Hiring decisions can be tough enough without adding legal risk to the mix. One area where employers often stumble is in handling “adverse actions” connected to background checks. Knowing what counts as an adverse action, why it matters, and how the law applies is critical to protecting both your business and your candidates.
What Counts as an Adverse Action
An adverse action is any decision you take that negatively affects a candidate or employee based on information from a background check. It isn’t just refusing to hire someone. It can include withdrawing a job offer, demoting or reassigning an employee, denying a promotion, or even ending a contract. If the decision is tied to a report from a background screening company—a consumer reporting agency (CRA)—you’ve entered the realm of adverse actions under the Fair Credit Reporting Act (FCRA).
Why It Matters
The FCRA sets specific rules to ensure fairness and transparency when background information is used in employment decisions. When you act on a background report, you can’t just tell a candidate, “Sorry, you’re not a fit.” You must follow a structured process designed to give the person a chance to review the information and respond. Skipping those steps can lead to lawsuits, fines, and damage to your reputation.
The Legal Steps You’re Required to Take
If you’re using a CRA to conduct background checks, the FCRA requires a two-step notice process:
- Pre-Adverse Action Notice: Before taking action, provide the candidate with a copy of the background report and a “Summary of Rights Under the FCRA.” This gives them a chance to dispute inaccuracies.
- Waiting Period: Allow a reasonable time (often five business days) for the individual to respond or clarify.
- Adverse Action Notice: If you proceed with your decision, send a final notice that includes the CRA’s contact information and informs the person of their right to dispute the report.
These steps protect candidates from incorrect or outdated information and protect you from claims of unfair treatment.
Avoiding Common Pitfalls
Employers often trip up by burying disclosures inside job applications, failing to give proper notice, or acting too quickly after sending the pre-adverse notice. Another mistake is using online “DIY” checks instead of accredited CRAs, which can create compliance gaps. Following the FCRA process consistently for every applicant—no matter the role—demonstrates fairness and helps build trust.
The Bottom Line
Background screening adverse actions aren’t just paperwork—they’re about respecting the people you’re evaluating. When handled properly, they show that your company values transparency, fairness, and compliance as much as it values finding the right hire.