Definition
Adverse action is any unfavorable employment decision, such as refusing to hire, denying a promotion, reassigning, or terminating, taken because of information in a background check or consumer report. In the United States, the Fair Credit Reporting Act requires employers to follow a defined notice process before and after taking it.
Also known as: adverse employment action, pre-adverse action notice
How it works
When an employer plans to decide against a candidate or employee based even partly on a consumer report, it first sends a pre-adverse action notice. The FTC states this notice must include a copy of the report and a copy of the summary of rights under the Fair Credit Reporting Act. The delay gives the person time to review the report and correct inaccuracies before the decision is final.
If the employer then proceeds, it delivers a final adverse action notice, orally, in writing, or electronically. Per the FTC, it must name and give contact details for the reporting company, state that the reporting company did not make the decision and cannot explain it, and describe the right to dispute the report and get an additional free copy within 60 days. HR systems usually automate these templates and log timestamps.
Example
A logistics company's background check returns a record that would disqualify a driver finalist. HR sends the finalist the report and rights summary, waits for a response, and only then sends the final notice naming the screening company.
How it differs from similar terms
Adverse Action vs Applicant Tracking System. An applicant tracking system is the workflow tool that often automates adverse action notices. Adverse action is the legal event and process the notices document.
Related terms and guides
Frequently asked questions
What is the difference between pre-adverse and adverse action notices?
The pre-adverse notice comes first and includes the consumer report and the summary of rights, giving the person a chance to dispute errors. The adverse action notice comes after the final decision and identifies the reporting company and the person's dispute rights.
Does adverse action only apply to hiring decisions?
No. Consumer report rules also reach decisions about current employees, such as promotion, reassignment, or termination, whenever a report influenced the outcome. Any unfavorable decision that relied on the report should go through the same notice steps. HR systems often automate the templates and keep timestamps for each step.