Understanding the Pre-Adverse Action Process

Imagine you just got some background checks back from a group of applicants, and right away you see there’s one person your company will never be able to hire due to something on their record. It’s a shame, too: they were the most promising of the batch. However, your company has strict guidelines, and there’s no way to make an exception.

Your gut reaction is probably to cross the person out of your top list immediately, stick that application into the bin, and start making a decision among those that are left. But as an employer, you are legally required to inform the candidate that their background check has affected your decision. This is called pre-adverse action, and it’s something that all employers need to pay attention to for a fully-compliant hiring process.

There are several reasons this law exists. In some cases, a background check might include inaccuracies, or a name mismatch meant you were reviewing someone else’s data. The pre-adverse action process allows the candidate to contest these findings. To protect job applicants from unfair treatment, the Fair Credit Reporting Act (FCRA) has put in place specific legal requirements that employers must follow before making a final hiring decision.

If you’re just hearing about pre-adverse action, you’re not alone. There’s also a lot of outdated information out there concerning what is and isn’t legally required of employers.

Let’s look at how to complete the pre-adverse action process smoothly and in full compliance with the law. We’ll provide some guidelines to help you prepare your own pre-adverse action letters, and then look at the importance of the timeline, including the review and waiting period.

What Is a Pre-adverse Action Letter?

A pre-adverse action letter is a letter sent to candidates advising them that a finding within their background check may have a negative effect on your hiring decision. It also requests a response to that negative finding, confirming, denying, and/or adding more information and context to the finding.

It’s a pivotal component of the hiring process, and represents a crucial step in maintaining transparency and fairness when considering potential employees.

You’re under no obligation to hire anyone you don’t want to, but you do need to be fair about how you use information from a candidate’s background screening. This includes allowing candidates to respond to and address any negative findings before a final decision is made. This requirement is codified in the Fair Credit Reporting Act (FCRA), but it’s not as complicated as you might think.

Think of the pre-adverse action letter as a notification you send out when you hear something negative about a potential candidate from a screening company. Essentially, you’re saying “We just heard something bad about you; bad enough that, if it’s true, we won’t be able to offer you a job here. Before we take action, would you check out that info and make sure it’s really true and not an error?” At the end of the day, it’s simply common courtesy, allowing the candidate to share their side of the story before writing them off.

What Are Negative Findings?

In essence, negative findings are anything you perceive as negative with regard to a candidate’s reputation, skills, credibility, or competence in any area.

Examples of negative findings could be any type of consumer report. It could be a criminal record or poor credit history. It could be a shoplifting charge from the candidate’s teenage years, a domestic violence markup from last summer, or ten years in prison for peddling heroin. It might be simply a credit report that tells you the candidate never paid a water bill from five years ago.

If you wouldn’t hire the candidate based on the findings, you need to tell them what you discovered and give them a chance to defend themselves. Maybe your John Smith never committed a crime in his life, and the screening company has mixed him up with another unsavory John Smith who happened to live in the same town. Maybe that water bill was from a nonexistent property, and a court has already ruled against the water company’s fraudulent charges.

Your prospective candidate needs a reasonable amount of time to review the report, along with a procedure to follow should he want to challenge any part of it. Include all the information your prospective candidate needs in the pre-adverse letter.

Legal Requirements of Pre-Adverse Action

A pre-adverse action letter is more than a quick note you send off to the candidate in the interest of fairness. Under an umbrella of laws such as the Fair Credit Reporting Act (FCRA), employers are obligated to follow specific procedures when considering adverse employment actions based on background check results. That means including specific information in your letter.

The letter itself doesn’t have to be long. But it must be carefully structured to include essential elements, such as:

A clear explanation of the negative findings.
Details about the consumer reporting agency that provided the report.
A copy of a document called “Summary of Your Rights Under the Fair Credit Reporting Act.”
An actual copy of the problematic background check report.

Crafting a notice like this requires a keen understanding of the FCRA and a commitment to transparent and respectful communication. Some states have more specific requirements. For instance, if your company is based in California, you will also have to include details on exactly which items of the report factored into your hiring decision.

Wherever you are based, understand that this letter cannot suggest your company is making any immediate decisions based on the background screening or review. The letter simply alerts the prospective employee that their application is on hold for a reasonable amount of time while the adverse findings are reviewed.

It’s important to get this letter right. Mishandling the pre-adverse action process can lead to awkward legal consequences, damages to your company’s reputation, and potential lawsuits.

Preparing a Pre-Adverse Action Notice

Crafting a well-structured and courteous pre-adverse action notice is an essential step in maintaining transparency and fairness throughout the hiring process.

In addition to the legal requirements mentioned above, write a brief note from your company, telling the prospective employee that their application is on hold while the adverse findings are being reviewed.

Here are some tips to keep in mind as you begin your draft:

Clearly state the reasons for considering adverse action, whether it's based on a criminal record, credit history, or any other pertinent information.
Keep in mind that candidates may not be familiar with legal jargon, so use straightforward language that is easy to comprehend.
Let empathy guide you as you create the pre-adverse action notice. It’s important to understand that this news can be disheartening for candidates who have invested time and effort into the application process.
Express your understanding of their potential concerns and emphasize that the decision is not yet final.
Invite them to reach out with any questions or provide additional context that might help inform the final decision.

Your pre-adverse action notice must include your contact information as well as contact information for the consumer reporting agency (CRA), and the background screening company. You’ll also want to lay out a clear way for the candidate to respond if they would like to challenge the report.

Example of a Pre-Adverse Action Notice

Here’s an example of a well-written pre-adverse action letter.

Dear John Smith,

Not long ago you applied for the position of chief of staff at XYZ Company. As part of the application process, you authorized a background check to be completed by a consumer reporting agency.

The background check you authorized was completed, and XYZ Company has currently placed your application on hold. At this time, we are considering not selecting you for employment based on your criminal record as contained in the report. As of yet, no decision has been made.

You will find with this letter two enclosures:

A copy of the report as received from the consumer reporting agency.
A summary of your rights under the Fair Credit Reporting Act.

If you’d like to explain any part of your report we invite you to contact us immediately, either by calling 1-800-999-9999 or emailing the hiring manager at kim@xyzcompany.com. We understand there are circumstances in which information provided in a consumer report may not be accurate, relate to you, or relate to the position you’ve applied for. We welcome any information that could help inform our final decision.

You may also dispute the accuracy of the information in the enclosed report by contacting the consumer reporting agency directly. Their contact information is:

[CRA contact information here]

Should we not hear from you within the next seven days, we will make a decision based on the information available to us.

Sincerely,

Jim Peters

XYZ Company

The Review and Waiting Period

When you uncover adverse information in a candidate's background, it's essential to take a step back and evaluate the context. After you send the notice, there are a few more stages you need to consider:

The Review Phase

Consider the review phase as a pivotal moment for HR professionals and employers to thoroughly assess the accuracy and relevance of the adverse information. This review should be guided by appropriate state law jurisdictions. In New York, for instance, employment decisions based on a criminal record must be guided by New York Correction Law Article 23-A, which provides guidelines for the licensure and employment of persons previously convicted of one or more criminal offenses.

The Waiting Period

After the review, a waiting period begins. This is when you provide your candidates ample time to respond to the adverse information. The FCRA does not give a specific time frame, saying only that the employer should wait a “reasonable amount of time.” Guidance from the Federal Trade Commission (FTC) suggests this should be no less than five days.

If the prospective employee contacts you to provide additional information, you may review this information and make a decision about its relevance. You are not obliged to believe everything the candidate says, but you are obliged to give them a fair hearing.

If the information in the report is contested, the applicant will need to dispute the information directly with the consumer reporting agency (CRA). The CRA will have thirty days in which to resolve the dispute, but you can generally expect a resolution well before that deadline. If the report is contested, you will need to wait for an updated report before you make your hiring decision.

When You Can Close the Application

You’re ready to cross the candidate’s name off your list and send out an adverse action letter when:

You’ve waited a designated time period (minimum of five days) and heard nothing from your candidate.

If your candidate does not contest the report but provides context, you’ve reviewed that additional information and found adverse action still necessary.

If your employee candidate contests the report, you’ve waited till the CRA provides you with an updated report that includes the resolution of any contest.

Final Thoughts

The hiring process is an important reflection of your company. A thoughtfully written, fully compliant pre-adverse action letter is key not only to protect your company from legal action, but also to present a transparent, unified front to those who encounter your company.

It’s also important to keep a good record of all communications with prospective candidates so you know exactly what has been said and when — and be able to prove it should you ever be challenged. Luckily, when using a talent engagement tool like Criterion, you’re covered on that front.

Criterion not only provides flexible communication tools that allow you to send messages directly to any candidate, it is also fully configurable, meaning you can set up the system to work in unique ways to accommodate any existing hiring system. Criterion also partners directly with Verified Credentials, so you can request background checks in the same interface you use to review and message your candidates. If you need to send out a pre-adverse action letter, our HCM allows you to deploy that easily and maintain solid records for the entire process.

The pre-adverse action process is not something you want to improvise, but with Criterion’s streamlined recruitment tools and your new knowledge of FCRA guidelines, there’s no reason you can’t succeed. Book a demo to learn how Criterion can improve your recruitment, hiring, and onboarding processes in virtually every way.

Understanding the Pre-Adverse Action Process: A Beginner's Guide