What is Adverse Action?
In the hiring process, adverse action means a company is considering not hiring the applicant or that they may withdraw an offer. Usually, this is based on an adverse report on a consumer report or background check. It's important to understand that the first step is always that they are considering the adverse action and not that they have already made up their mind.
Adverse action regulations apply to new hire applicants who do not currently work for the company or applicants who have been offered a position with the condition that they pass the pre-employment screening.
There are specific legally defined procedures for adverse action discussed below. However, we always recommend having legal counsel review your companies procedures, especially when dealing with contingency based employment.
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Adverse Action Regulations
The process of adverse action is governed by the Fair Credit Reporting Act (FCRA) or 15 U.S. Code § 1681m section 615. The Fair Trade Commission (FTC) and the Equal Employment Opportunity Commission (EEOC) have some great compliance tips and we will go into the basics below. It's important to remember that the burden is on the employer to follow these regulations.
The 2 Steps of the Adverse Action Process
The FCRA adverse action dictates that employers must follow a two step process when considering denying employment:
- Notice of Pre-Adverse Action
- Notice of Final Adverse Action
Employers must complete step 1 and allow the applicant time to respond before continuing to step 2.
Step 1 - The Notice of Pre-Adverse Action
This letter is a notice that the company might not hire the applicant due to the result of an employment background check. Our background report portal allows clients to send out a pre-adverse action letter electronically, but they often are formatted like the one provided here by the Society for Human Resource Management. This letter is NOT the final decision letter. The pre-adverse action letter must contain the following:
- A statement advising the applicant that adverse action is being considered. (provided electronically by HireSafe)
- A copy of the consumer or background check report that has caused them to consider adverse action (provided electronically by HireSafe)
- Directions for contacting the consumer reporting company if they have questions or would like to dispute. If the company considering you for employment used HireSafe our contact information is here.
- A summary of the applicants rights under the FCRA.
Why do we need a pre-adverse action notice?
This letter allows the applicant time to dispute the findings on the background check report. The courts, state and federal record systems are not perfect. Record matches may occur that are not the applicant's record. With this notice, the company is giving the applicant time to address any incorrect information before the company decides.
Disputing information on the background check report
Once the applicant receives the pre-adverse action letter, they can follow up with the consumer report company to dispute their report. If HireSafe conducted your report, that's us; otherwise, you will need to refer to the adverse action letter to determine whom to contact.
At HireSafe, when we receive a dispute request via phone call or online, we walk through the report with the applicant and will then reinvestigate. The applicant must have a copy of their report when they make the dispute and understand that the consumer reporting agency cannot remove adverse records from your past; we only investigate what the courts provide us.
This investigation can take some time depending on the applicant's concerns, but HireSafe then provides an updated consumer investigative report.
Step 2 - Final Adverse Action
Employers may only continue to make a final decision after step 1 is complete, and the applicant has been given ample time to dispute the report. Once sufficient time has passed, or the employer receives an updated report after a dispute, they are in a position to make a final decision. This decision may be to decline the applicant or withdraw the offer of employment.
Until this step no decision has been made on whether or not to hire the applicant!
Should the employer decide not to hire the applicant, they must follow up with a final adverse action notification which must include:
- A statement advising the applicant of the adverse decision. This could be a notice that they will not be hired, that the offer as been rescinded, or that they are being terminated (provided electronically by HireSafe)
- A copy of the final Investigative Consumer Report on which the decision was based. (provided electronically by HireSafe)
- A copy of “A Summary of Your Rights Under the Fair Credit Reporting Act” and any state requirements.
If not, then the final decision is to hire the employee so congratulations!
Legal disclaimer: we are not attorneys and this information is provided based upon the Fair Credit Reporting Act and our experience as a consumer reporting agency. Clients are advised to consult with counsel to create their own policies and procedures with regards to hiring suitability.