Answers to Your Top Questions About Adverse Action

HR and compliance teams have their hands full in 2025 trying to keep on top of background check compliance  — not the least of which include federal adverse action laws and state and local “ban the box” and “fair chance”  laws. Adverse action is a federally mandated process employers must follow under the federal Fair Credit Reporting Act (FCRA) when considering making adverse employment-related decisions (including hiring, transfers, or promotions) based in whole or in part on the contents of a background screening report. For many HR professionals, questions swirl around this complex area of the law:

• How should your organization notify the candidate with an adverse action notice in order to remain compliant with the FCRA and to help prevent possible legal liability?
• Are there any new state or local laws that might apply to your organization’s adverse action process?

First Advantage’s Angela Preston, Deputy General Counsel, has weighed in on this popular topic.

Let’s answer the top-trending questions about how to support compliance requirements in the adverse action process.

Question #1: When exactly does adverse action apply?

Adverse action applies to any type of information given in a consumer report (credit history, employment verification, motor vehicle record, etc.) – that is to say, any adverse information in the consumer report that might disqualify a candidate or make them ineligible for a promotion, transfer, or other adverse employment decision. However, adverse action only applies if the information was delivered in a consumer report, not in such cases where, for example, the employer gets the information directly from the source, does their own verification, or contacts a government agency themselves and learns new information about an employee or candidate.

Note that adverse action pertains to anything found in a background screening report, so the process of adverse action is required even if that information is not related specifically to criminal history. No matter the type of information, if it’s a reason for you not to hire the candidate, then you must complete the federal adverse action process.

Question #2: What is the first step in the adverse action process?

The FCRA requires that employers follow a two-step process before taking adverse employment action based in whole or in part upon the background screening report. The first step is to send your candidate a pre-adverse action notice. This initial step comes before you make an adverse hiring decision.

1. Send a pre-adverse action notice, informing the candidate that an adverse employment decision may be made based in whole or in part on the background screening report. Include a copy of the background check report for the candidate to review and address possible inaccuracies. Inform the candidate of their right to dispute possible inaccuracies.
2. If the candidate does not dispute the contents of the background screening report within a reasonable amount of time or the allotted days, or if their dispute doesn’t result in amendment or change, employer can then make a final decision and then send the final notice of adverse action indicating that an adverse decision was made.

You can find more compliance information — along with helpful Do’s and Don’ts — in our Adverse Action Checklist.

Question #3: What do you need to include when sending a pre-adverse action notice?

In this step, you must notify your candidate that there’s something in their background check that could negatively impact your employment decision. In the pre-adverse action notice, you must include the following:

• Inform the candidate that an adverse action employment decision may be made based on something in their report
• Include a copy of the background check report for the candidate to review and address possible inaccuracies
• Inform the candidate of their rights with the Summary of Rights under the FCRA, and their right to dispute possible inaccuracies
• Send information stating how the candidate can lodge a dispute and how they can contact the background screening company if they believe anything in the report is inaccurate or incomplete

Also be sure to follow any other local or state adverse action laws and requirements, which may include specific reasons for action, notices, forms, or additional information. Depending on where you are hiring and where the job or the employee are located, you may have additional requirements based on a state or a local ordinance.

How should you incorporate different regulatory requirements into your candidate process? You should consider consulting with your legal counsel to determine:

• Do local or state adverse action laws impact this hire?
• Is there a ban the box or fair chance requirement that imposes additional requirements?

After sending your candidate that pre-adverse notice, the candidate now has a chance to take a look at the report (as stated above) and determine whether or not there’s anything that they believe is inaccurate or incomplete. If so, they may dispute any possible inaccuracies, which can result in amendments or changes to the report. There may be additional steps for a candidate to respond under a state or local fair chance law. If the candidate does not dispute their findings within a reasonable amount of time or the allotted days, or if their dispute doesn’t result in amendment or change, the employer can review the information and decide whether to send the final notice of adverse action indicating that an adverse decision was made.

Question #4: Do FCRA requirements apply to volunteers too?

Customers have asked us if FCRA requirements apply to volunteers too as part of volunteer background screening, or only employees.

Keep in mind that the FCRA defines employment very broadly. In this area, it’s recommended to first check with your counsel.

We’ve spoken with our customers about considering the employment label in a very broad sense, because there’s a good chance that even a volunteer, independent contractor, or a contract employee could be considered under the employment definition under the FCRA.

Question #5: How long is a reasonable time to respond?

When sending candidates the pre-adverse action notice, employers are required to wait a “reasonable amount of time” to give candidates enough time to respond to an adverse action letter.

While there is no time period specified in the FCRA, some guidance indicates that five business days is a reasonable time to respond. Some state and local Fair Chance or Ban the Box laws may require longer waiting periods. First Advantage recommends consulting with legal counsel when determining the process.

Question #6: How does adverse action apply by location?

The rise of remote work and scaling globally has posed many hiring and employment law questions for compliance professionals in 2025, including if the notice jurisdiction is determined by the applicant’s residence where they’re working, or the jurisdiction of the criminal report.

Some state or local laws specify application based on candidate’s residence, other laws specify job location, and some laws require employers to take both into account. Employers may want to consider both job location and residence, but we recommend consulting with your legal counsel for fact-specific scenarios.

Question #7: Can you hold the position during the pre-adverse action process?

A popular question among First Advantage’s HR professional audience is: can employers hold off on considering any candidates for an open position after providing the pre-adverse action notice? Specifically, this question addresses the possibility of finding a more qualified candidate during the process.

If a candidate disputes what’s on the report and lodges a formal dispute, some employers will pause the hiring process at that point and wait for the dispute to resolve. This is not always required, but in some jurisdictions, employers are not permitted to move forward with the hiring decision. If an individualized assessment is required, employers can pause the hiring process to conduct the assessment, and this may allow the dispute to resolve, even though under federal law it’s not required that you hold the position open pending a dispute.

Ultimately, this is a policy decision, and you should consult with your legal counsel to determine the best approach for your organization and the location of your workers.

Takeaways: How To Optimize Your Adverse Action Process

Adverse action is a very complex regulatory requirement for compliance professionals to meet due to the many different state and local laws. Employers can best implement compliance best practices in their employee hiring program by first defining an adverse action policy if they haven’t already, and by conferring with their legal counsel to ensure the policy incorporates best practices and is up to date.

Are you following best practices when sending an FCRA adverse action notice?

Download our checklist filled with Do’s and Don’ts.

First Advantage’s global compliance team partners with our busy customers to provide consultative information on compliance and share best practice information. We look forward to speaking with you soon.

About Angela Preston:

Angela Preston, JD, CCEP, is an experienced Deputy General Counsel at First Advantage with an expertise in corporate ethics and legal compliance. She has experience building compliance frameworks for companies that includes establishing policies and procedures, codes of conduct, anti-bribery and anti-corruption policies, sanctions controls, best practice guidance, risk assessments, whistleblower hotline policies, training programs, and building a culture of compliance, She has represented companies in civil and regulatory investigations, and litigation. Her areas of expertise include compliance and ethics, privacy, ABAC, Sanctions, AML, FCPA, EEO law, FCRA, and consumer protection. Throughout her career she has been active in government affairs and policy initiatives. She is a frequent speaker and educator on the complex regulatory and compliance issues that impact businesses.