May 26th, 2022 | Sterling

Your Adverse Action Checklist

Acquiring and reviewing consumer reports is an essential part of the hiring process. What these reports reveal can provide necessary insights into a potential candidate that might otherwise be overlooked. Consumer reports may include credit history, criminal record, and increasingly, information related to social media activity. But when a consumer report uncovers one or more issues that might disqualify a candidate for the position, an employer can’t simply reject that candidate on the basis of the report without first following a distinct set of procedures as laid out in the FCRA (Fair Credit Reporting Act).

The process of denying a candidate employment based on the results of a consumer report is called adverse action, and because the rules surrounding this process are elaborate and at times confusing, it can be difficult for employers to ensure that they’ve taken all the proper steps in order to remain in compliance with the FCRA. For this reason, it is absolutely critical for employers to establish specific procedures related to the process within their organization, and to utilize an accurate, updated adverse action checklist to avoid unintentional and potentially damaging oversights.

Let’s take a closer look at what the adverse action process entails, before briefly highlighting a few tips and best practices from Sterling’s own Adverse Action Checklist for employers.

The Two Stages of Adverse Action

While some states have slightly different requirements than others, US employers, regardless of location, are mandated by the FCRA to divide the adverse action process into two distinct stages. The first stage is Pre-Adverse Action, followed by Adverse Action, and failure to comply with the rules and regulations during either stage can result in a candidate bringing costly litigation against their prospective employer.

To start, let’s talk about the first stage: Pre-Adverse Action. While consumer reports and background checks are often carefully designed to prevent inaccuracies, particularly when they are performed by a trusted and experienced provider, there is still a chance that they might not sufficiently communicate the nuances of an individual’s unique experiences and history. This is why the first stage is so important. By sending a pre-adverse action notice — in addition to copies of the reports in question, a Federal Summary of Rights, and all necessary state notices — the employer gives the candidate an opportunity to dispute the accuracy of the information contained in the report. After receiving the pre-adverse action notice, a candidate has a reasonable amount of time between pre- and final adverse action notices to contest the findings with the relevant CRA (Credit Reporting Agency), after which the CRA has 30 days to review and resolve the dispute.

If the candidate does not dispute the report within the allotted timeframe, or if the CRA confirms the accuracy of the information in response to a dispute, then an employer may decide to move on to the second stage and issue a formal notification of adverse action. Importantly, unlike the pre-adverse action notice, in some states, this must include the employer’s specific reason for rejecting the candidate as it relates to the background screening or consumer report, such as a misrepresentation of professional experience or an item from the candidate’s criminal history.

Now that we have made a critical distinction between the two stages, here are some examples of what employers should and should not do in order to develop and maintain an efficient and compliance-focused adverse action process:

Adverse Action DO: Create a Policy for Handling Both Stages of Adverse Action

Preparation is everything, and while it’s true that employers need to consider each candidate based on their individual skillsets, experience, and characteristics, the best way to make the adverse action process as seamless as possible is to establish and apply the same universal procedures at every stage.

When creating such procedures, compliance with the FCRA should be an organization’s top priority.  After an employer fully understands all regulatory obligations, they can begin to make an objective list of background check items that they believe would or would not disqualify a potential candidate, and that subsequently would or would not lead to the issuance of a pre-adverse action notice.

Similarly, employers may need to create procedures and best practices around the review of an Individualized Assessment before deciding when it is appropriate to issue a final adverse action notice. Established in 2012 by the EEOC (Equal Employment Opportunity Commission), these assessments allow candidates to have their unique criminal histories evaluated on an individualized basis, and come with EEOC recommendations as to what factors should be taken into account, such as the circumstances of an offense or the number of offenses on a candidate’s record. While organizations have a right to maintain their own standards and expectations regarding criminal records, the most important thing is that their process of evaluation remains consistent regardless of the individual candidate.

Adverse Action DON’T: Don’t Make Decisions Until Pre-Adverse Action Notices Have Been Sent Out and Candidates Have Been Given a Chance to File a Dispute

The biggest threat to your established adverse action procedures can be the temptation to make a decision before the process has entirely finished. No one is perfect, and therefore one reason to create a consistent adverse action process is to remain open to a potential candidate regardless of our individual biases.

This is exactly why employers seek out the most reliable and trustworthy CRAs and background check providers they can find. Instead of relying too heavily on their own preconceptions, the best thing an employer can do is to let the process run its course, and to remain confident in their provider’s ability to identify and communicate the facts in the event of a dispute.

Optimize the Process With a Background Check Provider You Can Trust

At Sterling, we know first-hand the critical importance of reliable background checks and consumer reports to the overall adverse action process. In fact, the depth of our compliance team’s experience in this area has allowed us to create a comprehensive adverse action checklist that any employer can turn to as a reference when establishing their own adverse action policies and procedures. If you’re interested in learning more about the DOs and DON’Ts of adverse action, we encourage you to download and review the full checklist.

This blog post is part of a Compliance blog series, diving into compliance trends, best practices, and updates.

Sterling is not a law firm. This publication is for informational purposes only and nothing contained in it should be construed as legal advice. We expressly disclaim any warranty or responsibility for damages arising out this information. We encourage you to consult with legal counsel regarding your specific needs. We do not undertake any duty to update previously posted materials.