The adverse action process is the legally required procedure employers must follow when denying employment based on background check findings.
You need to stay compliant with these regulations to protect your company from potential lawsuits and treat candidates fairly throughout the hiring process.
At iprospectcheck, we specialize in background screening compliance, and we’ve put together this guide to walk you through the entire adverse action process.
Key Takeaways
- The adverse action process is the legal procedure you must follow when rejecting a candidate based on background check findings, and skipping it can result in costly lawsuits and discrimination claims.
- You need to complete three critical steps: send a pre-adverse action letter with the full background report and FCRA rights summary, wait at least 5 business days for the candidate to respond, then send a final adverse action notice if you proceed with your decision.
- iprospectcheck can automate your entire adverse action process, ensuring you stay compliant while saving time and reducing your legal risk.
What is Adverse Action?
Adverse action is any decision you make based on a background check that adversely affects an applicant’s employment possibilities with your company.
For example, this could mean:
- Not hiring a candidate
- Rescinding a conditional job offer
- Denying a promotion
- Demoting an employee
- Terminating someone’s employment
Because adverse action negatively impacts consumers, it often leads to litigation.
To minimize the risk of litigation and non-compliance for your company, and to protect consumers, the Fair Credit Reporting Act (FCRA) has established a set of procedures all companies must follow if they choose to take adverse action of any kind against an applicant.
The Adverse Action Process: 3 Steps to Follow to Stay Compliant
Step 1. Pre-Adverse Action
If a pre-employment background check uncovers information that leads you to decline a job applicant, you must provide the applicant with a written notice, i.e., a pre-adverse action letter.
It’s a written notice letting the candidate know you’re thinking about taking adverse action against them based on what the background check revealed.
It can be delivered via electronic or hard copy form.
Along with this letter, you need to send the candidate a complete copy of their actual background report, not a summary or screenshot of it.
You must also include the current CFPB-approved version of the “Summary of Your Rights Under the FCRA,” since using an incorrect or outdated version can expose you to legal action.
When a candidate receives the pre-adverse action notification, they have the right to ensure their information on the background check is correct and contest any inaccurate data.
Quick Pre-Adverse Action Checklist:
- Pre-Adverse Action Letter – Send a written notice (electronic or hard copy) informing the candidate you’re considering adverse action based on their background check
- Complete Background Report – Include the full, actual consumer report you relied on (not a summary or screenshot)
- FCRA Rights Summary – Attach the current CFPB-approved version of “Summary of Your Rights Under the FCRA” (verify it’s the latest version to avoid legal issues)
Step 2. Waiting Period
The FCRA requires you to wait “a reasonable amount of time” before sending the final adverse action letter.
The industry standard is typically 5 business days.
This waiting period ensures the candidate has adequate time to review their report and dispute any errors, which is what courts expect you to allow.
You can’t finalize any decision during this period.
Step 3. The Adverse Action Notice
If the candidate responds to your pre-adverse action letter and you still decide not to hire them based on the background check, you must send a final adverse action notice.
You can deliver this digitally or as a hard copy.
This adverse action notice must:
- Clear decision statement – Explicitly state what action you’re taking (e.g., “employment not offered”)
- CRA contact information – Provide the name, address, and phone number of the background check company that prepared the report
- CRA disclaimer – Explain that the screening company didn’t make the hiring decision and can’t explain why you made it
- Dispute rights – Inform the candidate that they can dispute the accuracy or completeness of the report directly with the CRA
- Free report notice – Let them know they can request another free copy of their report within 60 days
Pro tip: If you want to simplify the adverse action process, iprospectcheck can help. Our technology can automate the Adverse Action notification delivery processes for you.
Know Before You Hire
Common Mistakes in the Adverse Action Process
Most adverse action lawsuits stem from a handful of preventable errors.
Courts don’t offer much leniency on these issues, so it’s crucial to get them right.
Critical FCRA violations to avoid:
- Rushing the process – Sending both notices on the same day or acting before the waiting period ends
- Combining notices – Using one letter that tries to serve as both pre-adverse and final adverse action
- Relying on verbal communication only – Delivering adverse action news over the phone or in person without written documentation
- Incomplete documentation – Forgetting to attach the complete background report or the current FCRA rights form
These are considered strict-liability violations, which means employers can face penalties even if no actual harm occurred.
Ignoring EEOC requirements:
Many employers assume that following FCRA procedures means they’re fully compliant, but that’s not true.
You can check every FCRA box and still face discrimination lawsuits if you violate EEOC guidelines:
- Skipping individualized assessments – Failing to consider each candidate’s unique circumstances and situation
- Not proving job-relatedness – Being unable to explain why the background issue actually matters for the specific role, or disqualifies the candidate from this particular position
- Using blanket disqualification policies – Automatically rejecting anyone with a criminal record, which violates civil rights laws
The Small Business That Tried to Skip Adverse Action, and Why It Mattered
Many small business owners underestimate the importance of Adverse Action, assuming it’s a formality meant for larger companies. The real case below shows how skipping it almost cost one fast-growing business far more than time.
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Early in our company’s history we met a small business owner who was overwhelmed by growth, pressed for time, and juggling every part of the hiring process. When a background report returned with a criminal record, he explained that he planned to sidestep the Adverse Action process entirely. His plan was simple. He would tell the candidate that he had already filled the job and moved on thus avoiding a difficult discussion.
He was not malicious. He was not trying to hide anything. He just did not understand the gravity of the requirements of the FCRA. Like many small businesses, he believed that formal legal procedures were something only large corporations had to worry about. He saw the process as red tape.
We walked him through the law and the risk. The Adverse Action process exists so that candidates have a fair chance to correct inaccuracies, provide context and be treated with basic transparency. Countless lawsuits have shown what happens when this step is skipped. The moment an employer makes a decision that is even partly influenced by information in a background report, the protections of the FCRA activate. Notice. A copy of the report. A summary of rights. A reasonable opportunity to respond. These steps are not technicalities. They are consumer protections designed to prevent wrongful denials of employment.
To his credit, he listened. We gave him the tools to automate the entire process so he would not have to manage it manually. He implemented it immediately and never looked back. That decision turned out to be a turning point for his company. He avoided the legal exposure that has taken down many businesses. He built hiring practices that scaled with his company. That same client has grown exponentially. He is successful, respected, and grateful that we guided him away from a mistake that could have cost him far more than time.
The Adverse Action process serves a purpose that is bigger than compliance. It protects fairness in hiring. It gives applicants a moment to be heard. It reduces the chance that an employer acts on incomplete or inaccurate information. When done correctly, it also strengthens trust between employers and candidates. People respond differently when they feel the process is honest and transparent.
For consumer reporting agencies, it is impossible to ignore the legal and reputational risk that comes from a client refusing to follow Adverse Action requirements. CRAs are named in lawsuits when the process is ignored. They are asked to explain their role. They are expected to uphold industry standards. A responsible CRA must insist that clients follow the law because the law is clear and the alternatives are costly.
In the hiring world, compliance does not slow business down. It protects its ability to grow. This client is living proof. He started as a small operation that saw compliance as a burden. Today he is a thriving enterprise that sees it as a foundation. We are proud to have helped him make that shift and proud of the many years of partnership that have followed.
Let Us Help You Stay Compliant
You don’t want to learn about adverse action mistakes through a lawsuit.
Audit your procedures today and safeguard your company while maintaining a fair, objective hiring system.
Working with a reputable, knowledgeable background screening partner makes compliance easier and more reliable.
Contact iprospectcheck and learn how we can simplify compliance for you.
DISCLAIMER: The resources provided here are for educational purposes only and do not constitute legal advice. Consult your own counsel if you have legal questions related to your specific practices and compliance with applicable laws.
FAQs
How long does the adverse action process take?
The adverse action process typically takes at least 5 business days, but it can last longer depending on the situation.
Under the Fair Credit Reporting Act (FCRA), employers must first send a pre-adverse action notice before making a final hiring decision. This notice gives the applicant time to review the background check report and dispute any inaccurate or incomplete information.
Most employers allow 5 business days for a response, though some may allow up to 7–10 days to be cautious or if a dispute is filed. If the candidate disputes the report, the process can take several additional days or weeks while the background check company investigates and verifies the information.
Only after this waiting period can the employer issue a final adverse action notice if they decide not to move forward.
I received a pre-adverse letter - what should I do now?
If you are a candidate and received a pre-adverse letter from your potential employer, keep these tips in mind:
- Check the report to make sure it’s accurate.
- Make a note of any inaccuracies you find in the report. Gather any evidence you have, including personal references and legal documents, that will help you resolve errors.
- Contact the employer to determine how you should deliver your information – via email or in the form of a hard copy.
- If the report accurately details your past criminal history or convictions, address those points directly:
- Be honest about your mistakes.
- Explain to your employer what you learned from the experience, and why your past will not prevent you from thriving in the new position.
- If you’ve obtained new training or skills, consider describing how you’d use them in the position.
- Consider including this information in a personal note, which could reestablish your line of communication with the employer.
While the law requires the employer to include a summary of your rights as an applicant in any pre-adverse action notices they issue, it’s wise to educate yourself about your rights, as well.
You may also have additional rights under fair chance or ban-the-box laws, which seek to limit hiring discrimination against people with past convictions or arrests.
If the employer denies your application, even after you’ve responded to the pre-adverse action notice, you can review your rights one final time.
If you believe the employer treated you unlawfully, you have the right to dispute the decision.
If the employer followed the law, though, you have no choice but to accept the decision.
Why might an employer decide not to hire me after a background check?
You don’t actually pass or fail a background check. Employers review the findings and make a judgment call about whether anything disqualifies you from the position.
Common reasons they might not hire you include:
- Criminal history that’s relevant to the position
- Differences between what you claimed and what shows up in your work or education records
- Errors or mismatches in your personal information
- A bad driving record (for jobs that require driving)
- Licenses or certifications that are expired or cannot be confirmed
- Credit issues (only where employers are legally allowed to consider them)
Problems often come from mistakes or old information in the system, not real issues with your background.
That’s exactly why you should run a personal background check to see what employers will find, then correct any errors before you apply.
Get your personal background check from iprospectcheck and address red flags before they cost you a job offer.
