Employment Background Checks Protect Your Company From Adverse Action Lawsuits

Last Updated on June 17, 2021 by G. T. HR

Adverse employment action
– in a nutshell.

“Adverse action” isn’t a term most of us hear every day. An “adverse action” is either a denial of employment or any other decision that adversely affects any current or prospective employee. The Fair Credit Reporting Act (FCRA) requires employers to provide a copy of the consumer report results to the applicant or employee and additionally provide them with a copy of their rights under the FCRA before taking adverse action based upon information contained in the consumer report. In addition to the requirements under the FCRA, it is also important to review any state-specific requirements in your state.

When results of an employer background check to prompt a decision to turn down an applicant or dismiss an employee, federal law requires that you provide that information to the candidate in a document known as an adverse action notice. This article will discuss the responsibilities of employers delivering adverse action notices, and the rights of candidates who receive them.

 The same law that governs credit scores—the FCRA—applies to employer background checks.  Employers who violate those rules face stiff financial penalties and could also open themselves up to unfair-hiring lawsuits.


Assurance In Employment Background Checks

Growing numbers of small-to-midsize businesses, use employment background checks in an effort to pre-empt financial loss, avoid workplace accidents, mitigate liability, and protect company reputation. By providing insight into candidates’ work backgrounds and any history they may have of criminal conviction or incarceration, background checks let employers address potential new hires (or internal candidates for promotion) completely aware of all aspects of a candidate’s background. Background checks can ensure all relevant matters are brought to light during the hiring process, so that employers and candidates can address them head-on.

FCRA Guidelines Have Strict Requirements.

The FCRA requires any employer intending to run a consumer report to first disclose to applicants or employees that a consumer report may be obtained for employment purposes. This disclosure cannot be included in an employment application or other document that contains any extraneous information. The employer must also obtain an employee’s or applicant’s written consent before running the report.

 Employers also must comply with specific reporting requirements. Before obtaining a consumer report from a Consumer Reporting Agency (CRA), the employer must provide certification to the reporting agency that they are requesting the report for employment purposes have provided the required disclosure to the applicant; have obtained the necessary written consent to obtain the report; will provide the applicant with a copy of the report along with notifying them of their rights before taking any adverse action based in whole or in part on the results; and will not use the results from the report in a manner that violates federal or state equal opportunity laws.

More On Pre-Adverse
and Adverse Action

 Pre-Adverse and Adverse action are critical steps that all employers must apply. Pre- Adverse action notices notify a candidate that information contained on their background screening may have a negative impact on a hiring decision. This gives your candidate the opportunity to dispute anything on their report and have it reinvestigated. The pre-adverse action notice must include the notification letter, a Summary of Rights, and a copy of the report.

If the candidate disputes any portion of the report, the CRA will reinvestigate immediately. Once pre-adverse notice and supporting documents are sent to the candidate, a proper waiting period must be observed to give the candidate time to respond if a dispute is intended. If there have been corrections made after the dispute, the employer should review and if the decision is made to not move forward, the adverse action notice must be sent.

If the candidate has not disputed the findings and the required amount of time has passed the adverse action notice must be sent as a final notice that you will not be moving forward with the candidate.

 “The background screening process can seem daunting, but partnering with a CRA that understands the process can ease this for companies. Taking shortcuts in any area of the background screening process can result in costly litigation. It is critically important to implement a compliant background screening program that is consistent in every way,” says Kim Lewis, of MyHRScreens.

From the authorization to perform a background screening all the way through any potential pre-adverse and adverse action, it is critical to hold your background screening protocols in strict adherence with the FCRA.


Steps In Adverse Action

What are the correct steps for delivering an adverse action letter?

To comply with FCRA, employers must follow a strict set of rules when informing a candidate or employee about adverse action decisions related to background checks. But before the background check even begins, FCRA disclosure and authorization requirements specify strict procedures for notifying the candidate or employee, and securing written permission to conduct the check.

  1. Provide disclosure and get consent
  2. Send pre-adverse action notice when applicable
  3. Review results again considering the candidate’s response
  4. Provide notice of adverse action
  5. Dispose of sensitive documents 
    Keep in mind that The FCRA requires that the employer securely dispose of the background check results. Paper copies must be shredded or incinerated, and all digital copies must be irretrievably erased.


For more information on employee screening and background checks with MyHRScreens at 1-866-899-8970 or HR needs with MyHRConcierge call 1-855-538-6947 ext. 108

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