Adverse Action: How to Take Action on Background Check Information

Background screening is designed to help employers confirm job application information is accurate, mitigate negligent hiring risk and help organizations hire the “A” players – the best people for the job!

The screening process may uncover information that creates hiring/employment challenges and puts employers in the difficult position of denying employment. It is essential that employers take the proper steps when denying employment to maintain compliance with applicable regulations. The National Association of Professional Background Screeners (NAPBS) has developed best practices to help guide employers with this process. These best practices are outlined below.

An “adverse action” is defined as denial of employment or any other decision that adversely impacts any current or prospective employee (e.g., termination, denial of promotion, failure to hire, etc.). If any adverse action will be taken based in whole or in part upon the consumer report, the employer must comply with a two-step process notifying the applicant/employee of the adverse action.

Before an employer takes any adverse action, it must provide the applicant or employee with a copy of the consumer report (background check) obtained from the consumer reporting agency (CRA), and a summary of the consumer’s rights under the Act – often referred to as the pre-adverse action letter. After providing these documents, the employer must wait before providing the actual notice of the adverse action. In a 1999 Federal Trade Commission (FTC) informal staff opinion letter, the FTC’s legal staff approved a five (5) day waiting period, but advised that legal counsel should be consulted in order to judge the appropriate waiting period on a case-by-case basis.

After the waiting period and upon taking the adverse action, the employer must provide to the applicant or employee the following notices:

1) notice of the adverse action taken; 

2) the name, address, and toll-free telephone number of the CRA that furnished the consumer report; 

3) a statement that the CRA did not make the decision to take the adverse action and is unable to provide the consumer the specific reasons why the adverse action was taken; 

4) notice of the consumer’s right to obtain a free copy of the consumer report from the CRA within 60 days; and 

5) notice of the consumer’s right to dispute the accuracy or completeness of any information in the consumer report furnished by the CRA.

On the CRA side, each consumer reporting agency is required to maintain “reasonable procedures” to assure “maximum possible accuracy” of the information contained in consumer reports. For public record information (such as criminal history, driving records, etc.), the law requires CRAs to notify the individual that such records are being reported or maintain strict procedures to ensure that such information is complete and up-to-date.

Due to the limitations inherent in the system, it is possible some of the records received from various sources will be incomplete and/or inaccurate. Under the Federal law as construed by the Federal Trade Commission (FTC), an employer intending to take adverse action on the basis of a consumer report must give the individual an opportunity to come forward with additional information about the report including, potentially, that it is incomplete or inaccurate. This opportunity arises in between the two adverse action notices. 

The process is as follows:

(1) the employer must give a copy of the report to the individual before taking adverse action; and 

(2) during the waiting period that follows – and prior to the employer actually taking the adverse action – the individual must have an opportunity to come forward with additional information. 

The timing of the waiting period must be gauged to give the individual enough time to come forward if s/he so desires. If the individual does not come forward or the additional information offered is not compelling, the employer may move forward with the adverse action process, part of which involves notifying the individual that any further disputes regarding the accuracy of the report should be raised directly with the CRA, thus taking the employer out of the equation. Assessing any additional information offered is a sensitive matter that can only be done on a case-by-case basis.

Although few courts have addressed the issue, most experts who have considered the matter feel an employer is within its legal rights to terminate any employee who refuses to provide authorization for a criminal background check. Similarly, an employer may refuse to hire any applicant who will not complete an authorization.

CRAs, like Aurico, offer services to handle the adverse action process on behalf of clients when informed that a decision has been made by the employer for denial of employment.