When an employer chooses not to hire an applicant based on information that is provided through a background check, then it is mandatory by law to initiate the adverse action process. Adverse action is any action taken that denies an individual employment, credit, insurance, etc., based on information obtained through a consumer report. This three-step process complies with federal and state laws to protect applicants from discrimination.
When making hiring decisions, all businesses (large and small) must abide by the rules of the Fair Credit Reporting Act (FCRA). The FCRA requires that an employer meet the following:
- Permissible purpose: An approved reason under the FCRA to conduct a background investigation (i.e., credit, employment, tenant screening, insurance, government license, child support enforcement or court order).
- Provide a disclosure in a clear and conspicuous written document.
- Obtain written authorization (in a standalone disclosure) from the candidate to perform a background check.
- Follow the adverse action process before denying employment based upon the background report.
Despite it being the law, many companies fail to send adverse action notices. In the past two years, there has been an increase in class action lawsuits targeting employers for FCRA noncompliance. So, how do you protect your company? It's important to consistently enforce the procedures required by the FCRA throughout your hiring process to avoid violations that can lead to lawsuits. Make sure your HR and compliance departments remain up-to-date on all requirements and proper procedures.
The adverse action notice process
If a background check reveals any adverse information, then it is the employer's duty to provide the applicant with a pre-adverse notice. This notice simply tells the applicant that something adverse returned in the background check, which may or may not affect the hiring decision. The applicant then has an opportunity to contact the background screening company and file a dispute before an adverse action notice is sent. An adverse action notice, which differs from the pre-adverse notice, only needs to be sent if the employer denies the applicant employment based solely upon the information returned in the background check. If employment is denied due to other circumstances, such as a lack of qualifications to perform the job, then an adverse action notice is not required.
The following are requirements necessary for the adverse action process, according to the FCRA:
- Must provide a standalone disclosure informing the applicant that a consumer report may be obtained for employment purposes with written consent.
- Must provide a copy of the pre-adverse notice, background report and summary of rights to an applicant before making an adverse decision.
- Must take any form of adverse action before denying or terminating employment.
What your TPA provides
Your third-party administrator (TPA) may offer background screening services to assist employers with FCRA compliance as it relates to adverse action.
Some TPAs will assist in the adverse action process by providing corporate clients with three email notifications consisting of a pre-adverse notice, summary of rights under the FCRA, copy of the background report and an adverse notice (required only if employment is denied based solely on the background check).
While some TPAs provide all the above mentioned information for corporate package orders, it is the employer's responsibility to send the information to the candidate. Under the FCRA, the employer, not your TPA, is responsible for following the adverse action process.
If you are a part of a consortium, such as the DISA Contractor Consortium (DCC) or North American Substance Abuse Program, the adverse action letters may be mailed directly to the applicant by your participating TPA.
For more information or concerns regarding your adverse action process, visit www.disa.com or call (281) 673-2530.
