Most companies use some form of pre-employment screening to protect against hiring risks. Pre-employment screening allows employers and prospective employers to check for prior criminal convictions, verify employment records, get employment references, and more. The goal is to create a safe (and more productive) workplace that lends itself to a positive employer brand and work environment.
Often, employers will outsource background screening to a third-party background screener to perform the background check and perhaps also to provide related support services to the employer. These employment background checks are “consumer reports” that are regulated by the Federal Fair Credit Reporting Act (FCRA) and analogous state laws. Employers have specific obligations under the FCRA, including requirements with respect to “adverse actions.” This blog examines employer adverse-action-related obligations under the FCRA. While our focus is on FCRA requirements related to adverse actions in the employment context, it is worth noting that state and local law may impose additional requirements in the form of “ban-the-box”, “fair chance” or other laws, regulations or ordinances, depending on where the employer operates.
In short, adverse action in the employment context means a denial of employment or any other decision for employment purposes that adversely affects any current or prospective employee.  This could mean denying employment to an applicant or terminating an employee, but it can also mean other actions, such as denying a promotion or transfer.
So what happens when the background screening provider finds information about a candidate that might cause a company to deny employment? In today’s economy, you are most likely interviewing and screening more candidates than ever before. This comes along with a higher risk for adverse action complaints based on employment rejection. Additionally, an offer to one candidate, often means turning down many other equally-qualified candidates.
The FCRA requires that employers provide notice to individuals before any adverse decision is made based in whole or in part on information from a consumer report and a separate notice is required if an adverse action actually is taken against the individual. “Pre-Adverse Action” or “Pre-Decision” notices are processes that inform the applicant or employee that the company is considering not moving forward with the employment process or is altering its original offer or employment conditions in response to undesirable information in a consumer report and gives the applicant or employee an opportunity to respond before an adverse action is taken. If an adverse action ultimately is taken a second notice is required to inform the consumer of this and provide certain additional information required by the FCRA. This latter notice often is referred to simply as an “Adverse Action” notice. These employer responsibilities arose from a concern that inaccurate or incomplete information in a consumer report could cause applicants to be denied jobs or cause employees to be denied promotions. As an employer, your background screening process must be thorough and compliant in order to minimize legal and reputational risks.
As an employer, if you use an employment screener to assess an individual’s suitability for employment, and the process turns up information that may result in your decision not to hire the candidate, there are specific rules you must follow under the FCRA, as noted above. Failure to comply with the FCRA’s pre-adverse and adverse action requirements can expose an employer to regulatory enforcement actions and, in some cases, private litigation including class actions. This is true not only with respect to the adverse-action related notices discussed in this paper, but also other employer obligations under the FCRA, such as those pertaining to disclosure to, and obtaining authorization from, an individual before obtaining a consumer report for employment purposes.
What does the FCRA require with respect to “pre adverse” and “adverse” action notices?
Before taking any adverse action based in whole or in part on the basis of the consumer report, an employer is required to provide to the consumer to whom the report relates with a copy of the report and a description in writing of consumer rights under the FCRA published by the Consumer Financial Protection Bureau. This process is intended to alert the consumer to potentially adverse information before an adverse action is taken so that the consumer has the opportunity to alert the employer to any errors that there may be in the report.
If the employer ultimately takes an adverse action based in whole or in part on the contents of a consumer report, a second notice is required. This notice must include the following information:
Adverse action notices can be provided in written, oral, or electronic form, although it is best practice to provide written or electronic notice so there is a record that can be used to demonstrate compliance.
Chief Operating Officer
 15 U.S.C. § 1681 et. seq.
 This paper is provided for informational and educational purposes only. It is not legal advice. Employers should consult with their legal counsel with any questions about compliance with FCRA or other applicable law.
 15 U.S.C. § 1681a(k)(1)(B)(ii).
 15 U.S.C. § 1681b(b)(3)(A). Certain employers subject to the Department of Transportation, including trucking companies, are subject to special rules for pre-adverse and adverse action communications which are not covered here.
 15 U.S.C. §§ 1681m(a). Additional requirements adverse action notice requirements when an adverse action is based in whole or in part on a credit score are omitted here, as credit scores are not used for employment purposes.
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