Back to Blog

Understanding the Adverse Action Process

Stephanie Cook | Uncategorized

The pre-adverse and adverse action process is an extremely important part of the employment process. If you use ANY information obtained in a background check report that adversely affects an applicant, you must follow the below procedures as described in the Fair Credit Reporting Act. An adverse effect can be revocation of the employment offer, loss of a contract (this process should still be followed if the person is a contract employee), loss of a promotion, or termination from the company. If any information in the background check influences a negative decision by the employer, they are required under the FCRA to follow the steps of the Adverse Action Process.

The pre-adverse and adverse action process requires that you follow the below procedures if you choose to use ANY information obtained in a consumer report adversely against an applicant:

STEP 1:

I. Notify applicant/employee.

II. Provide a copy of the background report and provide a “Summary of Your Rights under the Fair Credit Reporting Act.”

This process is sometimes called “Pre-Adverse Action” or “Preliminary Adverse Action” or “First Notice.”

Note: Regardless of what you call it, you have a legal obligation. Remember this only applies to information obtained from the background investigation report that is used adversely against the applicant/employee. In addition, we provide a “A Summary of Your Rights under the Fair Credit Reporting Act” at the end of every background investigation report. A copy of the Summary of Rights can also be found under our resources page.

We also recommend you advise the applicant/employee exactly what in the report triggered the pre-adverse process—be specific! Providing the exact reason for the adverse action can reduce frustrations, ultimately reducing the risk of a lawsuit.

Step 2:

If Applicant/employee contacts background screening company and disputes any information in background report:

I. Background screening company re-investigates any disputed information.

II. Background screening company issues updated report to employer and applicant/employee or notifies both that the report information stands after re-investigation.

The employer must give the applicant a reasonable amount of time to dispute the report. Industry standards suggest you should wait 7 business days for the applicant to initiate the dispute. Once the dispute is initiated by the applicant, the Consumer Reporting Agency (PSI) has 30 days to correct or verify the information.

Note: We want to ensure we are providing accurate information to ensure you can make an informed hiring or retention decision. PSI will do everything possible to correct or verify adverse information that is stalling the hiring process, in a timely manner.

If an applicant/employee states that they are the victim of identity theft, employers should also provide the individual with a copy of the document “Remedying the Effects of Identity Theft” which can be found under our resources page. This document provides additional information and resources for individuals who believe that the information on their background check is incorrect because their identity has been stolen. If taking adverse action, employers should also still provide the applicant with notice, a copy of the report, and the Summary of Rights.

Step 3:

I. Employer reviews updated report and makes final employment decision. If the applicant/employee does NOT contact the background screening company to dispute the information in the background report in a reasonable time, employers are still required to send the final adverse action notice.

II. If the employment decision remains adverse, a notice of adverse action is sent to applicant/employee to include the report copy and summary of rights.

This process is sometimes called “Adverse Action” or “Final Adverse Action.” The FCRA specifies that the employer should wait a “reasonable amount of time” but does not specify what is considered “reasonable.” Industry standards suggest you should wait 7 business days for the applicant to initiate the dispute. If the applicant does not initiate a dispute, you will still need to send the final adverse action notice, final report copy, and the summary of rights.

PSI provides all clients with template Pre-Adverse and Adverse Action Notices during the account setup, to assist with this process. If you need these template documents for your company, please contact one of our staff members for assistance.

*This notice is intended to assist you in complying with the Fair Credit Reporting Act (FCRA). This should not be considered legal advice. As with any issue of legality, we recommend that you contact your corporate attorney to ensure your company is in compliance with the FCRA.