What is the Adverse Action Process?

When using background checks for employment decisions, the Fair Credit Reporting Act (FCRA) mandates a specific process if you're considering not hiring, rescinding an offer, or taking any negative action based on the report's findings. This process protects applicants by allowing them to review and dispute information. Failure to comply can lead to significant legal and financial penalties.

In terms of background screening, adverse action is any step an employer takes that negatively impacts a candidate’s employment opportunity based on the information discovered in the pre-employment screening process. 

Some common examples of adverse action include denying an applicant’s employment or offering an applicant a lesser position. When information that appears in a candidate’s background check leads to a decision against the individual, the federal Fair Credit Reporting Act (FCRA) requires employers to comply with a regulated adverse action process. 

Why is this important? 

The adverse action process inherently affects individuals negatively, often resulting in litigation and potential compliance risk. Failure to adhere to the FCRA’s adverse action procedures can lead to serious legal consequences, such as class action lawsuits and major fines. And over the last few years, employers of all sizes have faced class action lawsuits claiming various FCRA violations. In fact, in 2019, major pet supplies brand Petco agreed to pay $1.2 million to settle a lawsuit alleging the brand neglected to provide applicants with the required notices as stated by the FCRA. 

Navigating the Adverse Action Process

You must initiate adverse action if you decide not to hire a candidate based on the information uncovered in a background check report. Employers who choose to initiate adverse action must carefully follow the steps outlined below by the FCRA. 

1. Pre-adverse Action Notice
2. Waiting Period
3. Adverse Action Notice

Let’s explore the three steps further to stay compliant during the adverse action process: 

Step 1: Pre-adverse Action Notice (The "First Notice")

• What: When you choose not to hire a candidate based on their background check, you must provide the applicant with a pre-adverse action notice. This pre-adverse action notice is also referred to as a pre-adverse action letter and informs the candidate that you are considering not moving forward with their employment process.
• When: BEFORE you make a final negative decision based (in whole or in part) on a background check.
• What to Send:
  • A written notice stating you are considering adverse action.
  • A complete copy of the background check.
  • A copy of "A Summary of Your Rights Under the Fair Credit Reporting Act" (ensure it's the current CFPB version). 
  • Contact information for the Consumer Reporting Agency (CRA) that provided the report, in this case, Verified First. 
  • A statement that the CRA did not make the decision and cannot explain why. 
• Purpose: To allow the candidate to review their report for inaccuracies and dispute them with the CRA. 

Step 2: The Waiting Period

• What: Once you provide the applicant with the pre-adverse action notice, the FCRA requires you to wait a “reasonable” amount of time before sending your final decision. This waiting period gives the applicant time to review the results of their background check and dispute any inaccurate information. 
• How Long: The FCRA requires a "reasonable amount of time." While not strictly defined, industry best practice, supported by FTC guidance, suggests at least five to seven business days after the candidate is presumed to have received the pre-adverse action notice. Some jurisdictions allow for a longer waiting period depending on how the notice was delivered to the candidate.
• What to Do: Hold the hiring decision. If the candidate disputes information with Verified First, you generally must wait until the CRA completes its reinvestigation (typically up to 30 days). 
• Purpose: To give the candidate a genuine opportunity to respond to and correct any errors. 

Step 3: Final Adverse Action Notice (The "Second Notice")

• What: If you opt not to move forward with the candidate, you must send the individual an adverse action notice informing them of your final decision. The adverse action notice needs to inform the applicant of their right to dispute and their right to obtain another free copy of their background check report within 60 days. 
• When: After the waiting period (and any dispute resolution, if applicable), if you decide to proceed with the adverse action.
• What to Send:
  • A clear statement of the adverse action taken. 
  • The name, address, and phone number of the CRA. 
  • A statement that the CRA did not make the decision and cannot provide specific reasons. 
  • Notice of the candidate’s right to obtain an additional free copy of their report from the CRA within 60 days. 
• Notice of the candidate’s right to dispute the accuracy or completeness of the report with the CRA. 

After you have provided an applicant with a compliant adverse action notice, the FCRA requires that you dispose of all sensitive information securely. The Disposal Rule outlines the proper ways to destroy background checks, adverse action documentation, and information, including shredding, pulverizing, or incinerating paper documents and permanently erasing digital copies so they cannot be read or reconstructed. 

Note: Employers may be subject to additional adverse action requirements under Fair Chance and Clean Slate legislation. You are responsible for understanding the rules and regulations applicable to your organization. 

How to Take Pre-Adverse and Adverse Action in the Verified First Portal 

Verified First allows you to automate the adverse action process to reduce manual tasks, provide transparent and positive candidate experiences, and support your compliance goals. Users can easily initiate the entire adverse action process within the Verified First portal and customize it to fit their needs. Refer to the articles below for steps on how to complete this process.

How to Take Pre-Adverse Action on a File

What is the Waiting Period in the Adverse Action Process?

How to Take Adverse Action on a File