Dot the ‘I’ and Cross the ‘T’ when Taking Adverse Action | DCR Workforce Blog

Dot the ‘I’ and Cross the ‘T’ when Taking Adverse Action

The major retailer Amazon and staffing provider Staff Management | SMX were sued by a person whose job application was rejected based on the results of a background check. This case has nothing to do with the use of a background check. It is all about the process that must be followed. Federal law states that applicants must receive a copy of the report (based on which the application was rejected) or a summary of their rights according to the Fair Credit Reporting Act (FCRA). The law is intended to provide the applicant with an opportunity to identify any errors in the report before a negative decision is made against the candidate’s eligibility based on its content. In the Amazon case, the plaintiff claims that the report erroneously claimed that he had a felony conviction for cocaine possession, eliminating him for consideration. This class action suit seeks to demonstrate that Amazon and Staff Management | SMX routinely fail to follow the mandated process for dealing with adverse background checks.

Similar cases have been filed against other staffing agencies as they attempt to verify the credentials and suitability of contingent workers for client engagements.

Under the Fair Credit Reporting Act (FCRA) of 1970, adverse action covers a gamut of actions including the denial of a job to an applicant, termination of a worker, and also the denial of a promotion based on the results. The employer needs to notify the person of the proposed action at least twice, under the notice requirements of the FCRA.

Notice Prior to Adverse Action:

  • The first notification would be the pre-adverse action letter. True to its name, this notice needs to be served before any adverse action is taken if the employer feels that the background check has revealed information which would adversely impact the prospects of the applicant/employee. This notice indicates the reason for the decision, and includes a copy of the consumer report on which the decision is based. It contains with the name, address and phone number of the company that provided the report.
  • The applicant/employee shall also receive a summary of their “Rights under the Fair Credit Reporting Act” along with the report.
  • The employer will need to be prepared for a conversation with the applicant, giving the individual an opportunity to explain the negative information or to dispute its accuracy.  During this time, an employer should attempt to collect information from additional sources, and be willing to provide a fair assessment before taking any action.
  • The applicant must receive an additional free report from the reporting company within 60 days.

Notice after Adverse Action:

  • Having decided not to hire the applicant on the basis of the background check, the employer needs to notify the applicant through the Adverse Action Notice. It apprises the applicant of the adverse decision and also discloses that the report was the basis for the decision, clearly naming the consumer reporting agency, its address and phone number.
  • The applicant should be notified of the right to a free copy of the report from the reporting agency, to be received within 60 days.
  • The applicant has the right to dispute the accuracy and completeness of contents of the report.
  • Include a statement which explains that the adverse action was not the decision of the reporting agency and as such, the agency will not be able to provide any reasons for the adverse action.

Though the FCRA does not stipulate the window of time which must be provided between these two notices, providing a gap of 5 business days would be considered as a reasonable period. The notice may be sent as an email (with a read receipt) or by normal mail (with a return receipt) to document that the notices were served as per the FCRA’s requirements.


The FCRA provides a private right of action, and allows a private person to sue for damages against businesses that use consumer reports but fail to comply with the requirements of the FCRA. A negligent violation entitles a consumer to “actual damages” or the amount of damages or harm actually sustained by the consumer plus attorneys’ fees and costs. On the other hand, a willful violation entitles the consumer to statutory damages of $100 to $1,000 per violation (at the court’s discretion), plus punitive damages, actual damages, and attorney fees and costs. These costs could quickly reach astronomical proportions in a class action suit, making it even more important to employers to ensure compliance.

The content on this blog is for informational purposes only and cannot be construed as specific legal advice or as a substitute for competent legal advice. They reflect the opinions of DCR Workforce and may not reflect the opinions of any individual attorney. Do contact an attorney for advice specific to your issue or problem.
Lalita is a people/project manager with extensive experience in operations, HCM and training and development across industries like banking, education, business consulting, BPO and information technology. She believes in a dynamic approach to life and learning as change is the only constant.