Adverse Action Compliance Is Trickier Than It Seems

Most companies today are familiar with adverse action notices, or notices that inform an applicant that he or she is being denied employment based on criteria such as criminal history or bad credit. The Fair Credit Reporting Act (FCRA) dictates how employers can use the results of background investigation in hiring, promotion, suspension or termination. Non-compliance can expose an employer to potential civil litigation.

At the same time, more employers are turning to credit checking and denying applicants based on the information. With the job market in favor of employers rather than employees today, companies are becoming choosier about who they hire, so they’re invoking adverse action more often.

What Does the FCRA Say About Adverse Actions?

Under the terms of the FCRA, “adverse action” is defined as “a denial of employment or any other decision for employment purposes based in whole or in part on a consumer report that adversely affects any current or prospective employee.” Before employers can deny an applicant employment, they must observe several rules:

They must provide the applicant with a copy of the report and a summary of his or her rights under the FCRA before taking any adverse action based on the report;

After issuing the adverse action notice, the employer must provide the applicant with the name, address, and phone number of the consumer reporting agency that furnished the report and inform the applicant of his or her right to obtain a free copy of the report from the reporting agency within 60 days.

How Do Employers Remain Compliant?

Many employers simply don’t understand the rules laid down by the FCRA, or they feel intimidated by the many gray areas that are undefined by the language of the rules (how much time they have to issue adverse action reports, for example, or to follow up after the applicant is rejected). They also may not understand what obligations they have or actions they need to take if applicants file appeals to adverse action notices. There are also rules to ensure that employers don’t misuse any information in the report in violation of federal or state equal employment opportunity laws.

Third-party pre-employment screening helps employers understand what their obligations are under the FCRA. There are stiff legal consequences for employers who fail to get an applicant’s permission before requesting a consumer report, for example, or who fail to provide pre-adverse action disclosures and adverse action notices to unsuccessful job applicants. The FCRA allows individuals to sue employers for damages in federal court. It’s worthwhile, therefore, to consult with a professional organization that understands all the implications of the FCRA.

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