The Basics of Adverse Action

June 16, 2021
Checkr Editor

Editor’s Note: Nothing in Checkr’s Blog should be construed as legal advice, guidance, or counsel. Companies should consult their own legal counsel about their compliance responsibilities under the FCRA and applicable state and local laws. Checkr expressly disclaims any warranties or responsibility or damages associated with or arising out of information provided.

In 2017, a multinational coffeehouse known as a company that invested heavily in its employees found itself in hot water. The global chain was hit with a class-action lawsuit: The lawsuit alleged they extended a conditional job offer to a candidate from Georgia, then took adverse action based on a criminal record belonging to a different consumer with the same moniker who lived in a different state.

Making matters worse, the candidate never had a chance to correct his record, because he received the report after adverse action was taken. This seemingly innocent mistake had implications that could have jeopardized the corporation’s future. Why? Because of something called Adverse Action.

What is Adverse Action?

Adverse Action can mean different things in relation to employment. In the context of background screening, it’s defined as any action taken based on the information in a background check report that negatively affects someone’s employment. This could mean not only rejecting potential new employees, but also denying promotions or transfers to existing employees.

As the U.S. economy becomes stronger and the competition for talent puts pressure on companies to hire fast, making a mistake in the Adverse Action process can expose companies to substantial legal risks. That’s why it’s crucial to understand how to document and carry out Adverse Actions and use the right tools to maintain compliance throughout the process.

When is Adverse Action appropriate?

The Adverse Action process occurs after you’ve run a background check on a candidate and find a potential barrier to employment.

You may want to consider conducting an Individualized Assessment to ensure Adverse Action is the right road to take. The Equal Employment Opportunity Commission (EEOC) has provided guidance on how to conduct an Individualized Assessment to help put what appears on a background check into the proper context.

When running an Individualized Assessment, some questions to ask yourself include:

  • What was the nature and gravity of the offense or conduct?
  • How much time has passed since the offense, conduct and/or completion of the sentence?
  • How does the offense relate to the nature of the job held or sought?

The criteria mentioned above is also known as the “Nature-Time-Nature” test. Some cities, including Los Angeles and New York, require that an Individualized Assessment is performed prior to taking Adverse Action, including that you “show your work” to the candidates to document your decision making.

If after you’ve conducted a thorough assessment and question marks remain, it’s time to take action.

How do you execute Adverse Action?

If you’ve gotten this far and still decline to hire, engage, retain or promote a candidate based on information in the background check report, you must give the candidate notice and maintain a reasonable waiting period before taking final action.

The Fair Credit Reporting Act (FCRA) has identified three specific steps employers must take to be compliant. 

Here are the three steps to follow the FCRA’s Adverse Action process:

Step 1: Pre-Adverse Action Notice

A Pre-Adverse Action Notice informs the candidate that you may not move forward with the employment process based on information in the background report. Note that in many jurisdictions, employers are required to mention exactly what information is motivating Pre-Adverse Action in the notice. Its purpose is to give the candidate an opportunity to respond to the information contained in the report, so by law it must contain a copy of the report. The notice must also include a standard document called “A Summary of Your Rights Under the FCRA,” and certain states and cities require additional notices.

Step 2: Waiting period

The FCRA requires a reasonable amount of time, considered a waiting period, before taking final action. This gives the candidate time to dispute any incorrect or outdated information in the report or provide evidence of rehabilitation or additional information to consider.

While the FCRA doesn’t define a set number of days, seven is a commonly-used time frame. Also, some cities have set their own required waiting periods; for example, the city of Philadelphia currently requires a 10-day waiting period. Every employer is responsible for understanding the rules and regulations applicable to them. 

If you determine it’s still appropriate to move forward with Post-Adverse Action despite the information provided by the candidate, or if the candidate does not dispute the report by the end of the waiting period, then you can send the Post-Adverse Action Notice.

Step 3: Post-Adverse Action Notice

Once you’ve waited the required period of time—including time required for the resolution of a dispute—you must provide a final notice if you’ve decided not to move forward with the candidate.

This notice should include the following:

  • The name and contact information of the consumer reporting agency responsible for the background check that triggered the Adverse Action process.
  • A statement advising the candidate that the consumer reporting agency didn’t make the adverse employment decision and therefore cannot provide reasons why the Adverse Action was taken.
  • A notification that the candidate or employee is entitled to receive a free copy of their background check or consumer report within 60-days.

Making Adverse Action work for you

The hiring process can be cumbersome and complex, especially as it relates to compliance. Yet by taking the appropriate steps to complete the Adverse Action workflow, you’ll rest easy knowing you’re hiring the right candidates in a way that helps mitigate legal risk for your company. 

Learn more about how Adverse Action fits into the employment screening process by downloading  The Beginner’s Guide to Background Checks.

Subscribe to Our Newsletter

Thank you for subscribing!

Ready to give us a try?