The Basics of Adverse Action

Employers often use background screenings to review a candidate’s work experience, education history, criminal record, and more. But when the results of a background check may negatively affect employment, employers must follow the adverse action process before making a final decision.

As the competition for talent puts pressure on employers to hire quickly, making a mistake in the adverse action process can expose you to legal risk. This underscores the importance of understanding how to properly follow adverse action.

Adverse action has different meanings based on the context. For example, banks and lenders must provide individuals with an adverse action notice when their credit score is used as the basis for turning down an application for a loan or credit card, or charging more than the best-available interest rate.In relation to background checks, adverse action is part of adjudication, a process in which employers review background check results and make employment-related decisions based on that information. If the information that appeared on a background check leads to a decision against an individual–including not hiring a candidate or denying a promotion or transfer to a current employee–the federal Fair Credit Reporting Act (FCRA) requires employers to comply with the adverse action process.

When the results of a background check show a potential barrier to employment, there are two key considerations prior to initiating adverse action.

First, the Equal Employment Opportunity Commission (EEOC) has provided guidance to help employers consider the information and avoid unintentional discrimination. This is called the “nature-time-nature” test, which asks:

Additionally, the EEOC advises employers to assess factors such as the individual’s prior history and any evidence of rehabilitation–this is called an individualized assessment.

Conducting an individualized assessment is legally required in some locations, including Los Angeles and New York City. These jurisdictions also require that you send a written analysis to the candidate explaining why the criminal record disqualifies them from employment in a given position.

A best practice to consider is creating and documenting an individualized assessment process that goes hand-in-hand with your adverse action process. This may include, for example, which offenses wouldn’t adversely affect an employment decision and which factors to examine on a criminal record. Distributing and training your adjudicators and hiring managers on these processes can help ensure consistency across candidates.

Checkr’s Candidate Stories feature supports and simplifies individualized assessments. Employers are able to request more information directly from the candidate, giving them a voice to share additional context around their records, prior circumstances, and efforts they’ve made to better themselves.

If you decide against hiring the candidate based on the background check report, you will then need to initiate adverse action. To help guard against liability and give the candidate an opportunity to respond to your decision, it’s important to carefully follow the steps outlined by the FCRA.

A pre-adverse action notice informs the candidate that based on information from their background check, you are considering not moving forward with the employment process. It must be accompanied by a copy of the background check report and the standard document, “A Summary of Your Rights Under the FCRA.”

Some state and local laws (based on the candidate’s or employee’s work location) may require additional disclosures and documentation, such as summarizing state law rights or identifying the criminal record(s) that may result in adverse action.

Once you’ve sent the pre-adverse action notice, you must allow the candidate a “reasonable” amount of time, considered a waiting period, to respond. This gives the candidate a chance to review the background check report and dispute any information they believe is inaccurate or outdated or provide evidence of rehabilitation or additional information to consider.

The FCRA doesn’t specify what constitutes reasonable, but 7 calendar days is generally considered an adequate waiting period. However, some states and jurisdictions impose longer waiting periods.

After giving the candidate time to respond, you’ll need to review their response and reconsider any information in the background check report that’s been corrected. If they have disputed information, it pauses the adverse action process to allow the consumer reporting agency (CRA) time to investigate and resolve the dispute.

If you determine it’s still appropriate to move forward with 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 (or the dispute did not result in an updated report), then you can send the post (or final) adverse action notice.

Should you decide not to move forward with employment, you’ll need to send a final adverse action notice informing the candidate of your decision. By law, this adverse action notice must inform the candidate of their right to dispute the decision and notify them that they are entitled to another free copy of their background check report within 60 days.

If the background check was conducted through a third-party, such as a CRA, the final adverse action notice must also include:

A best practice is to keep a copy of all adverse action notices and attachments, and a record of when these communications were sent. Should you decide to later discard them, federal regulations subject employers to the Disposal Rule. This means that background check results should be disposed of in a secure manner which includes shredding, pulverizing, or incinerating paper documents and permanently erasing digital copies so they can not be read or reconstructed.

Employers may be subject to additional adverse action requirements under state or local fair hiring or Ban the box laws. These requirements may dictate the timing for conducting an individualized assessment, mandating a rewritten reassessment, identifying the record for which the decision was based, and more. Employers are responsible for understanding the rules and regulations applicable to them.

Checkr’s built-in adverse action workflow helps reduce the administrative burden on your hiring teams, give candidates an opportunity to provide context around their records, and support compliance. You can easily initiate adverse action within the Checkr Dashboard  based on your custom account settings. This easy-to-follow workflow sends the appropriate notices on your behalf, allows you to select the record(s) that may be disqualifying, as well as the timing to send the post-adverse action notice, and includes the necessary notices for candidates as attachments. Additionally, all actions are tracked in an audit log for recordkeeping.

Adjudicating background check reports is time-consuming and following the adverse action requirements can be complicated. But errors or omissions in these areas can expose your organization to legal liability. Checkr helps you save time, more easily manage your adjudication, and support compliance. Get started.

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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.