Report: 70% of Organizations Aren’t Following Adverse Action Process; Are You at Risk?

Compliance with the federal Fair Credit Reporting Act (FCRA) is foundational to mitigating legal risks when conducting employment background checks. Yet Checkr’s State of Screening Compliance report, which surveyed over 1,000 employees involved in background check processes (who were not Checkr customers), uncovered a surprising statistic: 70% of survey respondents said they do not always follow the adverse action process when deciding not to hire a candidate based on the results of a background check. 

What makes this more interesting is that our survey respondents named “violations and lawsuits” as their top concern when conducting background checks. Since failing to comply with the FCRA can cause litigation, it’s important for organizations to prioritize proper steps like following adverse action during the screening process.

Read on to discover the most common FCRA violations putting employers at risk.

The federal Fair Credit Reporting Act, enacted in 1970, is designed to protect consumer privacy and promote the accuracy of information used to create consumer reports, such as credit reports and background checks. The FCRA gives consumers certain rights, including the right to:

The FCRA also supports fair hiring by promoting transparency about the use of consumer report information. Suppose a background check incorrectly shows that an individual has a criminal conviction, and an employer denies employment based on that information without telling the candidate the reason for the decision. The FCRA ensures that candidates know a background check is being performed, have access to the results, know how the employer is using the information, and have an opportunity to dispute inaccuracies.

Compliance with the FCRA requires employers to:

Transparency about your reasons for conducting background checks and how you evaluate the results can take your organization beyond “checking off compliance boxes” to truly embracing fair hiring practices.

Many FCRA class-action lawsuits stem from two compliance errors, both relatively easy to avoid.

Some 84% of respondents in Checkr’s survey agree or strongly agree that their organization always provides the necessary disclosure and authorization forms. Concerningly, however, 16% of respondents aren’t sure they are doing so.

It’s critical for your disclosure to be a stand-alone document. Recently, courts have ruled that employers violated the FCRA by providing disclosures that also included liability waivers, the FCRA Summary of Rights, and other additional information.

Because people of color are disproportionately impacted by the criminal justice system, making employment decisions based on the results of a criminal background check can cause unintentional discrimination. To prevent this, Equal Employment Opportunity Commission (EEOC) advises employers to use the “nature-time-nurture” test: Consider the nature of a criminal offense, how long ago it took place, and whether the nature of the crime is relevant to the job being sought. Conducting an individualized assessment of the offense is also recommended.

If you still plan to take adverse decision based on criminal records, follow the adverse action process:

• Send a pre-adverse action notice to the candidate.
• Wait a “reasonable” period of time to give the candidate an opportunity to review the background check report, dispute any information they believe is inaccurate or outdated, or provide evidence of rehabilitation or additional information to consider. Some state laws may require employers to wait a specific number of days; 5-7 days is typically considered sufficient at a federal level.
• Send a final adverse action notice if you decide to move forward with the adverse action. 

As of October 30, 4,661 consumer lawsuits for FCRA violations had been filed in 2023, a smaller percentage of them being class action suits involving multiple individuals. Lawsuits against large employers make headlines—and are good cautionary tales. But whether your organization is large, small, or somewhere in between, it’s important to be mindful of FCRA compliance.

FCRA violations can result in fines of $100 to $1,000 per background check per individual, plus attorney fees and costs. Depending on the number of plaintiffs, costs for a class action FCRA lawsuit can multiply exponentially, draining a small business’s resources. Even large companies will feel a financial hit if hundreds or thousands of individuals file a class action suit and succeed.

FCRA-compliant background checks do more than safeguard your organization from legal threats. They also help ensure you treat all candidates and employees fairly, benefiting your organization, your workforce, and society.

Following FCRA rules can help prevent unintentional discrimination in hiring, give candidates transparency into your hiring decisions, and provide more complete insights into a candidate’s background. In a time of ongoing talent shortages, expanding your hiring pool to include candidates with criminal histories can offer a competitive edge for your organization—and a second chance for criminal justice-impacted individuals.

Failing to comply with basic FCRA requirements around background checks can put your organization at risk. Working with a compliance-minded background check provider like Checkr can provide peace of mind. Checkr’s advanced technology includes tools to help streamline compliance workflows. Educational resources are also available, and when questions arise, our FCRA-trained customer support team is ready to help. 

How well is your organization handling compliance? Get more insights into how organizations like yours are balancing background check processes with regulatory changes in Checkr’s 2024 State of Screening Compliance.

2024

State of Screening Compliance

A new survey report highlights seven key insights into how organizations are managing background check compliance.

Read the report

About the author

Karen Axelton writes about business topics and best practices. She has written hundreds of articles on business subjects, including background screening, hiring and employment trends, human resource management, and the use of technology in the workplace. Her work includes educational articles, e-books, white papers, and case studies.