What Is an Adverse Action Notice and When Is It Required?

What Is Adverse Action?

Under the Fair Credit Reporting Act (FCRA), "adverse action" in an employment context means any decision that negatively affects a candidate or employee based in whole or in part on a consumer report — a background check. This includes:

• Not hiring a job applicant
• Terminating a current employee
• Denying a promotion
• Reassigning an employee to a less favorable role

If any of these decisions are based even partially on a background check, you must follow the FCRA's adverse action process.

The Two-Step Process

Step 1: Pre-Adverse Action Notice

Before you make the final decision, you must notify the candidate that you are considering adverse action based on their report. This notice must include:

• A copy of the background check report
• A copy of "A Summary of Your Rights Under the Fair Credit Reporting Act" (FTC form)
• A statement that you are considering not hiring them based on information in the report

After sending this notice, you must wait a reasonable period of time before finalizing your decision. Courts and the FTC have interpreted this as at least 5 business days, though some employers use 5–10 days as a safe practice.

This waiting period exists so the candidate has an opportunity to dispute inaccurate information with the consumer reporting agency before a final decision is made.

Step 2: Final Adverse Action Notice

If you move forward with the adverse decision after the waiting period, you must send a final adverse action notice containing:

• The name, address, and phone number of the consumer reporting agency that provided the report
• A statement that the CRA did not make the adverse decision and cannot explain why it was made
• A notice of the candidate's right to a free copy of the report within 60 days of the notice
• A notice of the candidate's right to dispute the accuracy of the report with the CRA

Common Mistakes Employers Make

Skipping the pre-adverse action step entirely. Many employers jump straight to a rejection without sending the pre-adverse action notice. This is a clear FCRA violation.

Not waiting long enough. Sending the pre-adverse action notice and the final notice on the same day, or within just 24–48 hours, defeats the purpose of the waiting period.

Combining the two notices into one. The pre-adverse and final adverse action notices must be separate communications.

Not keeping records. You should document that each notice was sent, when it was sent, and via what method.

State Law Considerations

Many states have their own adverse action requirements that go beyond the FCRA. New York, California, and New Jersey, for example, have additional individualized assessment requirements and extended timelines.

Let Us Help

At Do It Right Screening, we provide all required documentation — including disclosure forms, authorization forms, and adverse action notice templates — and can walk you through the process to ensure compliance. Contact us to learn more.