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Adverse Action 101

Posted by Ryan Howard on Fri, Nov 07, 2014  |  Share       

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As a property manager, hiring manager or Human Resources professional, you are on the forefront of decision-making for your organization. You are also responsible for knowing the latest governmental regulations for your HR industry. We receive many questions around adverse action and how it relates to your hiring decisions. We thought we’d start with the basics. (If you already know how when to send the notice, you can grab a free Pre-adverse and Adverse Action template here).

Adverse Action is the denial of employment or any other decision based entirely or partially on a consumer report which would negatively affect a current employee or a potential future employee. If that sounds like a mouthful, it's because it is paraphrasing the language set forth in two notice requirements that are part of the Fair Credit Reporting Act (FCRA). Any employer that takes adverse action against a current or prospective employee must follow the provisions of the FCRA, or be subject to federal penalties. Here are the sections you’ll want to focus on:

Section 604 of the FCRA

Section 604 of the FCRA requires that no action be taken against an employee until that person has been provided with a copy of the consumer report upon which potential action is based, as well as a written summary, known as a Pre-Adverse Action Letter, of the employee's rights as enumerated in the FCRA. What this means in layman's terms is that when an employer comes in possession of some kind of report which might negatively impact a hiring decision for instance, the employer is required to supply that employee with the two documents identified above. 

Section 615 of the FCRA

Once an employer has actually taken some kind of action, a second notice (called the Adverse Action Letter) must be issued to the employee. The purpose of this letter is to notify the employee that an adverse action has been taken, based on a consumer report in the possession of the employer. It must also include the following information:

  • all contact information for the reporting agency that provided the consumer report to the employer, so the employee has the ability to contact and dispute the information contained in the report
  • a declaration stating that the consumer reporting agency is not the party taking the adverse action, and therefore cannot supply the employee with any information about reasons for the action
  • a notice of the employee's right to obtain a second report, free of charge, from that same consumer reporting agency within a time period not to exceed 60 days
  • another notice which informs the employee of his/her right to dispute the information contained in the consumer report, relative to accuracy and completeness

General HR Compliance

It is estimated that as many as 80% of all businesses in the USA have undergone or are currently involved in litigation initiated by employees who are suing the company for violations or non-compliance issues relative to adverse actions in the workplace. This graphically points up the importance of compliance with the regulations issued in the Fair Credit Reporting Act, and the need for a clear understanding of these points.

Statistics indicate that the incidence of violations and non-compliance allegations by employees has been rising steadily for several years, which means that many, if not most Human Resources departments are either not fully aware of regulations, or have ignored them to their detriment. Since the federal government has consistently demonstrated its willingness to support and enforce this legislation, the best course for Human Resources departments would seem to be to thoroughly understand the FCRA and adhere to its provisions.

Looking for information on how to send the notice?
Check out our post “Can you email adverse action notices”.

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Topics: Adverse Action Notice

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