Adverse Action Notice

What counts as adverse action

Under the FCRA, adverse action in employment means denying employment or any other decision that adversely affects a current or prospective employee, when it is based in whole or in part on a consumer report from a consumer reporting agency. That includes rescinding a conditional offer, denying a promotion or transfer, and firing an employee based on a report.

The process applies to reports from a background check vendor: criminal history, motor vehicle records, credit reports, employment and education verifications and drug test results when supplied by a consumer reporting agency. It does not apply when the employer does the checking itself, such as calling a reference directly, though state laws may still apply. If the report played any part in the decision, even alongside other reasons, follow the process.

The two-step process

Step 1: Pre-adverse action notice. Before the decision is final, send the person:

• A notice that you are considering adverse action based on the report.
• A copy of the consumer report.
• The CFPB's "A Summary of Your Rights Under the Fair Credit Reporting Act."

Wait period. Give the person a reasonable time to review the report and dispute errors or explain. The FCRA does not set a number of days; five business days is a commonly used minimum based on regulator guidance, and some state and city laws set longer periods.

Step 2: Adverse action notice. If the decision stands, send a final notice that includes:

• The name, address and phone number of the consumer reporting agency.
• A statement that the agency did not make the decision and cannot explain why it was made.
• Notice of the person's right to a free copy of the report from the agency within 60 days.
• Notice of the right to dispute the accuracy or completeness of the report with the agency.

The FCRA allows notices to be oral, written or electronic, but put them in writing so you can prove they were sent. Use our adverse action notice template for the letters and the adverse action email for the covering message.

A worked timeline

Jasmine Carter receives a conditional offer as a home health aide on Monday. On Wednesday the background report shows a conviction that might disqualify her under the agency's policy.

• Wednesday: the HR coordinator sends the pre-adverse action notice, the report and the summary of rights by email, and pauses the start date.
• Friday: Jasmine replies that the conviction belongs to someone with a similar name and gives her date of birth.
• Following Monday: HR asks the vendor to reinvestigate. The vendor confirms the record was mismatched and issues a corrected report.
• Following Wednesday: Jasmine starts work.

Had the record been hers, HR would have done an individualized assessment and, if the offer was withdrawn, sent the final adverse action notice after the waiting period. Mismatched records are common enough that this step regularly saves good hires.

State and local fair chance rules

Many states and cities add steps on top of the FCRA for criminal history decisions. California's Fair Chance Act requires an individualized assessment, a preliminary notice that identifies the conviction, at least five business days to respond (with more time if the applicant is disputing and getting evidence), and a final written notice with specific content. New York City's Fair Chance Act requires a written analysis under New York's Article 23-A factors and a Fair Chance Notice, with at least five business days to respond. Illinois, Washington and others have their own rules.

The EEOC's guidance on arrest and conviction records under Title VII recommends targeted screening that considers the nature and gravity of the offense, the time elapsed and the nature of the job, plus an individualized assessment. See fair chance hiring for how these rules fit together.

Why it matters at volume, and common mistakes

FCRA violations are a frequent class action target, because a process error repeats for every applicant. Willful violations can bring statutory damages of $100 to $1,000 per person, plus punitive damages and attorney fees. A staffing firm processing 20,000 background checks a year with a flawed template has a very large exposure.

The mistakes that cause most claims:

• Skipping the pre-adverse step and sending only a rejection.
• Making the decision final before the waiting period ends, for example by filling the requisition the same day.
• Missing the summary of rights or a copy of the report.
• Using a generic rejection email that hides the real reason.
• Treating a report the employee disputes as final without asking the vendor to reinvestigate.

Automate the notices from your background check workflow, lock the requisition hold until the waiting period ends, and audit a sample of files every quarter. This page is informational, not legal advice; rules vary by state and city.