What is Adverse Action in Background Checking?

What does “Adverse” mean?

As an employer who carries out background checks on your potential hires, you must know and understand adverse action and adverse action notices. These are things you may have to carry out for certain candidates who apply for your company.

The dictionary definition of the word “adverse” is, something “unfavorable, harmful, or preventing success or development”. This may therefore refer to several different things relative to the employment and background screening processes. 

It may refer to certain types of background checks, like “adverse financial checks” or “adverse media checks”. In these checks, the goal is to find whether a candidate has had any unfavorable public records regarding their finances or media use. 

However, for employers and hiring teams, it is particularly important to be familiar with background check adverse action.

Adverse Action for Employment Background Checks

“Adverse action” or “adverse employment” in this context refers to any action that you as an employer might take which will adversely or negatively affect an applicant’s employment with your organization. The situation typically happens this way: You carry out your routine background checks on a job applicant, and then you find out information and circumstances that lead you to decide not to hire them. It is also possible for you to discover that you cannot legally hire them at all. You cannot simply cut off all communications with them; rather, there is a regulated process in place to allow candidates to defend and explain themselves for your reconsideration.  

Adverse action is part of adjudication - the “process of reviewing the results of your background screening against your company’s hiring criteria and policies”. This is basically the decision-making stage of whether to officially hire a candidate or not. 

Adverse Action Regulations in different countries

Adverse action is regulated in most countries through labor laws that protect an individual candidate’s rights to fair and equitable treatment by potential employers.

In the United States, adverse action is governed by the Fair Credit Reporting Act (FCRA). In Australia, there are General Protections laws for workers. The Philippines has their Labor Code.

Note that not all countries might be using the terms “adverse action” and “adjudication” in their local parlance. Nonetheless, all employers are encouraged to follow this process regardless of local terminologies, to avoid possible issues or legal action.

The Adverse Action Process

Before an employer can take an adverse action such as disqualify a candidate from being hired, they must follow the 2 key steps below, particularly in the US where these are necessary for compliance:

Step 1: Pre-Adverse Action Notice

A pre-adverse action notice or letter must be delivered via electronic or hard copy form to the candidate for whom adverse action is intended.

In this notice, the company must inform the applicant that they are considering not hiring them. The letter must include:

• The declaration that that the company is considering an adverse action
• A copy of the background check report that caused the company to consider an adverse action
• In the US: The contact details of the consumer reporting agency who provided the background check report, should candidates wish to clarify or dispute certain information.
• In the US: A summary of the applicant’s rights under the Fair Credit Reporting Act (FCRA)

When a candidate receives the pre-adverse action notification, they have the right to review and verify that the information on the background checks is correct. They may contest any inaccurate data.

In the US, the FCRA requires that you wait “a reasonable amount of time” before sending your official adverse action letter to your applicant, to give them time to make any contestation. If it is possible, your company can allot up to 30 days for this.

Step 2: Official Adverse Action Notice

In case the candidate does provide a response to your pre-adverse action notice and requests corrections to the results of their background checks, you must reevaluate your decision. If  you still decide that you cannot hire the candidate, you must issue an official adverse action notice, explaining your decision in full.

 This document should include:

• Notice of the adverse action to be carried out
• In the US: A summary of the applicant’s right under the FCRA to dispute the accuracy of the background check’s findings directly with the agency that performed it
• In the US: The contact information for the CRA that prepared the report

Reminder: Remain compliant with data handling

Don’t forget that the way you secure, manage, store, and dispose of personal information of all your candidates must also be in compliance with data privacy laws in the country or countries where you operate. 

This means your hiring team must know what to do with the information you’ve collected on a candidate after the entire process is complete. This may include permanently disposing of all physical and digital copies of background checks and other files on an individual. 

Always Consider Candidate Rights

As an employer, you certainly have the right to select the criteria for hiring in your company, and therefore, the best candidates for your team from among many potentials. No one knows the business and the roles you are hiring for better than you. However, as mentioned above through the FCRA and other regulations, candidates too have rights that are to be respected throughout the hiring and background screening process. 

Never make a decision on a hire BEFORE giving candidates the chance to respond to your pre-adverse action notice. Not only is it their right, but it is also for your benefit: It is not uncommon for public records to contain errors. It is possible for background check results to be outdated, contain typos, or even refer to a different individual with the same name. Following the full adverse action process can actually help your company avoid rash or faulty decision-making.

Conclusion

The adverse action process is not only a compliance measure, but a truly beneficial part of any company’s hiring system. Taking the time to go through this process allows you to make the most well-informed and fair decision for both you and your candidates in the long-term.

To ensure that you use your HR team’s time in the most efficient way, consider outsourcing your background checking to specialist companies like Veremark. Veremark will ensure that your company conducts comprehensive background checks on all your potential hires at the speed and scale you need. This frees up your in-house team to focus on decision-making and  adjudication based on reliable information and locally compliant processes. Get in touch today to learn how we can optimize your background screening & adjudication systems.