Adverse Action 101

If your company has job vacancies to fill, it is a pretty standard procedure to run an employment background check utilizing a consumer reporting agency that compiles background information.   After receiving all the background data from the employment screening company (CRA), the human resource department will then make a hiring decision based on that data. If employment is denied based on the report, adverse action MUST be taken.  If your hiring process does not include any adverse action procedure, you are at an extremely high risk for a lawsuit.

The Fair Credit Reporting Act (FCRA) requires employers and businesses to send a pre-adverse action notice and an adverse action notice to the applicant, letting him or her know the reason(s) they were denied employment and the name, address, and toll-free phone number of the consumer reporting agency who provided the report.

The pre-adverse action notice can be oral, by phone, or in writing and must be sent immediately upon the adverse action decision, notifying the applicant that action is being taken.  However, it is not recommended that an oral pre-adverse action notice is given due to lack of proof.  No one wants to get into a “he said, she said” scenario.  Documentation is key.

The final adverse action notification must be sent after the 5th business day (at minimum) from the initial notice. This allows the applicant time to dispute these findings with the CRA and the employer.  There are no defined maximum days for the employer to allow the applicant to dispute.  Most employers have their own policy on the lapse of time for disputes.  Make certain these policies are in place and implemented.

The employment-based adverse action notice must include a statement letting the applicant know where he or she can obtain their consumer report free from the agency listed in the notice within 60 days. The notice will also state that the consumer reporting agency, and the credit reporting agency were not involved in the decision and that the bureau can’t tell you why your application was denied.

Finally, the adverse action notice will include a Summary of Rights to dispute inaccurate or incomplete credit report information. This will list a toll free phone number as well, and address of the consumer reporting agency, giving the applicant an opportunity to dispute any errors in the report.

Kandi Chapman, President
MBI Worldwide, Inc.

Disclaimer:  Please be aware that MBI Worldwide (Midwest Backgrounds, Inc.) is not a law firm and all policies should be reviewed by an HR attorney for your companies’ best practices and all legal procedures, even if you are currently a client of MBI Worldwide. Do not use this list, or anything published from MBI Worldwide  as legal advice or inclusively for your screening policy.