background screening and ensure they are aware that the results could impact their employment before getting their written consent. [R&A comment – this disclosure notice must be given at the front end of the investigation process when their authorization is obtained, and a summary of their rights is provided.]
• Keep Proper Documentation: To avoid lawsuits or compliance document every step of the process and keep copies until the process is complete.
• Watch the Time: Set reminders and keep track of how long each step is taking. You must do this to maintain compliance with the required deadlines and wait times.
• Be Aware of State and Local Laws: Work with a third party or legal team to ensure compliance with the unique state and local requirements.
• Stay Informed on Fair Chance Hiring Laws.
• One of the easiest ways to remain compliant is to work with a background screening provider that can handle these requirements for you.
James P. Randisi, President of Randisi & Associates, Inc., has been helping employers protect their clients, workforce and reputation through implementation of employment screening and drug testing programs since 1999. This post does not constitute legal advice. Randisi & Associates, Inc. is not a law firm. Always contact competent employment legal counsel. To learn more about the rights of employees who test positive for marijuana, Mr. Randisi can be contacted by phone at 410.494.0232 or Email: info@randisiandassociates.com or the website at Randisiandassociates.com
