Adverse Action: Common mistakes in the Process and the Way Forward

Adverse Action: Common mistakes in the Process and the Way Forward


Discrimination and unlawful practices have been pervasive in the American employment system right from the recruitment process. According to a Good Jobs First survey , 99 percent of Fortune 500 corporations have settled at least one discrimination or harassment case since 2000. 

Here are some popular cases that landed the corporates in trouble –  

  • Amazon was accused of racial hiring policies, discriminatory COVID-19 safety procedures, and discrimination against a pregnant transgender man.
  • A federal complaint was filed against Facebook, alleging discrimination against Black employees and candidates. 
  • McDonald ’s faced the heat when it was accused of racial discrimination by franchisees. 
  • In 2013, a job applicant claimed that Abercrombie &Fitch had engaged in unlawful religious discrimination against her during the recruitment procedure. As a result, the company was liable to pay USD 71000 for the settlement of each case incurring losses.

Considering these recurring situations harming employers and candidates alike, it has become critical to focus adequately on the legal side of ethical recruitment and dismissal.

An employment background check contains specific information about the candidate, including credit history and criminal records. The results may sometimes raise red flags that can derail the employer ’s plans to hire a candidate. If a candidate fails a background check, it is essential to consider the nature of the conclusions drawn. 

One incident, or ‘hit’, may not instantly indicate a troublesome background check result, even more so if it occurred many years ago and was of minor severity. 

Offenses that are recent or violent can be more alarming. 

The background check reports are governed by federal anti-discrimination legislation, enacted by the Equal Employment Opportunity Commission (EEOC), and the Fair Credit Reporting Act (FCRA), further enforced by the Federal Trade Commission (FTC).

Adverse action pertains to an employer ’s choice to not hire a candidate or to fire or demote an employee based on the background data collected from an employment background verification or consumer report. Hence, a premature, unwarned, or unfounded move to engage in adverse action could put you at risk of legal action as the candidate could claim discrimination under the Fair Credit Reporting Act (FCRA).

The adverse action process is inherently harmful to consumers, making it a frequent target for litigation and compliance risk for the enterprise. If one does not follow the guidelines for conducting a fair adverse action, they may face a civil lawsuit.

When doing so, it is critical to discuss the adverse action process with the individual impacted. Such candidates must understand their rights, employer rights, and the process by which the final hiring decision is made.

Thus, adverse action ensures that the employers and candidates are protected from unlawful discrimination.

Here are some critical things to understand about the adverse action process:

  • Only with the individual ’s approval should organizations conduct background checks.
  • Organizations must abide by the FCRA ’s legal disclosure and authorization requirements for pre-background checks. The disclosure form must express the employer ’s intention to use background check information to make employment-related decision-making.
  • An employer must always confirm with the background check subject that they have the permission to conduct the checks and generate a consumer report under the FCRA before getting started. 
  • Once it is determined that additional review is required for a candidate, one must formally notify the candidate. Applicants must be given sufficient time to review, verify, or nullify the consumer report findings.
  • Where relevant, one must conduct an individualized assessment that takes the candidate’s unique situation into perspective.
  • It is essential to ensure that the policy specifies how much time candidates will have to respond during the adverse action process. Many organizations offer five days, but some may choose to be considerate.
  • One must take time to consider all the information before taking action because candidates may occasionally give updated information to clarify the previous background check outcomes.
  • If a candidate can explain or dispute the results of a background check, the employer may be able to proceed with the hiring process. 
  • If they cannot, and one has consulted with their hiring policy advisers, then the employer may take adverse action against the job applicant.
  • One must always equip the candidate with an adverse action notice with the below details. 
  1. The details of the consumer reporting agency (background screening provider) along with the basic information like name, address, and phone number.
  2. An affirmation that the third-party vendor generating the background verification report lacks the authority to decide whether or not to hire someone. When making such a negative judgment based on the background check report, the employer must act alone and must state explicitly to the candidate the reason(s) for the decision.
  3. A notice with the candidate ’s right to challenge the accuracy or completeness of any information by the background check agency.
  4. The notification of their right to receive an additional free report from the company if they request the same within 60 days.

Adverse action is unfavorable for both the candidate hoping to get hired and the employer hoping to gain a valuable employee. It ’s essential to remember that employers are responsible for a safe and productive workplace, and employees have the responsibility to benefit the organization ’s interests. To hit the right balance, employers must sometimes make tough decisions based on a background check.

When faced with the decision to take adverse action, it is less distressing if there is a clear policy and the necessary resources to assist. One can be more confident that they haven ’t missed any required steps if their background screening policy underlines the course they should take in case a candidate fails their background check.

If an employer is considering taking adverse action, they should be aware of the following common errors made in the process:

  • The employer may have missed issuing the Pre-adverse Action Notice.
  • This error is more common when an employer does not outsource to a reputable background check company. If individuals fail to issue a pre-adverse action notice and instead go directly to the adverse action notification, the consumer will be unable to challenge.
  • There may be information missing from the Pre-adverse Action Notice.
  • The Adverse Action Notice must include a duplicate of the FCRA summary of rights and a copy of the background report. One could be in serious breach of the FCRA if either of these is missing.
  • The employer may not give sufficient time to the candidate before granting the final Adverse Action Notice.
  • If an employer is under pressure to fill a position quickly, they may rush through the adverse action process and fail to wait long enough before submitting the formal notification. The error is popular among recruiters eager to move on to the next candidate.
  • Customer complaints may not be handled in a timely fashion.
  • While background report companies are legally required to investigate a dispute within 30 days, an efficient organization will expedite this process. It is not something one should put off until after you ’ve sent your adverse action notification.
  • If there is a problem as a result of a credit card reporting inaccuracy, one must seek legal counsel as early as possible.
  • The employer may not be abiding by fair chance hiring laws.
  • Fair Chance Hiring laws are constantly evolving, implying the need for adverse action procedures will continue to develop. Working with a third-party consultant can help ensure that the employer follows proper and up-to-date adverse action procedures.

To help you build a detailed background screening strategy and process, collaborate with a background screening partner such as cFIRST , which is committed to assisting you to follow compliant screening practices.

To select your preferred background screening partner, focus on the following parameters –  

  • It ensures that efficient and reliable backgrounds are checked the first time for the most accurate and timely results.
  • It helps you streamline and navigate the Fair Credit Reporting Act (FCRA) for the adverse action process, advising you on best practices and providing real solutions to your recurring challenges in staying compliant with applicable laws in your geography. 
  • It conducts periodic reviews to assist you in maintaining compliant hiring practices.

cFIRST assists in administering adverse action processes following FCRA and applicable state or local regulations. We can send the initial notification based on your employment decisions to applicants, manage the review/dispute waiting period and send final adverse action notices. To learn more about how cFIRST can transform your hiring strategy to be more reliable, efficient, and compliant, do reach out to our subject matter experts .