8 Questions About the FCRA’s Adverse Action Requirements

When it comes to background check compliance, the adverse action process can be confusing for employers and HR pros alike. How does the adverse action process apply to background checks and FCRA requirements?

Our legal expert answers eight common questions about pre-adverse action notices, adverse action notices, waiting periods and more to help you comply with federal, state, and local laws.

---

When it comes to background check compliance, the adverse action process is a leading source of confusion for employers and HR pros alike. While the term adverse action is fairly straightforward—put simply, it’s a legal way to define an action that is unfavorable to a consumer, such as not getting hired based on a criminal record, or not getting a loan based on poor credit history—questions come up around the adverse action process as it applies to background checks and FCRA requirements.

In this blog, I’ll answer common questions about background checks and the adverse action process. But first, here’s a quick look at the Fair Credit Reporting Act’s (FCRA) two-step notification process as required under the law:

1. A pre-adverse action notice. This notice is generally in writing and serves to inform a candidate that the employer is considering taking adverse action. This notice must include a copy of the candidate’s background check and a copy of A Summary of Your Rights Under the Fair Credit Reporting Act.
2. A final adverse action notice. Between the pre- and final adverse action notices, an employer must provide a reasonable amount of time for the candidate to review his or her background check and dispute any incomplete or inaccurate information.

Q. What is a pre-adverse action notice used for during the hiring process?

If you are considering taking adverse action (for example, not to hire) based in whole or in part on a consumer’s report obtained through a Consumer Reporting Agency (CRA), such as GoodHire, certain obligations are required both before and after taking an adverse action. 

Pre-adverse action is the first requirement. Generally, pre-adverse action is a notice that informs the applicant that their background check results are under review and a decision is pending. The pre-adverse notice merely informs the candidate that information in the report is under review and may impact the hiring decision. 

Q. We conduct employment verifications as part of our background checks. If there is false information in the employment verification report, do we use the adverse action process to deny employment?

Yes, an employer must follow adverse action when a denial of employment is based in whole or in part on information within the background check report, including employment and education verification checks, as well as employment credit checks.

What to learn more? Download the Decision Guide: What To Consider When You Decide Not To Hire

Q. What if a candidate does not consent to a background check?

The refusal to consent to a background check can be grounds for rejection. This is not uncommon. Because a background check is not conducted on this applicant, and no consumer report is provided, the FCRA does not apply. The adverse action process would no longer be applicable in this case. 

Q. What is the adverse action waiting period?

The adverse action waiting period is the amount of time an employer must wait between sending a pre-adverse action notice and a final adverse action notice. According to the FTC, an employer should wait at least five business days after sending a pre-adverse action notice before it sends the final adverse action notice. 

State and local laws can extend the adverse action waiting period—be sure to check your state’s laws. 

GoodHire’s integrated adverse action workflow automatically applies federal, state and local laws, and includes automatic notifications when you can legally take steps for adverse action.

Q. Does adverse action apply when running background checks on 1099 contractors?

Yes, contractors (and volunteers) are considered to be included under the “employment” provisions of the FCRA. Since the FCRA applies to the screening of contractors, entities screening contractors must follow the adverse action steps when taking an adverse action based in part or in whole on a consumer report obtained through a CRA.

Q. Often, we receive only vague information regarding a conviction (for example, “assault”). When sending the pre-adverse action notice, is the expectation that the candidate will provide details around the conviction that will provide additional information and/or context? Are there additional legal ways to obtain that information?

By initiating the pre-adverse action notice, you are giving your candidate the opportunity to provide context or dispute inaccurate information that may be in their report. 

GoodHire (and the EEOC) encourages two-way dialogue about criminal records to allow candidates to be assessed as individuals, as opposed to records. To support this, GoodHire’s candidate workflow provides individuals the ability to use our “comments for context” feature. Candidates who have criminal records can add additional information or details around the offense that helps with individualized assessment and fair hiring. 

Q. Can you send pre-adverse notices by email?

Yes, you may send pre-adverse and adverse action notices electronically. Email is a great method for sending adverse action notices because it provides an audit trail showing the time and date notices were sent. GoodHire’s built-in adverse action flow uses email as the method of adverse action notice delivery. 

Q. Does GoodHire provide the adverse action notice? Or even if you use GoodHire, does the company still need to be the one sending the adverse action notice?

Standard with every GoodHire background check, GoodHire offers automated, localized, adverse action workflows to guide you through the steps required by the federal, state, and local laws. Our automated adverse action workflow includes customizable email templates that our customers may use to send to their candidates electronically. GoodHire will even provide automatic notifications when our customers can take steps legally for adverse action. 

However, it is still the employer’s responsibility to initiate these notices through the workflow, and customize the notices as they see fit. We provide the tools for automated adverse action compliance, but you must take steps within our workflow to have those notices sent for the particular candidates who require it. 

For more information about the adverse action process generally, download our guide, What To Consider When You Decide Not To Hire, which includes a detailed adverse action checklist.

---