Adverse Action in Employment

by Russ Dempsey, JD, LL.M.

Employers that use the results of background investigation in hiring, promotion, suspension, or termination decisions need to be aware of Adverse Action procedures under the Fair Credit Reporting Act (“FCRA”).   The FCRA provides that employment decisions based in whole or in part on a background check report are “adverse action” decisions, which have specific notice requirements that must be satisfied. 


“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. FCRA §603(k)(1)(B)(ii) and  FCRA §615.   Employers that take adverse action against an applicant or employee must follow the two notice provisions of the FCRA.


There are two notice requirements under the FCRA.  First, Section 604 of the FCRA requires that employers provide to the consumer, before taking any adverse action based on a consumer report, a copy of the report and a summary of consumer’s rights under the FCRA.  This is referred to as the Pre-Adverse Action letter, since it must be sent before the adverse action is taken.  In other words, if an employer has a report and believes that the information contained in the report may impact the hiring decision, then at that time the employer must send the Pre-Adverse Action letter. 


The second notice must be sent after the employer takes adverse action.  In the Adverse Action letter (the second notice) the employer must notify the consumer of the fact that adverse action has been taken based on a consumer report, and include in that disclosure the following: (1) the name, address, and phone number of the consumer reporting agency that furnished the report, (2) a statement that the consumer reporting agency did not decide to take the adverse action and is unable to provide the consumer with specific reasons for the action, (3) a notice of a consumer's rights to obtain another free copy of his or her report from the consumer reporting agency within 60 days, and (4) the individual has the right to dispute the accuracy or completeness of any information in the report.”  FCRA §615.


A common question is how long must I wait after sending the Pre-Adverse Action letter before I send the (second) Adverse Action letter.  Unfortunately, the FCRA does not provide how much time an employer must wait after the Pre-Adverse Action letter before providing the second notice.  However, the FTC stated in an opinion letter that employers should keep, “in mind the purpose of the provisions to allow consumers to discuss the report with employers before adverse action is taken.” FTC Opinion Letter, Lewis, June 11, 1998.  The adverse action rules go to the heart of the consumer protection goals of the FCRA, and give an individual an opportunity to clear up any potential errors on a report.  Thus, employers should provide the consumer with a reasonable opportunity to review and discuss the report before taking Adverse Action.  For those of you looking for a specific time frame, Congress has provided that 5 business days is a reasonable time period to wait after the pre-adverse action letter before taking adverse action.  H.R.Rep.No. 103-486, at 30 (1994).


I would like to conclude with the following example.  An employer reviews an applicant’s application and background screening results.  On the application, the individual indicated that she had not been convicted of a crime.  The background check results show that the individual was convicted of theft.  The employer denies the individual employment.  Further, the employer claims that this is not an “adverse action” decision as the hiring decision was based on the fact that the person lied on her application.  However, it is clear that without the background check results the employer would have not known that the individual lied on her application.  Thus, the decision not to hire her was based at least “in part” on the report.  Decisions based in whole or in part on a background check report are “adverse action” decisions requiring the two notices. 


The FCRA has penalties, including punitive damages and actual damages, for failure to comply with the adverse action provisions, and compliance is relative simply.  Therefore, sending the adverse action letters is an easy step employers should incorporate into their employment screening policies. 


About the writer:

Russ Dempsey is an attorney with several years of experience in the Employment Screening Industry, and is currently the Director of Compliance at Background Bureau.  Russ served as the co-chair for the Legal Best Practices Committee for the National Association of Professional Background Screeners, is an active member in the ASIS Employment Screening Guideline Committee, and has spoken on the Fair Credit Reporting Act and Employment Screening at several conferences.