Adverse Action Letters: A Guide for HR Managers

So, you are a human resource manager, and you want to make sure you are compliant when it comes to the adverse action letter process. This may be something that you have been handling in-house, and maybe you are doing it manually. Or you may be thinking of letting your consumer reporting agency vendor or background screening partner handle this compliance step for you. Here are some key points to consider when deciding on how to handle this compliance task.

What is the Adverse Action process?

The adverse action process of notifying an applicant or job candidate or current employee usually includes two letters: the pre-adverse action letter and the adverse action letter. This process is required under the Fair Credit Reporting Act. An “adverse action” is anything that negatively affects someone’s employment status. This could include denial of employment in the hiring process, termination after hire, or denial of a promotion. No matter the case, if a negative decision is made based on information in a consumer report or background check, the adverse action process is required. The pre-adverse action letter simply notifies the candidate or employee of the possible impending action, allowing the subject the opportunity to respond or dispute the decision.

Since only about 10 percent of applicants have any kind of criminal record or negative information on a consumer report, this process is not something that happens with every background check. This could mean if you are a small business, you may only have to deal with this compliance step a few times per year. So you may want to tackle this step manually and in-house. If you are thinking of handling this process in-house, here are some important items to consider.

First, printing and mailing or emailing the letters using your own staff will allow you to save money. Chances are your employment screening vendor will charge you for this automated service, on average about $5 per letter. However, manually handling this step can mean greater room for error when it comes to following up.

FCRA vs. Local Laws

Make sure you are up to speed on the constant changing state and local guidelines that make these letters more confusing. That doesn’t just mean by state; it could be by county and in some cases, by city or municipality. There are several local jurisdictions that have their own rules and guidelines that preempt the Fair Credit Reporting Act. Sending specific letters based on job location and/or residence location is critical to stay compliant. If you are not sure which locations fall into this category, check with your legal counsel.

Timing is crucial

Make sure you are allowing enough time between the two letters so the applicant in question has time to respond. The Federal Trade Commission considers five days as a “reasonable” time frame, but you as an HR manager might want, or even need, to set that number to more than five. And some local guidelines or laws do require seven days, such as San Francisco.

Email vs. Snail Mail

The Fair Credit Reporting Act has no requirement that says these adverse action letters cannot be sent via email. However, it is beneficial to have a back-up process that determines whether an email was opened and/or acknowledged by the job applicant, so a letter can then be sent automatically to a queue to be printed and sent via U.S. Mail. If you outsource this process, the ability to set the period in number of days or hours before this switch is made from email to mail should be customizable.

What else is included?

When you as an HR manager decide to not offer employment to an applicant based on information on the consumer report, a copy of the consumer report and a copy of the FCRA Summary of Rights must accompany the pre-adverse action letter. However, some jurisdictions require the letter be specific about the actual information that led to the decision not to hire. So, for example, if you have an applicant that happens to have two separate criminal records on his or her report, listing the specific charge/conviction on the letter is required in some jurisdictions. You may be fine with hiring someone with a DUI conviction but not someone with an armed robbery conviction, for instance. If someone has both on their report, the ability to pull the one that led to the adverse hiring decision and place it in the letter is key.

In a nutshell, before you decide to tackle this compliance process in house, make sure you are up to date on the local guidelines, as well as the FCRA. If you decide it is worth the money to outsource this step to your screening partner for a more automated system, don’t forget to get a full demo of their process to make sure they aren’t missing any key steps. To learn more about the FCRA requirements and local guidelines regarding the adverse action process, information can be found in the member section of the Professional Background Screeners Association website at www.thepbsa.org.