You’ve screened resumes and conducted interviews, and now you’re ready to move forward with a background check for your top candidate. But what do you do if the results lead you to reconsider a job offer?
All employers who use background checks for employment decisions must follow specific rules if deciding to take an adverse employment action. An adverse action often refers to denying a candidate’s employment, but it can also come into play when making decisions about your current employees.Before taking adverse action, you need to make sure you’re following the right steps and protecting a candidate’s rights. At InCheck, we help employers build fair, transparent background screening programs so you can make decisions confidently — and compliantly.
What is Adverse Action?
Adverse action refers to a decision that negatively affects a current or potential employee based on information in a background check report. For example, if a background check uncovers disqualifying information about a job candidate and you choose not to hire them, that’s considered adverse action.
Adverse actions can also include:
- Withdrawing a conditional job offer
- Reassigning, suspending, or terminating an employee
- Denying a promotion
Under the Fair Credit Reporting Act (FCRA), employers must follow a specific process when taking adverse action against a candidate or employee. If you don’t, it can lead to legal problems, fines, and other penalties, along with potential damage to your company’s reputation.
Learn more about FCRA compliance in our blog: The Importance of Compliance in Background Screening
How to Handle the Adverse Action Process
If you’re considering adverse action against a candidate or employee, it’s essential to follow the FCRA’s legal process for background screening compliance. There are steps you need to take before and after an adverse employment action, according to the Federal Trade Commission, which enforces the FCRA.
Here’s a look at each step in more detail:
Step 1: Provide a Pre-Adverse Action Notice
Before taking adverse action, you must provide the candidate or employee with a pre-adverse action letter. Essentially, this notice tells them you’re considering an unfavorable employment decision based on their background check.
A pre-adverse action notice must include:
- A letter explaining that the background check report may affect the hiring or employment decision
- A copy of the background check report
- A copy of the FCRA document “A Summary of Your Rights Under the Fair Credit Reporting Act”
This step gives the candidate or employee a chance to review and respond to the report before the final employment decision is made.
Step 2: The Waiting Period
After sending a pre-adverse action letter, you must give the candidate or employee a reasonable amount of time to review it. This is known as a waiting period. During this time, the individual can dispute potential inaccuracies or provide clarifying information to consider.
The FCRA doesn’t specify exactly how long you need to wait, but the industry standard is five to seven business days. Some states or local jurisdictions may require longer waiting periods, so make sure you know the regulations in your area.
During the waiting period, you should pause the decision-making process to give the person a fair chance to respond.
Get more information about state and local requirements in our white paper: The Criminal Background Check Assessment & Adverse Action Notification Process
Step 3: Review the Response
Once a candidate or employee responds, review the results again, including any corrected information. If they have disputed information, you must wait for the consumer reporting agency (CRA) to investigate and resolve the report.
If you decide to move forward with adverse action after the waiting period, you must send a final notice of your decision.
Step 4: Send a Final Adverse Action Notice
A final adverse action notice tells the candidate or employee that you’ve finalized the decision based on their background check report. You can send this notice in writing or electronically.
The notice must include the following:
- A clear statement that adverse action is being taken
- A notice of their right to dispute the report and to get another free copy of their background check report within 60 days
- The name, address, and phone number of the CRA that provided the background report
- A statement that the CRA did not make the hiring decision and cannot explain the reasoning for it
Following these steps can protect your organization from legal liability. This process also ensures you adhere to candidates’ rights in the background screening process.
Common Compliance Mistakes
More than likely, the adverse action process isn’t something you deal with every day. Even with the best intentions, mistakes can happen. These are some common mistakes employers make (and how to avoid them):
Not Sending a Pre-Adverse Action Notice
Some employers send a final notice without providing the pre-adverse action documents. If you forget to send a pre-adverse action letter, the candidate has no opportunity to dispute or explain the report.
You can avoid this mistake by starting with a pre-adverse action notice. Don’t forget to include a copy of the background check report and the FCRA summary of a candidate’s rights.
Acting Too Quickly
Many employers want to move fast, especially when it comes to hiring decisions. But taking adverse action before the waiting period ends can lead to legal issues.
Make sure you wait at least five business days before moving forward with adverse action against a candidate or employee.
Disregarding State or Local Laws
Some states and local jurisdictions have additional requirements for the adverse action process. Fair chance hiring practices and ban the box laws may affect the procedures you need to follow when taking adverse action.
Avoid unwelcome surprises by staying up-to-date on local and state compliance rules. If you’re not sure, work with a trusted partner, like InCheck. We can offer expert guidance on navigating the process based on our understanding of requirements.
Mishandling Sensitive Information
Once you’ve made a final decision, you need to dispose of the background check results properly. If you don’t, it risks exposing someone’s personal data.
Follow best practices for disposal, such as shredding paper copies and permanently erasing electronic files so they cannot be retrieved later.
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FAQs About Adverse Action for Employers
We know you may have many questions about the adverse action process. Here are some additional frequently asked questions and answers:
How does adverse action apply to employment decisions?
Adverse action in employment typically refers to a decision not to hire, promote, or retain someone based on information found in a background check. If an employer uses a background check to make a negative employment decision, the FCRA requires them to follow specific steps to notify the candidate or employee and allow them to respond.
Failure to follow the adverse action process can result in noncompliance, penalties, and potential legal consequences.
What should you do if a candidate disputes their report?
Pause the hiring process and wait for the background check company to complete an investigation. Before making a final decision, review any corrected or updated information.
What needs to be included in an adverse action notice?
A final adverse action notice needs to inform the candidate or employee of your final decision. It also needs to state that they have the right to dispute the decision and to receive another free copy of their background check report within 60 days.
If you had a third-party company conduct the background check, the notice also needs to include the company’s name, contact information, and a statement that the employer, not the background check company, made the hiring decision.
What do job candidates need to know about adverse action?
Employers should let candidates know that they have the right to see their background check and dispute inaccurate information. After a final adverse action notice, candidates also have the right to request another free copy of the report within 60 days.
Make Fair, Compliant Hiring Decisions with InCheck
Adverse action is more than a hiring decision. It’s a process that requires a fair, consistent, and transparent approach to make sure your company remains compliant and avoids liability. By following the FCRA’s requirements, you can protect your candidates’ rights and your company’s reputation.
The adverse action process can be complex, and even a small mistake can cause damage to your employer brand. Work with a partner experienced in the nuance and details of this process.
At InCheck, we make compliance a top priority. We provide expert guidance on federal, state, and local laws to help employers comply with those requirements. We also offer additional tools to send a pre-adverse action notice, issue a final notice, and simplify the process. Contact us today for more information on partnering with InCheck for fair, compliant hiring practices.