Any time a background check influences a hiring decision, the adverse action process applies. It requires notice, timing, and documentation, and skipping a step can create real risk for your organization, even when the intent behind the decision feels reasonable.
This isn’t a theoretical concern. In 2025, several large employers faced costly settlements after applicants claimed they were denied jobs without proper adverse action notices or an opportunity to respond to their reports. In multiple cases, the issue was not the accuracy of the background check itself, but the process around how the decision was communicated.
In this blog post, I walk through what adverse action actually means, what employers are required to do under the Fair Credit Reporting Act (FCRA), and how to handle these moments in a way that is compliant, fair to candidates, and defensible if questions ever arise.
What is Adverse Action?
When researching adverse action, you might come across references to banks, credit scores, housing, insurance, and employment. While these situations differ, they all involve consumer reports, which is why they must comply with the adverse action process under the FCRA. In the workplace context, a consumer report is equivalent to an employment background check.
Adverse Action refers to any decision that negatively impacts employment based on information uncovered during the screening process. This includes:
- Rejecting a job applicant
- Terminating a current employee
- Denying a promotion
- Any other employment decision negatively influenced by the consumer report
Adverse action is designed to protect individuals from unjust outcomes, especially in cases of identity theft or errors in their reports.
Failure to comply with adverse action requirements exposes your organization to fines and lawsuits from individuals, the Consumer Financial Protection Bureau (CFPB), the Federal Trade Commission (FTC), and other regulatory bodies.
What is Required for Employers?
Now that we’ve covered the basics let’s walk through the steps you must follow to ensure compliance.
Step 1: Pre-adverse Action Notice
A pre-adverse action notice or letter is the first step in the adverse action process. This notice informs the candidate that you may not proceed with their employment, promotion, etc., based on the information found in the background check. The information you have based this decision on must be relevant to the job itself and an inability to perform the job.
Additionally, either the employer or the screening company should send the candidate a copy of the background check and a summary of their rights.
Step 2: Waiting Time
After issuing the pre-adverse action notice, you must wait a reasonable amount of time—typically 5-7 business days—to give the candidate an opportunity to review the documents and dispute any inaccuracies. During this period, the candidate can contact the employer or background check provider to address these issues.
There are several reasons for discrepancies in a consumer report that the candidate can dispute including:
- Identity theft
- Outdated information reported by a credit reporting agency or credit score
- Transcription or typing errors within courthouse reports
- Confusion resulting from a common name
Step 3: Review Candidate Response
If the candidate disputes the report, an investigation must be conducted by the consumer reporting agency (background screening provider), which has up to 30 days to resolve the issue. The hiring process should be paused during this time, and the position should remain open until the investigation is complete.
Step 4: Adverse Action Notice
If no dispute is raised, or once the investigation is resolved, you can proceed with the final adverse action notice. This notice must include:
- The reason for not moving forward with employment
- Information on the candidate’s right to dispute and obtain a free copy of their background report within 60 days
If you use a third party for background screening then you must also include:
- Name, address, and contact information for the agency
- A statement acknowledging that the hiring decision was made by the employer and not by the third-party agency
Step 5: Dispose of Sensitive Information
After the final notice is delivered, there’s still some clean up left to do to remain compliant. The FCRA requires that all sensitive information be disposed of properly as outlined in the Disposal Rule. This includes directions for both paper and electronic documents.
Note: There may be additional steps to the adverse action process, depending on the state.
Adverse Action Best Practices
To ensure your organization stays compliant and avoids legal pitfalls, it’s essential to follow best practices when handling adverse action. Here are some key strategies to keep in mind:
- Give a Heads Up: Inform candidates that you are conducting a background screening and ensure they are aware that the results could impact their employment before getting their written consent.
- Keep Proper Documentation: To avoid lawsuits or compliance document every step of the process and keep copies until the process is complete.
- Watch the Time: Set reminders and keep track of how long each step is taking. You must do this to maintain compliance with required deadlines and wait times.
- Be Aware of State and Local Laws: Work with a third party or legal team to ensure compliance with unique state and local requirements. This can apply to the required waiting time, documentation required, and additional steps
- Stay Informed on Fair Chance Hiring Laws: These laws are continually evolving, so it’s important to stay up to date.
- Work with a Third Party: One of the easiest ways to remain compliant is to work with a background screening provider that can handle these requirements for you.
Ready to Take Action?
If you’re feeling a little overwhelmed, you’re not alone. Compliance requirements can add real pressure to an HR role, especially when the rules shift by state, county, or even city. Keeping track of those differences while still moving hiring forward is no small task.
It helps to remember that these regulations exist for a reason. When followed correctly, they protect candidates from unfair treatment and protect employers from unnecessary risk, disputes, and costly mistakes.
If you’re looking for a way to take some of that weight off your plate, working with a background screening partner can make a meaningful difference. Mitratech helps organizations manage the most complex parts of compliance, including the adverse action process, with workflows designed to be clear, consistent, and defensible.
With AssureHire, initiating adverse action is built into the screening process, so required notices, timing, and documentation are handled correctly without added manual work. If questions come up, you have real people to support you along the way.
If you’d like a deeper refresher on how FCRA requirements apply to background checks, this guide walks through the fundamentals in plain language: The Best FCRA Compliant Background Checks.
If you’re ready to see how compliant screening can work in practice, you can explore AssureHire in a live demo and decide if it’s the right fit for your team.
Frequently Asked Adverse Action Questions
An adverse action notice is a formal notification from an employer indicating that a negative employment decision may be made based on information found in a background check.
You received an adverse action notice because information from your background check has raised a red flag that could negatively impact your employment if not resolved.
Examples include rejecting a job applicant, terminating an employee, or denying a promotion based on background check results.
Not necessarily. It indicates that a negative decision may be made, but you have an opportunity to dispute the findings before a final decision.
If you receive a pre-adverse action notice, review the background check provided and dispute any inaccuracies with the employer or screening agency.
Employers should issue a pre-adverse action notice, allow time for the candidate to respond, review any disputes, and then issue a final adverse action notice if necessary.
Immediately review the background check for errors, contact the employer or screening agency to dispute inaccuracies, and understand your rights under the FCRA.
You can refer to this Summary of Your Rights Under the Fair Credit Reporting Act from the FTC to learn more about employee rights.
