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Adverse Action and Background Checks: Using Third-Party Screening Can Help

Background checks are a great tool in the hiring process: everything from identity and work verification to credit and criminal history can be found on a background check. While they can often be a mere formality in the hiring process for the perfect candidate, sometimes a background check will present you with information that might make you reconsider hiring. When this happens, you’ll carry out what’s known as an “adverse action;” an action to preclude them from working for your company. They can also be used for denying a promotion or transfer to an existing employee. Adverse actions can often come with litigation and other risks; it's important as an employer to understand your responsibilities based on the information gained from a background check. This article will lay out what the adverse action process looks like and how you, as an employer, can protect yourself from legal risks through documentation.

The Role of the Fair Credit Reporting Act

The Fair Credit Reporting Act (FCRA) lays out the guidelines an employer must follow when using background checks (which are considered a Consumer Report) to make employment decisions. As an employer, you are required to inform or disclose to the candidate (in writing on a stand-alone document) that you will be doing a background check and obtain written consent from them before conducting one. If you decide not to hire, promote, or transfer the candidate based on information in their background check, you must provide them with a pre-adverse action notice. Additionally, you must supply a copy of their background check results, and a copy of "A Summary of Your Rights Under the Fair Credit Reporting Act," all prior to taking any adverse action.ADVERSE ACTION text, on full red rectangle stamp.

Following the FCRA Requirements

To give you a step-by-step documentation process, we’re going to take the summary of what’s needed and break it down a bit. As stated, you, as the employer, are required by the FCRA to inform your candidates that you will be conducting a background check. Background checks are your highest source for possible litigation, so it's vital that all candidates receive this notice. It's at this time, before the background check, that you'll obtain written consent from the potential hire and provide them with the Summary of Rights under the FCRA. It should be noted that you are also required to provide the candidate a disclosure (a stand-alone document) and a signed authorization form. Additionally, depending on the state in which your company and your hire reside, there will be other forms and notices that apply.

Throughout the entirety of this process, you should seek out capable legal counsel. This is fundamental to ensuring that the steps you’ve taken—from start to finish—are in compliance with any legislation that applies to you.

A Note on Criminal Background Checks

Background checks—specifically criminal background checks—are being restricted to the back-end of hiring once you’ve extended an offer. These laws vary in how employers have to comply—in some states, it’s not even mandatory—but in general, these state and local laws fall under what is being called “Ban the Box legislation.” This refers to that little checkbox with the phrase “Have you ever been convicted of a crime?” that applicants may see during the hiring process. To stay in compliance with these laws, you can refer to this list of state articles, but keep in mind that this is not a requirement in all states.

The Pre-Adverse Action

The pre-adverse action notice mentioned previously is actually the second step in your documentation process; it follows after obtaining written consent and supplying the Summary of Rights and any other required documents. Though the name may throw you, this notice advises the candidate that they have the opportunity to dispute any information they deem incorrect. It's intended to give the candidate time to review the results of their background check and provide a window within which they might lodge such disputes.

Any findings are then supplied to the candidate through their report, including a copy of their rights via the FCRA. Along with the report, you will supply the candidate with the name and address of the company that pulled this report so they can follow up accordingly for their potential dispute. If you decide to partner with CNet Technologies, for example, we would be the contact.

collection of various office clocks on white background. each one is shot separatelyThe Waiting Period

The FCRA requires the candidate to be given a reasonable amount of time to respond to or dispute any information found in their background check. For reference, five business days has become the industry standard. If after that waiting period there are no disputes to be resolved, the employer can then proceed with the adverse action.

This waiting period is essential to avoid litigation down the road for discriminatory hiring practices. There is no set time-frame given by the FCRA; whatever time-frame you choose must be adhered to with all persons on whom you run background checks. Also, make sure that it’s clear to the candidate how they can reach you to respond to or correct their records if need be.

The Adverse Action

Once the applicant has been given their reasonable period to respond, if you still feel the need to end their candidacy, you will issue an adverse action letter. This letter will explain the reasons for denial, along with an option to retrieve another copy of the background reports within 60 days of notice.

An adverse action notice must state that it is taking place due to information found in the background check and be given in writing, electronically, or orally. It must also include the name and address of the consumer reporting company that provided the results. Additionally, the employer must state that the company providing the results did not make the decision and include a notice that the candidate has the right again to dispute the information found in the background check.

Safety First: Rely on a Third-Party Screening Partner

The practices you choose to conduct background checks and providing adverse action notices should be thorough, legal, and well documented. Skipping any of these steps and others mandated by your local laws could lead to legal action for discrimination and loss of reputation for your company. As a third-party screener, CNet Technologies can help you avoid any of these drastic missteps with your background check process in your effort to find the best candidates. We're here to make your work not only more efficient—but ethical!

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