Adverse Action Notices Become More Complex with Employee Screening

Adverse Action | An FCRA Requirement

The FCRA (Fair Credit Reporting Act – the federal law that governs background checks) requires Adverse Action Notices for all types of background checks – whether it is tenant screening, volunteer screening, country club membership screening, franchisee screening or employee screening background checks. However, the FCRA places its most onerous regulations upon employee screening, both with its initial disclosure and authorization requirements, as well as with its Adverse Action Notices rules.

What is Adverse Action?

Under the Fair Credit Reporting Act, Adverse Action is defined as:

A denial or revocation of credit
A refusal to grant credit in the amount or terms requested
A negative change in account terms in connection with an unfavorable review of a credit or consumer report.

All of the above and all of the below are in connection with a review of an individual’s consumer report, i.e., credit report and/or background screening report.

For Tenant Screening, examples of Adverse Action include:

Denying an application for a home or apartment rental
Requiring a higher security deposit than normal
Demanding a higher rent than normal
Mandating a cosigner when one is not regularly required.

For Country Club Membership Screening, Adverse Action involves:

Denying the candidate’s application for Club membership
Requiring a higher Membership Fee than normal
Exacting higher Food and Beverage purchases and/or monthly dues than normal.

For Franchisee Screening, Adverse Action entails:

Denying the franchise purchase to the individual
Requiring any terms that are more stringent than those outlined in the Franchise Disclosure Document (FDD).

For Volunteer Screening, Adverse Action includes:

Denying the person’s application to become a volunteer.

For Employee Screening, examples of Adverse Action are:

Denying the application for employment
Demoting an existing employee
Not promoting an existing employee
Terminating an existing employee.

Again all of the above are based upon the consumer report, i.e., the credit and/or background screening report. Terminating, demoting, or not promoting an individual, based upon their job performance or other business metrics, or not hiring a candidate based solely upon their interview – these situations are not governed by the FCRA, and they do not constitute an Adverse Action. They only become Adverse Action, when there is a consumer report (background check report) that was obtained in connection to making this Adverse Action determination.

What is an Adverse Action Notice?

Although the FCRA requires that a single Adverse Action Notice be provided to a consumer anytime one of the above actions is taken in connection to a consumer report, whether it is for tenant screening, franchisee screening or country club or other membership screening purposes, the FCRA mandates that with employee screening, there be two Adverse Action Notices. Specifically with employee screening a Pre-Adverse Action Notice and then an Adverse Action Notice are detailed in the FCRA regulations.

The Pre-Adverse Action Notice cannot state definitively that a candidate is being denied employment. It can only state that an Adverse Action is being considered. It must also include a copy of the consumer report, the FCRA Summary of Rights, and contact information for both the employer and the consumer reporting agency (CRA, or background screening company).

Although there is no specific time outlined in the FCRA that must transpire following the issuance of the Pre-Adverse Action Notice, before issuing the Adverse Action Notice, most case law has shown that at least five (5) business days should occur before the Adverse Action Notice is given. This allows the candidate a reasonable time to dispute the findings of their consumer report/background check report.

Note that if the consumer disputes their report upon receiving their Pre-Adverse Action Notice, the consumer reporting agency (CRA) will need to reinvestigate their findings within thirty (30) days. When this happens, the Adverse Action Notice should not be issued until after the CRA/background screening company has completed their reinvestigation.

State and Local Jurisdictions “Fair Chance” Laws Further Complicate Adverse Action

Local jurisdictions, such as the City of New York and the State of California have “Fair Chance” laws that further complicate the Adverse Action process. These two jurisdictions, along with many others require an “Individualized Assessment” to outline how specific conviction(s) relate to the denial of a particular job. In addition to the Individualized Assessment, there generally are dispute options available for the candidate to contest this Assessment. These local jurisdictional “Fair Chance” laws requirements generally must be adhered to before the federal Pre-Adverse Action Notice is performed.

Use a Reliable Background Screening Company

Due to the complexities of the Fair Credit Reporting Act and the ongoing changing legal landscape of states, counties, and municipalities, it is best to utilize a reliable background screening company that is also a consumer reporting agency (CRA). Not all background screening companies are CRAs. It is best to partner with a reliable background screening company that is also a CRA to help your organization navigate these complex and changing Adverse Action Notice requirements.

Posted by: Rudy Troisi, L.P.I., President and CEO, Reliable Background Screening

Adverse Action Notices Become More Complex with Employee Screening