Adverse Action Letters under the Fair Credit Reporting Act (FCRA) and Employment Screening Background Checks

By Lester Rosen, ESR President

From the ESR mail box:

Here is a frequently asked question dealing with the federal Fair Credit Reporting Act (FCRA) and the pre-adverse and post-adverse action notices.  Suppose an employer has two finalists for one position. The employer submits both names for background checks and both candidates have clear background reports.  The firm then decides to offer the job to one candidate over the other, purely based upon the belief that one candidate was a better fit than the other, with nothing to do with the background reports.

Question: Should the employer still send the adverse action notices (both pre and post notices) to the rejected job candidate, even though the rejected candidate’s background report played no part in the hiring decision?

Answer:  Although Employment Screening Resources (ESR) cannot give legal advice, ESR can give a very lawyer-like answer, which is: It depends.

Assuming the screening report is 100% not related to the decision, and it was entirely a fit issue, then theoretically an employer can bypass adverse action.  Technically, adverse action notices are required only where a background report played a role, in whole or in part, in the employment decision.  The idea is to give an applicant a meaningful opportunity to review, reflect, and act upon a report if the applicant feels it is incorrect or incomplete in any fashion.

Even if the background report played just a minimal part in the final decision, the adverse action notices would be required.  However, if the employer merely decided to screen both finalists, and found nothing in the screening report that impacted the final decision, then strictly speaking the adverse action notices would not be required.

However, as with most things involving employment decisions and background checks, nothing is ever that cut and dried.  Here are some of the possible complications:

  • The first issue is proof.  The rejected applicant may claim that the fit argument was a pretext.  This is especially risky if the candidate not hired is a member of a protected class and argues failure to hire due to discrimination.  Invariable, the attorney for the plaintiff that chooses to sue would probably add on a cause of action for failure to follow the FCRA by not giving the rejected applicant a chance to correct a report. Plaintiff lawyers have become very sophisticated in their understanding of the FCRA, and employers and screening firms that violate it can well be targets of litigation. 
  • In addition, the subject of what is adverse can be tricky.  Even if there is nothing derogatory on the face of the report, the rejected applicant can still claim that the report gave the wrong impression. For example, a job title may have been reported that was different than the applicant used. Another example is a credit report if it was run as part of the background check.  If the credit report came back and there here was nothing derogatory such as late payments, there still could still be information that was incorrect.  For example, some employers look to see how much debt an applicant is in and compare their monthly obligations to their salary. If the reported debt information was incorrect, the applicant can argue he/she was placed in a false light without a chance to correct it.
  • Another problem is consistent administration of the adverse action rules.  If an employer starts picking and choosing when to send or not send notices, an error can be made in other cases, since it can be a judgment call to a certain extent as to whether there was anything negative that influenced the decision.  Some employers choose to send the notice to any rejected applicant that was the subject of a background report and not hired to ensure full compliance. After all, employers usually only submit background check requests generally on finalists so the situation may not come up that often.

The bottom line is always risk management, and many employers decide to follow a consistent policy of always sending out adverse action notices, even if not strictly required, so nothing falls though the cracks and they don’t need to justify anything later.  Providing adverse action notices are a quick clerical task that takes little time.  If for some reason the lack of notices becomes an issue in employment related litigation, it may be hard to convince a jury that in fact the report was 100% irrelevant to the decision. 

If for some reason, there is a particular case where an employer does not want to send out the adverse action notices, then the employer may want to prepare a memo to file clarifying that it was a fit issue only and the screening report was not involved even one iota.

For more information on adverse action client letters, including suggested langue, see the ESR Special Report, The FCRA in Four Easy Steps,  at: http://www.esrcheck.com/articles/Complying-with-the-Fair-Credit-Reporting-Act.php.

For more information on background checks, visit Employment Screening Resources (ESR) at http://www.ESRcheck.com.