Adverse Action, Dispute Management, and FCRA Compliance
July 2, 2025
Employers often use background screenings to review a candidate’s work experience, education history, criminal record, and more. And when the results of a background check may negatively affect employment, employers must follow the adverse action process before making a final decision.
Adverse action is part of adjudication, which is the process where employers review background check results and make employment-related decisions based on that information. If the information that appeared on a background check leads to a decision against a candidate, including not hiring a candidate or denying a promotion or transfer to a current employee, the federal Fair Credit Reporting Act (FCRA) requires employers to comply with the adverse action process (more on that process below!)
Why is this important for employers?
This is a potential compliance risk and subject of litigation if employers fail to follow each procedure listed for how to conduct fair adverse action.
It is also possible for an error to occur within a background check report. Employers should be trying to do right by their applicants and follow the process accurately in order to make sure they are utilizing the proper information in their consideration.
The Process of Handling Adverse Action
If an employer decides against hiring a candidate based on their background check report, they will then need to initiate adverse action. To help guard against liability and give the candidate an opportunity to respond to the decision, it’s important to carefully follow these steps, as is required for FCRA compliance:
Step 1: Provide Disclosure and Send a Pre-Adverse Action Notice
A pre-adverse action notice informs the candidate that based on information from their background check, the company is considering not moving forward with the employment process. It must be accompanied by a copy of the background check report and the standard document, “A Summary of Your Rights Under the FCRA.”
Some state and local laws (based on the candidate’s or employee’s work location) may require additional disclosures and documentation, such as summarizing state law rights or identifying the criminal record(s) that may result in adverse action.
Step 2: The Waiting Period
Once the employer sends the pre-adverse action notice, they must allow the candidate a “reasonable” amount of time, considered a waiting period, to respond. This gives the candidate a chance to review the background check report and dispute any information that they believe is inaccurate or outdated, or provide evidence of rehabilitation or additional information to consider.
The FCRA doesn’t specify what constitutes “reasonable”, but 7 calendar days is generally considered an adequate waiting period. However, some states and jurisdictions impose longer waiting periods.
Step 3: Review the Report Results & Response
After giving the candidate time to respond, the company needs to review their response and reconsider any information in the background check report that’s been corrected. If they have disputed information, it pauses the adverse action process to allow the consumer reporting agency (CRA) time to investigate and resolve the dispute. This dispute resolution should be done within 30 days.
Based on the dispute investigation and updated findings, if the company determines it’s still appropriate to move forward with adverse action despite the information provided by the candidate, or if the candidate does not dispute the report by the end of the waiting period (or the dispute did not result in an updated report), then the employer can send the post (or final) adverse action notice.
Step 4: Send the Final Notice of Adverse Action
Should the company decide not to move forward with employment, they will need to send a final adverse action notice informing the candidate of the decision. By law, this adverse action notice must inform the candidate of their right to dispute the decision and notify them that they are entitled to another free copy of their background check report within 60 days.
If the background check was conducted through a third-party, such as a CRA, the final adverse action notice must also include:
- -Name, address, and phone number for the CRA that conducted the background check
- -A statement that the hiring decision was made by the employer, not the CRA. Therefore, the CRA cannot provide reasons why adverse action was taken.
Step 5: Properly Dispose of Sensitive Information
A best practice is to keep a copy of all adverse action notices and attachments, and a record of when these communications were sent. Should the company decide to later discard them, federal regulations subject employers to the Disposal Rule. This means that background check results should be disposed of in a secure manner which includes shredding, pulverizing, or incinerating paper documents and permanently erasing digital copies so they can not be read or reconstructed.
Issuing adverse action notices is never a fun experience – for either the company and the candidate. Regardless, it is important to always comply with FCRA regulations. Following FCRA-compliant procedures for adverse action (as well as any local laws relevant to the situation) will ensure that this process remains respectful, professional, and fair.
For more information on everything from pre-adverse action to the final touches of the adverse action process and the Fair Credit Reporting Act, please reach out to an expert, such as a member of our experienced Kredifi Team.
