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.
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Ask to see the disclosure and authorization forms, the pre-adverse and adverse action templates, and whether the platform automates the waiting step between them.
Frequently asked questions
What are examples of adverse action?
The FTC's examples are rejecting a job application, reassigning or firing an employee, and denying a promotion. Any of these counts as adverse action when it is based, even in part, on information in a consumer report such as a background check.
Does a pre-adverse action notice mean I won't get hired?
Not yet. The pre-adverse notice comes before the final decision. It includes a copy of the report and a summary of your rights, so you can review the report and tell the employer if something in it is wrong.
Does an adverse action notice mean I was denied?
Yes. The adverse action notice comes after the employer has decided against you based on the report. It names the screening company, says that company did not make the decision, and explains how to dispute the report and get a free copy.
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. The same rules cover current employees, such as a promotion, a reassignment or a termination, whenever a consumer report influenced the decision. Each of these goes through the same two notices.
What must a pre-adverse action notice include?
According to the FTC, the employer must give the applicant or employee a copy of the consumer report it relied on and a copy of A Summary of Your Rights Under the Fair Credit Reporting Act, before the decision is final. The pause gives the person a chance to review the report and dispute anything inaccurate.
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