Pre-Adverse and Adverse Action: Stay Compliant, My Friends

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Any employer who uses a third party company to conduct background checks on employees or prospective hires, must follow the FCRA guidelines for per-adverse and adverse action. These regulations are monitored by the FTC and are frequently a source of legal troubles for companies who either choose not to follow the guidelines or are unaware of their legal requirements. When dealing with a background check on an employee or potential hire who has negative dings on their report, there are three specific steps that need to be taken before the employer can choose not to hire or promote the applicant.

What If I Don’t Follow FCRA Guidelines?

Petco, Wells Fargo, and Starbucks are just a few of the big names to be hit with hefty class action lawsuits due to incorrect FCRA practices or not fulfilling the correct pre-adverse/adverse action steps. In April, Starbucks had two pending class action lawsuits both pertaining to inaccurate background checks and a failure to perform the proper pre-adverse action steps. In one case the applicant was a victim of identity theft. The name of the applicant in the second case was spelled wrong on their background check report, thus reporting for the wrong person. In each case, Starbucks denied employment before the proper adverse action requirements had been met. 

Outlined below are the steps you must take when rejecting, terminating, reassigning, or failing to promote an individual due to the results of their background check.

Steps for Taking Adverse Action

 
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1. Send a Pre-Adverse Letter

This letter must notify the applicant that a hiring or promotion decision has been put on hold while the background check results are under review. Along with the company letter, a copy of their background check and a “Summary of Rights under the Fair Credit Reporting Act” must be provided.

 
 

2. Waiting Period

There must be a “reasonable” amount of time between the pre-adverse letter and the adverse action decision. The FCRA doesn’t explicitly state how many days are reasonable, but there’s a generally accepted best practice of five business days. Some companies give ten, some in between. This waiting period gives the applicant the ability to receive the pre-adverse letter and a copy of their report, so that they can dispute any discrepancies. Some applicants may choose to do nothing during this period, if the report is accurate.

 
 

3. Adverse Action Decision and Letter

Once the waiting period has ended, the employer may take adverse action against the applicant or current employee due to the results of the background check. The adverse action notice must contain a few different pieces of information as follows:

  • Name, address, and phone number of the reporting agency who supplied the background check report

  • A statement that the consumer reporting agency didn’t make the decision to take adverse action

  • A notice of their right to dispute the accuracy and completeness of the information in the report, and to get an additional free report from the company within 60 days.


Adhering to these three steps mitigates huge financial and legal risks for any business. And just as important as the steps is the wording in the letters. In the case of Jones v. Halstead Management Company, LLC, the plaintiff argued the wording within the pre-adverse letter which stated the company “decided to revoke [his] conditional offer of employment,” advised the applicant that their adverse action decision was already made. Their use of revoke in the pre-adverse letter was found to state a rescinding of employment without the required waiting period before the adverse action was made. It’s important to have your legal team review the language in the pre-adverse and adverse action letters to mitigate these legal risks.

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The Critical Research platform contains letters and forms to keep you in compliance. We make it easy to email or print-and-mail your pre-adverse and adverse action letters, reports, and other documents required. Our goal is to simplify your screening process while maintaining the utmost awareness of changing laws to keep you compliant from beginning to end.