Employers often make the decision not to hire a particular candidate for employment. If the employer makes this decision based on information discovered in a background check, it is considered an adverse action. In some cases, an employer will use this information not only to deny a candidate employment, but also to deny an existing employee a promotion or possibly even a transfer.
An Adverse Action Notice is a process under which an employer will inform the applicant that they were denied the position or promotion and the company is no longer considering them as a candidate for the position. However, employers have a legal responsibility and duty to follow certain guidelines and procedures when they deny employment based on information discovered in a background check. If an employer fails to follow these procedures, they may be violating their own adverse action process as well as the law.
Adverse Action
The term adverse action refers to the negative decision made regarding information found on a credit score or background check. The Fair Credit Reporting Act states that any person that is turned down for a loan or credit card based on something discovered on their credit report must be provided with an adverse action notice. This same law also applies to employer background checks; however, the rules are more complex than those required of lenders. In fact, any employer that fails to follow the requirements of an adverse action notice may face not only penalties, but also a lawsuit.
Adverse Action Process Requirements
Under the law, there are some basic steps that an employer must follow if they used a third-party credit reporting agency to obtain background information on a candidate for employment and then make a decision not to hire the candidate based on the information discovered.
- Disclosure. First, you must have disclosed to the employee that you would be running a pre-employment background check and obtain their signed disclosure and authorization to do so. This disclosure must have included language that indicated that the offer of employment would be based upon information obtained in that background check.
- Pre-Adverse Action Notice. Before you actually make the decision definitively not to hire a candidate based on the information you discover in the background check, you must sent them a pre-adverse action notice, which is a letter that explains to the applicant that you may need to take an adverse action against them. It is critical that this letter has a copy of their background report as well as an accompanying document known as “A Summary Of Your Rights Under The Fair Credit Reporting Act.” At this point, the employer must wait a reasonable amount of time for the applicant to respond. While there is no set time established, the Federal Trade Commission and the Consumer Financial Protection Bureau indicate that typically an average of 5 business days is sufficient.
- Candidate Response. The applicant or candidate for employment has the right to argue that the information listed in the background report is incorrect. However, if an employer finds that the proof offered by the applicant is insubstantial, or if the candidate offers no proof that the information is incorrect, the employer may move forward to reject the candidate. If there is a claim of inaccuracy, the credit reporting agency will investigate that matter. If the candidate fails to respond within 5 business days, the employer may move forward with the adverse action process.
- Adverse Action Notice. The adverse action notice is the final step an employer must go through in order to remain legally compliant with the laws regarding background checks of potential candidates for employment. The adverse action notice must indicate that the employer is not hiring the candidate based on information discovered in the background report, that an applicant has the right to dispute the accuracy of the report, the name, address, and contact information of the credit reporting agency used, a legal statement indicating that the credit reporting agency had no decision-making authority with respect to employment, and finally that the candidate has the right to another free credit report if they request one from the credit reporting agency within 60 days.
By following all these steps, an employer can attempt to insulate and protect themselves from any kind of lawsuit.
Employers Violate Their Own Adverse Action Process
Most employers that use background checks in the hiring process will have their own adverse action process will closely mirror the ones required by the Fair Credit Reporting Act. If an employer fails to follow either the required legal actions regarding adverse actions by law, or by their own adverse action process, a candidate for employment has the right to bring a claim against them. Using a compliance checklist regarding this process can ensure that an employer has followed not only the legal requirements but the ones established by their own company.
If you were a candidate in the process of attempting to obtain employment with a company and were subjected to a background check and a subsequent denial of employment, consider looking at this compliance checklist to see if the disclosures, authorizations, and appropriate communication was provided to you throughout the entire process. If you feel you were not provided all the correct documentation, you may have the right under the law to file a claim against the employer for a violation of your rights under the Fair Credit Reporting Act.
Contact an Experienced Employment Attorney Today
If you were denied employment due to information discovered on your background check and credit report in the hiring process, and feel that the employer violated either one of their own internal provisions of the Fair Credit Reporting Act, contact a Los Angeles employment lawyer at V. James DeSimone Law at 310-693-5561 today. Speaking with one of our attorneys can help you understand your legal rights and how you can get the justice you deserve under the law.