What is Adverse Action?

When you’re hiring, most steps feel pretty straightforward—review, interview, decide. But there’s one part of the process that deserves a little extra attention: what happens when information in a background check might affect your hiring decision. That moment triggers a unique, highly regulated workflow designed to protect both you and your candidates.

Let’s walk through what Adverse Action really means, why it matters, and how to handle it the right way.

What is Adverse Action?

In the context of background checks, Adverse Action is any employment decision—made in whole or in part because of information in a background check report—that negatively impacts a candidate.

This could include:

• Declining to hire

• Withholding a promotion or transfer

• Offering a lower-level role

• Any other outcome that disadvantages the individual

Because these decisions can significantly affect someone’s livelihood, Adverse Action is one of the most closely watched areas of hiring compliance. The Fair Credit Reporting Act (FCRA) requires employers to follow specific steps any time they make an employment decision based on background check findings.

Why is it Important? 

The Adverse Action workflow is designed to protect candidates by giving them the opportunity to review their report, raise concerns, or dispute inaccuracies before any final decision is made.

Some employers are tempted to skip communication altogether when they decide not to move forward. But skipping Adverse Action? Big compliance no-no.

Failing to follow the required process exposes you to serious legal risk and yes, lawsuits in this area are common and often costly.

Beyond compliance, it’s also the right thing to do. Background checks, while highly accurate, can contain errors. Following a proper Adverse Action process ensures you’re making decisions based on verified, correct information.

Here are the steps an employer should follow for a safe adverse action process.