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What Is an Adverse Action?

What Is an Adverse Action?

There are many different terms in both the business and credit world, especially where they intersect. Sadly, while many terms are regularly thrown around, not many people are eager to explain what the various terms mean. Today we hope to address some of the confusion we regularly see in the context of one particular phrase — “Adverse Action”.

We hope that when you finish reading this article, you’ll have a more meaningful understanding of that particular expression in a credit and business context and feel more adequately equipped to discuss these matters, especially if it happens to you.

Adverse Action in Summary

Adverse action meaning is when the results of a background check negatively impact a prospective employee’s application.

One big example is simply refusing to hire someone based on what their background report revealed. Another equally valid example would be refusing to promote an otherwise qualified candidate for a promotion due to new information obtained through their background check.

How to Handle Adverse Actions Properly

The key to being an ethical business in using background checks as part of a rationale for denying employment is following proper procedure.

The information gained during background checks is vital information that can contribute to workplace safety, so employers should not hesitate to use background checks in the context of screening employees. There is a procedure in place for the ethical usage of this information as part of a safety screen for your workplace.

The first step in the proper usage of background checks is to disclose to relevant parties that a background check is underway and that the information obtained therein may affect their employment status. This is commonly known as a “Pre-Adverse Action Notice” and is especially relevant to those with negative information in their background reports.

Once this is done, if there is reasonable cause for an adverse action, there will be a waiting period. This waiting period is for the candidate’s benefit, as it allows them to review the documents they received from their employer and potentially dispute any inaccuracies found in their paperwork. This could also be a chance for them to provide vital contextual information that may explain any oddities in their reports. Typically, this period lasts five to seven days.

After this period there is a time for employers to review the results of the reports that have caused these actions to be taken. If the employer opts to pursue negative actions it is time to send the notice of adverse action. This report will contain information revealing that candidates can dispute their actions.

Finally, regardless of how the candidate themselves handles the adverse action, the company will be required to dispose of vital information such as paper copies of the background check results to properly protect the candidates themselves.

These steps protect both the employer and the candidate by providing vital spaces and steps for clarification, context, and breathing in general. This is a stressful time and taking time with it can be quite helpful for all involved parties.


We hope that this brief introduction to adverse actions can help you understand them. By taking the time to learn about this, you can be better equipped to help out with HR in your workplace and can be more knowledgeable in general!

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