What Employers Need to Know About Adverse Action Notices

March 7, 2017

 If your organization uses background checks to qualify candidates for employment, chances are you will eventually find yourself dealing with adverse action notices.

Adverse action refers to any action taken which will negatively affect someone's employment due to the results of a background report.   

As background checks have become more widespread among companies screening job candidates for employment, the plaintiff’s bar has begun targeting employers who may not be fully living up to their responsibilities under the federal Fair Credit Reporting Act (FCRA). Companies found to be in violation of the FCRA due to non-compliant employment screening practices can quickly rack up hefty fines and penalties.   


The FCRA allows job candidates to sue employers for damages, and a claimant who successfully sues is entitled to recovery of court costs and reasonable legal fees. The law also permits claimants to seek punitive damages for deliberate violations, and the CFPB, Federal Trade Commission (FTC), other federal agencies, and individual states may likewise sue employers for non-compliance and seek civil penalties.

That’s the bad news. The good news is the FCRA outlines a 3-step process for companies to follow when conducting background checks, including what to do when checks result in a decision that negatively impacts a hiring decision – an event known as an “adverse action” under the FCRA.

STEP 1. Prior to taking an adverse action, written notice must be provided to job candidates informing them that the employer is considering a negative hiring decision.  Candidates must be provided with a copy of “A Summary of Your Rights Under the Fair Credit Reporting Act” published by the Consumer Financial Protection Bureau (CFPB).  They must also be provided with a copy of the background report that the employer is using to make the decision. This gives job candidates the opportunity to review the information gathered during the background check for accuracy.

STEP 2. Secondly, the employer must wait a “reasonable period of time” for the job candidate to:

  • Receive the adverse action notice.  
  • Notify the employer or the background screening company of any intent to dispute the information in the background report.

The regulation does not define this time period, but generally an employer should wait no fewer than five business days.

STEP 3. Finally, after the decision is made to take an adverse action, the employer must send the job candidate a “Final Notice of Adverse Action” informing the applicant that the employer has made an absolute decision.

The plaintiff’s bar has begun aggressively pursuing these cases, and unfortunately, most cases have assumed an aggressive posture relative to its compliance mandate, which makes it critical for businesses to follow the law on employment background checks.

Orange Tree manages this for you by offering candidate and employee background checks both compliant with current regulatory requirements and tailored to our clients’ particular lines of business. Orange Tree can mail adverse action notices on our clients’ behalf freeing your organization of this administrative burden.  Orange Tree also investigates any candidate disputes arising from background checks or adverse action notices, keeping you up-to-date on any changes that occur to the findings of candidate background checks.

This information is not legal advice, either expressed or implied. Orange Tree recommends you seek the advice of your corporate legal counsel for all aspects of employment law.

How Orange Tree Can Help: 

If you decide to not hire a candidate based on the results of a consumer background report or drug test, Orange Tree is able to manage the “adverse action” process from start to finish:

  • Adverse action letters are completely customizable
  • Timeframe for sending adverse action letters can be determined by your organization
  • Orange Tree performs the administrative tasks of preparing and mailing adverse action letters and associated notices
  • Your organization enjoys full visibility into the process from start to finish

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Topics: Human Resources, Background Screening, Compliance