In this article, we will you through what Adverse Action is, why it's important, and the steps you need to take to be compliant.
Topics covered:
STEP 1. Before Taking Adverse Action
STEP 2. Wait a Reasonable Amount of Time After Sending the Pre-adverse Notice
Orange Tree's Adverse Action Process
What is Adverse Action?
Adverse action refers to any action taken which will negatively affect someone's employment due to a background report's results. When you use consumer reports to make employment decisions, including hiring, retention, promotion or reassignment, you must comply with the Fair Credit Reporting Act (FCRA).
The FCRA outlines a 3-step process for companies to follow when conducting background checks, including what to do when checks result in a decision that negatively impacts a hiring decision – an event known as an adverse action under the FCRA.
What are the steps employers should follow for a compliant adverse action process?
STEP 1. Before Taking Adverse Action
Before you reject a job applicant, reassign or terminate an employee, deny a promotion, or take any other adverse employment action based on information in a consumer report, you must give the applicant or employee:
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Notice that your company is considering taking an adverse action, based in whole or part on the contents of the background report. This is typically referred to as the adverse action letter or FCRA letter.
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A copy of the consumer report.
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The name, address, and phone number of the consumer reporting company that supplied the information.
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A statement that the company providing the report does not make the decision to take the unfavorable action and cannot give specific reasons for it.
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A copy of A Summary of Your Rights Under the Fair Credit Reporting Act.
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Notice that the consumer may request a free copy of the report and may dispute directly with the consumer reporting agency if any information in the report is inaccurate or incomplete.
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Any state-specific disclosures.
Giving the candidate the notice in advance provides them the opportunity to review the report and tell you if it is correct and/or to initiate a dispute and reinvestigation directly with the background screening company.
STEP 2. Wait a Reasonable Amount of Time
Employers must wait a reasonable amount of time after sending the pre-adverse letter to the candidate before making the final decision. As a general rule, employers should wait at least five business days. Note that in some states, the amount of time to wait may be a matter of state law or local ordinance.
If you have been notified of a dispute, you should hold the position open pending completion of the dispute and reinvestigation process.
STEP 3. Take Adverse Action
After sending the pre-adverse notice and waiting a reasonable time, you decide to take an adverse action based on information in a consumer report. You must give the applicant or employee a written notice that the adverse action decision has been finalized.
You must provide them another copy of the A Summary of Your Rights Under the Fair Credit Reporting Act and provide information about their right to dispute and receive a copy of their report.
Orange Tree's Adverse Action Process
Orange Tree provides a range of compliance tools to streamline the screening process and keep you in compliance. Our Adverse Action service builds compliance within the process when a candidate fails to meet the employment criteria required to qualify for your open position.
Once you are considering making an adverse hiring decision, you can submit an adverse action request via the client portal, phone, or email.
- We will automatically send a pre-adverse action letter along with copies of your candidate’s consumer report and all applicable “Summary of Rights”/jurisdictional specific documents (federal and state).
- If the candidate responds with a dispute, Orange Tree will reach back out to the source to confirm the information is accurate. If the information has changed, we will notify you as to the change.
- After five days or longer (per your business policy), if the candidate has not disputed the contents of their consumer report, we will automatically send the final adverse action letter along with all applicable “Summary of Rights”/jurisdictional specific documents (federal and state).