Adverse Action in Employment Verification: FCRA Requirements
When you decide not to hire based on employment verification or background check results, the Fair Credit Reporting Act requires specific adverse action procedures. These aren't suggestions—they're legal requirements. Skipping or inadequately following them is one of the most common sources of FCRA lawsuits. Class actions have resulted in millions in settlements. This guide covers the pre-adverse and adverse action requirements, how to document compliance, and how to avoid the pitfalls that lead to litigation.
When Adverse Action Procedures Apply
Adverse action procedures apply whenever you take a "negative" employment action based in whole or in part on a consumer report. Not hiring, rescinding an offer, or terminating based on verification or background check results all trigger FCRA requirements. It doesn't matter if the report was the sole factor or one of several—if it contributed to the decision, you must follow the procedures. The same applies when you decide not to promote, transfer, or retain an employee based on a report. When in doubt, follow the procedures. Over-compliance is safer than under-compliance.
Pre-Adverse Action: The First Step
Before taking adverse action, you must provide the candidate with: a copy of the consumer report on which you're relying, a copy of "A Summary of Your Rights Under the Fair Credit Reporting Act" (available from the FTC), and a reasonable period for the candidate to dispute or explain. Five business days is typically considered reasonable; some jurisdictions or best practices suggest more. Document when you sent the pre-adverse notice and how (mail, email if permitted). The purpose is to give candidates a chance to correct errors or provide context. Many disputes reveal report inaccuracies—following the process protects both you and the candidate.
Adverse Action Notice: After the Waiting Period
If you proceed with adverse action after the waiting period—whether the candidate responded or not—you must provide an adverse action notice. This must include: the name, address, and phone number of the CRA that supplied the report, a statement that the CRA did not make the hiring decision and cannot explain why you did, notice of the candidate's right to obtain a free copy of the report from the CRA within 60 days, and notice of their right to dispute the report's accuracy with the CRA. Send this even if the candidate never responded to the pre-adverse notice. Failure to send adverse action notice is a frequent FCRA violation.
Documentation Is Critical
Document every step. When you sent pre-adverse notice. When the waiting period ended. When you sent adverse action notice. How you sent it (mail, email). Keep copies of the notices and proof of delivery. In a lawsuit, the burden is on you to show you complied. "We think we sent it" isn't enough. Automated platforms that support adverse action workflows can help—they generate notices, track timing, and maintain documentation. Manual processes are error-prone; consider automation for consistency.
Ban the Box and Fair Chance Laws
Many jurisdictions have "ban the box" or "fair chance" laws that affect when you can consider criminal history and what procedures apply. Some require additional waiting periods or notices. Some restrict what you can ask or when. Employment verification focuses on work history, but if your background check includes criminal records, ensure you're compliant with jurisdiction-specific requirements. Work with legal counsel to understand the full picture.
Key Takeaways
Adverse action procedures apply when you don't hire (or take other negative action) based on a consumer report. Pre-adverse: provide report, summary of rights, and waiting period. Adverse: provide notice with CRA contact info and dispute rights. Document everything. Automated platforms can support compliant workflows. Get it right—FCRA lawsuits are expensive and preventable.
