There is a right and wrong way to vet, hire, and fire new employees. If you do it the wrong way, according to the Fair Credit Reporting Act (FCRA) and the Equal Employment Opportunity Commission (EEOC), you could face class-action lawsuits, bad PR, and other penalties. In fact, there has been a significant upturn in FCRA litigation against employers in recent years.

Here’s how to properly cover your bases and protect your company when taking any form of adverse action as a result of information gathered in an employee background check.

What Is Adverse Action?

Employee background checks are considered an essential precaution for most employers. They’re especially critical in industries dealing with sensitive materials and at-risk demographics, such as the financial sector, elder care, and child care. When you find something concerning or disqualifying in the results of a background check in these situations, breathe a sigh of relief — the background check did its job, and you just sidestepped a potentially disastrous, costly situation. 

But the decision not to make an offer or to withdraw a job offer that’s already on the table is what the FCRA calls “adverse action,” and it must be handled with care. Officially, the FCRA’s legal jargon in relation to adverse action in employment situations reads, “A denial of employment or any other decision for employment purposes that adversely affects any current or prospective employee.”

Adverse action can take many forms, including:

• Deciding not to extend a job offer
• Withdrawing an existing job offer
• Terminating employment
• Suspending employment
• Withholding a promotion

If you take any form of adverse action based on any part of the employee background check, you are legally required to provide the candidate in question with appropriate notice. 

How to Properly Provide Adverse Action Notice

The FCRA is the federal legislation that regulates “the accuracy, fairness, and privacy” of consumer reports such as background checks. There are strict civil and statutory penalties for non-compliance with the FCRA’s requirements, and any organization that uses consumer reports to make candidate eligibility decisions can find themselves in the realm of serious liability if they fail to prepare themselves for consistent compliance, especially when taking adverse action.

Prior to conducting a background check on the job candidate, you must provide a disclosure of your intention to run the check and receive written pre-authorization from the candidate, per FCRA requirements. This disclosure will formally inform the candidate that the results of the background check will potentially affect their eligibility.

Once you’ve determined their ineligibility, however, a notice of adverse action should be issued in writing or electronically as follows:

1. Letter One: Pre-Adverse Action Letter
2. Waiting Period
3. Letter Two: Post-Adverse Action Letter

Letter One: Pre-Adverse Action Letter

The purpose of this letter is not to announce that the applicant has been disqualified, but to give them a chance to see the results, contest or correct any mistakes, and discuss the report with the employer before the adverse action is made official.

The pre-adverse action letter must:

• Clearly state the intention to take adverse action based on the results of the background check results
• Inform the candidate of their right to request a free copy of the consumer report from the reporting agency within 60 days
• Include a formal document that summarizes the candidate’s rights as outlined by the FCRA

Most pre-adverse action letters are “bare bones” and simply state something like this:

“We are probably not going to hire you; here is your report and your rights; contact the CRA; we will take final action in X number of days.”

Obviously, this letter does not include any consideration of EEOC issues, including the desire for individual evaluation prior to rejecting the applicant. For your protection, this letter should not only be FCRA-complaint but also worded in a way that complies with EEOC guidance (more on this below).

Waiting Period

The FCRA does not provide any specific timing requirements for when adverse action notices must be issued or how long you should wait after issuing the pre-adverse action notice. However, per Federal Trade Commission (FTC) guidance and the precedent set by recent FCRA court rulings, the recommended waiting period is five days between the issuance of the pre-adverse action notice and the finalizing of the decision.

Letter Two: Post-Adverse Action Letter

This is the notice that informs the applicant that the adverse action has been finalized. It should:

• Reiterate the applicant’s right to contact the consumer reporting agency within 60 days and request a free copy of the report that influenced the adverse action decision
• Include the contact information of the third-party consumer reporting agency (name, address, and telephone number)
• Clearly state that the consumer reporting agency simply provided the report, had no bearing on the adverse action decision, and cannot provide the applicant with any information on why the action was taken
• Disclose the applicant’s credit score in the event that the state of their credit was a factor in the adverse action decision

EEOC Considerations: What Type of Information is Disqualifying?

While the FCRA governs how adverse action must be handled in the working world, the EEOC monitors the reasons that employers may choose to turn down prospective candidates. The intention is to ensure employment opportunities regardless of race, sexual orientation, political affiliation, age, gender identity, and even — to a certain degree — criminal history. 

For example, an employer’s instinct may be to disqualify anyone with a blip on their criminal record, but it isn’t best practice to do so and can even get you in trouble per “ban-the-box” legislation that may be in effect in your state or jurisdiction. It’s important to stay up to date on the FCRA and EEOC laws that govern your locality.

So what type of information can be considered disqualifying? Some of the most troubling disqualifying background check “blips” include:

• Sexual offenses (sex offender registration)
• Financial crimes (embezzlement, income tax evasion, fraud, etc.)
• History of cyber crime (hacking)
• A single serious (often violent) crime or a pattern of lesser crimes
• History of DUIs or drug-related offenses
• Poor driving record
• Bad credit history
• Embellished or falsified work experience and/or education credentials
• Dishonorable military discharge

However, any one of the above red flags cannot be considered a universal disqualifier, as every job position and applicant are different. As a rule, when troubling information is revealed in an employee background check, the employer should consider the following questions before taking adverse action:

• Is the information relevant to the job’s responsibilities?
• Does the position put the applicant in contact with vulnerable populations, such as youths or the elderly?
• Would the applicant have access to sensitive data?
• How much time has passed since the relevant offense(s)?
• Did the relevant offense(s) result in a conviction?
• Does the job require security clearance?

Official EEOC Guidance on Arrest Records

Official EEOC guidance warns that employers who adopt blanket policies that disqualify candidates with arrest records can face discrimination liability under Title VII if:

1. The policies disparately affect a protected class

OR

2. The employer can’t demonstrate how adverse action decisions based on blanket policies are “job-related and consistent with business necessity.”

The EEOC emphasizes that when it comes to arrest records, employment decisions should fairly incorporate an individualized assessment of the candidate, the nature of the offenses, and how the offenses would reasonably relate to the candidate’s job performance in the position in question.

How the EEOC Explains the Difference Between Arrests and Convictions

When examining the criminal history portion of your applicant’s employee background check, it’s important to consider how the law and EEOC legislation looks at arrests vs. convictions under Title VII.

Arrests

• Record of arrest is not proof in and of itself of criminal conduct, as many arrests either don’t result in criminal charges (conviction) or the charges are dismissed.
• Proof of guilt is established in prosecution and not before. Even after an arrest is made and an individual is charged, they are technically to be presumed innocent until prosecuted and convicted.
• Arrest records are often incomplete or erroneous. Records may not report on a final disposition of the arrest, meaning it is unclear if the individual was prosecuted, convicted, or acquitted. The Department of Justice (DOJ) acknowledges that many arrest records in both the national FBI database and even state criminal record repositories do not include final dispositions or may contain inaccuracies (such as reporting on records that have been expunged or sealed).

Although the existence of an arrest record on its own cannot be grounds for adverse action, Title VII calls for and allows a “fact-based analysis” of the conduct underlying an arrest. After a thorough inquiry into the circumstances, the employer may decide that the conduct of the individual is grounds for adverse action if such conduct makes them unfit for the position in question (i.e., the disqualification is job-related and consistent with business necessity).

Convictions

• Usually considered sufficient evidence of criminal conduct given the due process of law (trials, guilty pleas, etc.).
• Conviction records may still contain errors. Records may not report when a conviction is expunged or a felony downgraded to a misdemeanor.
• Like arrests, policies for adverse action based on convictions must still be linked to and clearly demonstrate the dangers and risks of criminal conduct in relation to the job in question.

The EEOC advises that best practice is to omit questions about convictions from job applications. In fact, some states already require employers to leave questions about criminal convictions for later in the selection process (usually when running background checks on select, viable candidates) so that the individuals have had the opportunity to demonstrate their merit.

Start Hiring (and Firing) With Confidence Thanks to VICTIG

Today, employment screening is increasingly becoming commodity. At VICTIG, we stand out from other screening companies with our innovative software that streamlines the adverse action process and ensures legal compliance within the program. 

When using our quickapp feature, simply enter an individual’s name and email address and you are guaranteed that the person will receive and sign all the proper documents every time. After a report has been run through our system, you also have access to customizable and compliant pre-adverse and adverse action letters. The letters will pre-populate with the individual’s information and include everything you need. All you have to do is print it and give it to the individual. And all of this is free.

Find the best people for your organization now. We’re here to help. Contact VICTIG today.