What Employers and Candidates Need to Know About Adverse Action Notices

When employers decide not to hire a job applicant due to information discovered in an employment background check, the law requires sending the candidate an adverse action notice.

In this article, learn what adverse action means, the steps employers must follow to comply with the law, and what candidates should do if they receive an adverse action letter from a potential employer.

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When results of an employer background check prompt a decision to turn down an applicant or dismiss an employee, federal law requires furnishing that information to the candidate in a document known as an adverse action notice. This article addresses the responsibilities of employers delivering adverse action notices, and the rights of candidates who receive them.

“Adverse action” isn’t a term most of us hear every day, and if you’re familiar with it, odds are good you (like Google) associate it with credit scores: Federal law requires lenders to provide an adverse action notice anytime they use a credit score as the basis for turning down an application for a loan or credit card, or charging more than the best-available interest rate.

The same law that governs credit scores—the Fair Credit Reporting Act (FCRA)—applies to employer background checks, and the adverse action rules it imposes on employers are even more complicated than those placed on lenders. Employers who violate those rules face stiff financial penalties and could also open themselves up to unfair-hiring lawsuits.

Our goal in this article is to review the adverse action steps involved in the background check process, and to point out employer responsibilities as well as applicants’ rights.

The Rise of Employment Background Checks

Growing numbers of non-regulated companies, including small-to-midsize businesses, use employment background checks in an effort to pre-empt financial loss, avoid workplace accidents, mitigate liability, and protect company reputation. By providing insight into candidates’ work backgrounds and any history they may have of criminal conviction or incarceration, background checks let employers address potential new hires (or internal candidates for promotion) “with eyes open.” Background checks can ensure all relevant matters are brought to light during the hiring process, so that employer and candidate can address them head-on.

What is an adverse employment action?

Adverse action comes into play if information uncovered in a background check leads to a decision against hiring or promoting a job candidate (or dismissing a current employee).

What is an adverse action letter?

With respect to background checks, an adverse action letter is a written notice required by federal law, delivered in hard copy or electronic form, that informs a job candidate he or she will not be hired for a particular position because of the findings in a background check.

What are the correct steps for delivering an adverse action letter?

To comply with FCRA, employers must follow a strict set of rules when informing a candidate or employee about adverse action decisions related to background checks. But before the background check even begins, FCRA disclosure and authorization requirements specify strict procedures for notifying the candidate or employee, and securing written permission to conduct the check.

1. Provide disclosure and get consent: Once a background check is completed, if any of its findings may be grounds for declining a job application or dismissing an employee, the employer must let the applicant know via a notice called a pre-adverse action letter. (You can download a GoodHire pre-adverse action notice sample here.) Keep a copy of the letter and attachments, and document the date sent. Along with the pre-adverse action notice, the employer, or the company it has hired to conduct the background check, also must provide each candidate with a copy of the background check report and a summary of his or her rights under FCRA.
2. Send pre-adverse action notice: The employer must then give the candidate reasonable time to review the background check report, and allow them to address any information they consider inaccurate. The employer also must give the candidate a chance to offer clarifying information to correct the record or otherwise explain the report’s findings. No specific waiting period is specified under FCRA, but courts have accepted five days as a reasonable amount of time for this process.
3. Review results again: If, after considering the candidate’s response and any corrections to the record, the employer still decides against hiring or promoting the candidate based on the background check contents, the employer must issue an adverse action notice that explains their decision. The adverse action notice may be delivered in hard-copy form or electronically. (You can download a GoodHire adverse action letter sample here.) 
4. Provide notice of adverse action: The adverse action notice must inform the candidate of his or her right to dispute the decision, and offer them a chance to get another copy of their background check report any time within 60 days of receiving the notice. If the employer outsourced the background check to an outside company, such as a Consumer Reporting Agency (CRA), the notice must specify that the hiring decision was made by the employer, not the contractor, and include the name, address, and phone number of the CRA. Keep a copy of the letter and attachments, and document the date sent.
5. Dispose of sensitive documents: The FCRA requires that the employer securely dispose of the background check results. Paper copies must be shredded or incinerated, and all digital copies must be irretrievably erased.

In addition to federal mandates, employers may be subject to additional adverse action notification requirements under state and local fair chance or ban-the-box laws designed to reduce hiring discrimination against ex-offenders. Certain healthcare and financial-industry jobs are off-limits to ex-offenders, but federal equal employment opportunity laws, as well as state and local regulations otherwise forbid excluding job candidates solely on grounds of past legal issues. Employers must obey these laws as well as FCRA, or outsource their background check process to a vendor such as GoodHire that tracks all relevant hiring laws and adapts its process to comply with them.

Adverse Action Compliance Violations

Most FCRA-related lawsuits arise from two primary violations: failure to provide compliant background check disclosure and authorization forms; and failure to follow the adverse action process. In the past few years, employers of all sizes have been hit with class-action lawsuits that allege FCRA violations, and these can add up quickly. Employers can be forced to pay up to $1,000 for each violation, which may not seem like much until you consider that large employers may process thousands of applications a month. Large corporations like Avis and Petco, among others, have settled multi-million dollar lawsuits stemming from adverse-action related missteps. 

The adverse action process is a leading source of confusion for employers and HR pros alike. To help, GoodHire addresses additional employer questions in the blog, 8 Questions About the FCRA’s Adverse Action Requirements.

What do you do if you get a pre-adverse action letter?

If you receive a pre-adverse action notice after applying for a new job or promotion, you’ll likely be disappointed, and possibly depressed or even angry. That’s understandable, but it’s important not to let emotions get the best of you. A clock starts ticking as soon as you receive the notice, and if you act quickly, you may be able to address the employer’s concerns and stay in the running for the job.

Candidate Rights and Considerations

Review the background check report carefully to ensure it accurately represents your history. Note any inaccuracies you find in the report, and collect any evidence you may have (legal documents, people you can use as references to clarify or correct the errors, etc.). If the employer used GoodHire as its background check provider, you can submit this information directly by using the comment fields provided in your digital background check report, or by using GoodHire’s online dispute tool (learn more in our Candidate Resource Center). Otherwise, contact the employer to determine whether to deliver the information in the form of a hard copy or email.If the report accurately addresses past criminal convictions or imprisonment, you should address those issues directly:

• Acknowledge your mistakes, and try to explain what you’ve learned from them and why they won’t prevent you from being effective at the job you’re seeking.
• If you’ve received any training or otherwise learned relevant new skills, consider describing how you’d use them in the job under consideration.
• If you’re comfortable doing so, consider adding a personal note (on lessons learned, steps you’re taking to avoid repeating past mistakes, etc.). It can’t hurt, and could reopen a conversation with the employer.

Although the law requires all pre-adverse action notices to include a summary of your rights under the FCRA, it can’t hurt to familiarize yourself with those rights ahead of time, particularly if your history includes involvement in the criminal justice system. In that case, you should also be aware that you may have additional rights under so-called fair chance or ban-the-box laws designed to reduce hiring discrimination against ex-offenders. These laws vary from one location to another, so check if any apply to your jurisdiction.

If your application is still turned down after you’ve responded to the pre-adverse action notice, review your rights to make sure you’ve been treated lawfully. If not, you can dispute the decision, but if the employer followed the law, even if you feel you weren’t treated fairly, do your best to accept the decision graciously. Let the employer know you hope they’ll consider you for future openings, and keep on looking.

For more information about the adverse action process generally, download our guide, What To Consider When You Decide Not To Hire, which includes a detailed adverse action checklist.

Good News About Bad News

It will never be pleasant to issue adverse action notices, or to be on the receiving end of one. But following adverse action procedures that comply with FCRA and relevant local laws can help keep the process fair, respectful, and professional.

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