Legal Issues Surrounding Adverse Action: What Every Organization Should Know 13 Dec 2017

As important as it is to conduct a background check, many people are uncomfortable with the notion that a third party can look into someone’s past and, depending on what they find, decide not to hire them. Yet, most would agree that employers are more than justified in verifying credentials, education, and whether the person they are hiring has a criminal record.

At the same time, Americans value their privacy and personal liberty. If an employer does a background check on someone and, based on what they find, decides not to hire the person, the candidate should be able to know why. That is, there should be a degree of transparency to protect people against arbitrary decisions.

The main form these protections take is in the legal right applicants have to an adverse action notice that explains why they were denied.

What Is an Adverse Action Notice?

Under the Fair Credit Reporting Act (FCRA), employers who use the results of background checks to deny employment, or use the results to terminate, suspend, or withhold promotion, must provide candidates with information on why this “adverse action” was taken.

Pardon the brief digression into legalese, but, for the sake of clarity, we should point out that adverse action in terms of employment is defined as “a denial of employment or any other decision for employment purposes that adversely affects any current or prospective employee” (FCRA §603(k)(1)(B)(ii)).

If an employer takes adverse action, based on any part of the background check, they are legally required to provide the applicant with an adverse action notice.

The Two Parts of an Adverse Action Notice

To properly comply with the law, the employer must first send a pre-adverse action letter to the candidate. This document serves as a warning, informing the candidate with a copy of the report, a summary of consumer rights under the FCRA, and a notice that they may be potentially denied employment, based on the findings of the background check.

The pre-adverse action letter is a warning meant to give the candidate a chance to contest and/or correct any mistakes.

Once the employer makes a decision, or takes adverse action, they must follow up with a second letter to the candidate, which must disclose the following:

• The fact that the employer has taken adverse action.
• The name, address, and phone number of the agency used to conduct the screening.
• A statement that the above-mentioned agency did not take the adverse action and therefore cannot give them reasons as to why the action was made.
• Notification that, should they choose, they have the right to receive a free copy of the report from the agency in the next 60 days.
• The fact that they have the right to contest the accuracy or completeness of any of the information on the report.

As we mentioned above, these safeguards are in place to provide a candidate with a clear understanding of why they are being denied employment. It also informs them of the steps they can take to fix any discrepancies or errors on their background report.

From the perspective of the employer, the regulations surrounding adverse action notices mean that you must be extremely cautious in who you partner with to conduct your background check employment verifications. The FCRA gives candidates the legal tools to specifically know why they were denied employment based on the results of their background check.

This allows them to contest the results, and in some cases, take legal action against the employer — not for any oversight on the employer’s behalf, but due to oversight on behalf of the screening agency they partnered with.

The Perils of Transparency

One of the most illustrative cases of how an employer can land in legal trouble due to the neglect of their partnering agency is in the case of EEOC v. M.G. Oil Company.

What happened is this:

In 2013 Kim Mullaney applied for a job at Happy Jack’s Casino (which is owned by M.G. Oil Company) in Sioux Falls, South Dakota. Contingent on passing a routine drug test, she was offered a position with the company.

Before she started work, she was notified that Happy Jack’s had withdrawn her offer because her drug tests had come back positive. Mullaney appealed the decision, claiming the positive result was due to the fact that she took prescription pain medication for her back. Despite this appeal and her offer to provide more information and documentation, Happy Jack’s refused to hire her.

On behalf of Mullaney, the U.S. Equal Employment Opportunity Commission (EEOC) sued the Happy Jack’s owner, M.G. Oil Company, citing the Americans with Disabilities Act (ADA), which prohibits employers from refusing to hire someone because they take prescription drugs for a disability.

In response, M.G. Oil Company filed a third-party complaint against Testpoint Paramedical, the agency they had contracted with to analyze the drug tests of prospective employees. They believed that at Testpoint Paramedical, a medical review officer, who is also a licensed physician, would determine if the positive results could have been caused by the use of legal prescription drugs. That is, M.G. Oil Company wasn’t denying Mullaney employment because they assumed Testpoint Paramedical had already taken the needed steps to determine whether there were extenuating — and legal — circumstances that would lead to a positive drug result.

The fault, they claimed, was with Testpoint Paramedical.

Many would probably agree with this. After all, when an organization hires an outside agency to do any part of their background screening process, they are trusting them to do a thorough and accurate job so they don’t have to concern themselves with it. In this case, the drug test was not as complete or thorough as Happy Jack’s had expected. Yet they trusted Testpoint Paramedical, and as a result, ended up being sued for discrimination.

So who’s at fault here? You might say Testpoint Paramedical; after all, they failed to send Mullaney’s test results to a medical review officer to determine if there was a valid, legal reason for the positive results. In the eyes of the law, they could not be held liable. That means the M.G. Oil Company, and not the agency they contracted with, was liable.

This case highlights just how important it is for an organization to partner with a background screening agency that will do a complete, thorough job every time.

At Trusted Employees, we know that conducting a background test is about much more than verifying information; it involves knowing the legal ins and outs and acting accordingly.