Adverse Action Notice

An adverse action notice is the final notice an employer sends after deciding to reject, fire, or otherwise act against someone based on a background report. It tells the person the decision is made, who supplied the report, and how to challenge it.

It is the second step under the Fair Credit Reporting Act (FCRA). The first step is the pre-adverse action notice, which comes before the decision. This entry covers the second notice only.

When Do You Send an Adverse Action Notice?

You send it once you have reviewed the report, given the person time to respond, and decided to go ahead with the negative action. The trigger is that the decision was based wholly or partly on a report from a consumer reporting agency.

Section 1681m of the statute covers this step. It requires the user of the report to give notice of the adverse action to the consumer, and it allows the notice to be oral, written, or electronic.

In practice, send it in writing and keep a copy. A document you can produce later is far more useful than a phone call you can only describe.

What Must an Adverse Action Notice Include?

The statute lists specific items. The EEOC and FTC guidance on background checks summarizes them the same way, and your notice should hit every one.

• The name, address, and phone number of the reporting company that supplied the report.
• A statement that the reporting company did not make the decision and cannot explain why it was made.
• A statement that the person can get a free copy of the report from that company if they ask within 60 days.
• A statement that the person can dispute the accuracy or completeness of anything in the report.
• If a numerical credit score was used in the decision, that score and the related information the statute lists.

If the reporting company keeps nationwide files, the contact details must include its toll-free number. Your screening vendor can supply the right text for each report, so ask for it early.

What Counts as an Adverse Action?

Rejecting a candidate is the obvious case. The idea is broader than that. Firing an employee, denying a promotion, or reassigning someone because of what a report said are also adverse actions.

The test is whether the report played a role. If the report was one factor among several, the notice rules still apply. Do not try to avoid them by blaming the decision on something else when the report drove it.

How Is It Different From a Pre-Adverse Action Notice?

Think of the pre-adverse notice as a warning and the adverse notice as the verdict. The first gives the person the report and a summary of rights so they can respond. The second tells them what you decided and how to challenge the report going forward.

Sending only one of the two leaves a gap. Skipping the first notice removes the person's chance to correct an error. Skipping the second leaves out the contact and dispute information the statute asks for.

What Mistakes Should You Avoid?

The most common mistake is timing. Employers send one letter after the decision and call it done. The pre-adverse step has to happen first, and it has to give the person a real window.

The second is a generic letter. A notice that names no reporting company or leaves out the dispute language is incomplete, even if it sounds polite.

The third is inconsistency. If one candidate gets both notices and another gets a phone call, you cannot show the process was fair. Use one template and one tracking method for everyone.

How Does HR Cloud Fit Into Adverse Action Notices?

HR Cloud does not generate or send adverse action notices, and it does not manage FCRA compliance. Its custom forms and workflows let HR build forms, approvals, and signing-order workflows, but the page does not describe any adverse action template.

Its onboarding pages name a background check integration without describing what it covers. Use your screening vendor's notice text, and see the entry on candidate screening for the wider hiring process.

Discover how our HR solutions streamline onboarding, boost employee engagement, and simplify HR management

Book Your Free Demo

Frequently Asked Questions

Q: What is an adverse action notice?

A: It is the final notice sent after a decision made wholly or partly on a background report. It names the reporting company and explains dispute rights.

Q: Who must send an adverse action notice?

A: The employer that took the action. The screening company supplies the report, but the employer decides and notifies.

Q: Does it have to be in writing?

A: The statute allows oral, written, or electronic notice. Written is the safer choice because you can keep proof.

Q: What if the candidate disputes the report afterward?

A: They contact the reporting company, which must look into it. If the report is corrected, consider reopening your decision.

Q: How long does the person have to request a free copy?

A: The notice must tell them they can get a free copy from the reporting company if they request it within 60 days.

Q: Is an adverse action notice the same as a rejection letter?

A: No. A rejection letter says you chose another candidate. An adverse action notice is a legal notice tied to a consumer report and has required contents.