The Importance Of A Proper Adverse Action Policy

October 23, 2018
Before taking an adverse action based on a background check, employers must follow a few federally mandated steps.
Backgrounds Online | October 23, 2018


Before taking an adverse action based on a background check, employers must follow a few federally mandated steps.

The Adverse Action Process

Every employer should run background checks on potential employees, volunteers, contractors or anyone else who might work on their behalf. In some cases, a background report may reveal information that causes the employer to consider an adverse action such as denying employment. In this scenario, the employer is obligated to follow a process established by a federal law known as the Fair Credit Reporting Act (FCRA).

This process requires:
- Sending a pre-adverse notification to the applicant. This document explains that an adverse action is being considered (but hasn’t occurred yet) and why. It must be accompanied by a copy of the person’s background check, contact information for the Consumer Reporting Agency (CRA) that produced the report and a document called A Summary of Your Rights Under the Fair Credit Reporting Act.
- After receiving this notification, the person must be allotted a reasonable amount of time to review everything and file a dispute if warranted. While no specific timeframe is given, best practice is at least one week.
- If a dispute is filed, then the CRA must conduct a reinvestigation and make corrections as necessary. If no dispute is filed, then the employer may proceed by sending a second document that explains an adverse action occurred. It must be accompanied by contact information for the CRA that produced the report and another copy of A Summary of Your Rights Under the Fair Credit Reporting Act.

Updates To The Summary Of Rights Under The FCRA Doc

In September 2018, the Bureau of Consumer Financial Protection made a revision to the Summary of Rights Under The FCRA document. This update informs consumers of their right to place a “security freeze” on their credit report. If a consumer chooses this option, then their credit report will not be available to any CRA.

The update also stipulates that consumers can place fraud alerts on their credit file at no cost to them. When this alert is present, credit providers must contact the consumer to verify their identity before extending any new credit.

You can find the updated Summary document by logging in to your account and visiting our Resource Center.

An Example Of Why These Steps Are Essential

We’ve seen numerous stories about employers who were sued for not properly following the adverse action process. For example, in August, 2018 the United States Court of Appeals for the Seventh Circuit reviewed a case in which a job seeker was denied employment based on the results of a criminal background check. However, that person was not given an opportunity to review their report and initiate a dispute.

According to the case, the information in the background check was about an arrest that did not result in a conviction. Therefore, it should not have been included or considered by the employer. After an initial hearing, this case was moved to the appellate court and the plaintiff’s claim was affirmed. The court noted that the FCRA obligates employers to give applicants time to review their background check before taking any adverse action.

Because Allied allegedly did not follow FCRA regulations, the case against them will now proceed.

What Employers Should Know

Following laws established by the FCRA, Equal Employment Opportunity Commission and state governments is essential. Employers must be aware of these laws and compliant with those that are active where they operate. Best practice is for employers to maintain an internal document that thoroughly explains their screening policies and adherence to relevant laws.

The team at Backgrounds Online works hard to keep up with federal, state and local laws and provide educational materials that can help your compliance efforts. We partner with you throughout the background screening process and endeavor to comply with applicable laws and best practices, such as not including non-conviction data on background reports.

If you have questions about compliance, your background screening process or related topics, please contact us for expert assistance today..