United States: California Employers: Beware The Background Check Bugaboos

Last Updated: April 27 2018
Article by Jennifer L. Mora

Seyfarth Synopsis: California is rife with regulation of how employers may obtain and consider background check information for use in hiring and personnel decisions. The relatively new California ban-the-box law (effective January 1, 2018) and the older Los Angeles and San Francisco ordinances and amendments to the California Labor Code set strict rules on when and how employers can consider criminal and credit histories in employment. Many details to follow.

Before 2014, when San Francisco enacted a city-wide ban-the-box law, criminal history background checks were largely unregulated in California, except for a handful of Labor Code provisions that barred consideration of certain types of criminal records. And California employers were stripped of their ability to use credit checks for hiring and other personnel decisions in 2012, by amendments to the Labor Code that restricted the use of credit checks to very narrow circumstances. Los Angeles and the State of California have now joined San Francisco with their own ban-the-box laws, which markedly differ from San Francisco's.

This blog highlights the laws concerning criminal and credit history background check reports in California, after briefly discussing the decades-old federal Fair Credit Reporting Act ("FCRA"). As the number of class actions alleging FCRA violations continues to skyrocket, it is critical that California employers understand the basics of all laws affecting employment screening programs and determine what changes to policies, forms, and practices will ensure compliance and reduce the risk of claims.

FCRA Basics

Generally speaking, before an employer may obtain a consumer report (aka a "background check report")—which may include criminal or credit history, from a third-party background check company ("consumer reporting agency" or "CRA")—the employer must make a clear and conspicuous written disclosure to the individual, in a document that consists "solely" of the disclosure, that a background check may be done. California's fair credit reporting statute also requires a separate, stand-alone disclosure, which cannot be combined with the FCRA disclosure. The applicant or employee must provide written consent for the employer to obtain a background check report. There are other requirements for "investigative consumer reports" (those based on interviews of the individual's friends, neighbors and associates) and employers regulated by the Department of Transportation.

Before an employer relies in whole or in part on a background check report to take an "adverse action" (e.g., rescinding a conditional job offer or discharging an employee), the employer must provide the individual a "pre-adverse action" notice, and include with it a copy of the report and the Consumer Financial Protection Bureau's Summary of Rights. This notice gives the individual an opportunity to discuss the report with the employer before the employer takes adverse action.

Once the employer is prepared to take the adverse action, it must then give the individual an "adverse action" notice, containing certain FCRA-mandated text.

California employers that rely on criminal and credit history information for employment purposes must also consider state and local laws that impose additional compliance obligations, regardless of whether the information is obtained from a CRA.

Employers May Order "Credit Reports" Only for Certain Positions

As noted, California employers have been hampered in their ability to order credit checks since 2012. Labor Code section 1024.5 states that employers, except for financial institutions, may order a credit check only if the individual works (or is applying to work) in certain positions:

  • a managerial position (as defined in California Wage Order 4);
  • a position in the State Department of Justice;
  • a sworn peace officer or law enforcement position;
  • a position for which the employer must, by law, consider credit history information;
  • a position that affords regular access to bank or credit card account information, Social Security numbers, and dates of birth (all three are required), so long as access to this information does not merely involve routine solicitation and processing of credit card applications in a retail establishment;
  • a position where the individual is or will be a named signatory on the bank or credit card account of the employer or authorized to transfer money or authorized to enter into financial contracts on the employer's behalf;
  • a position that affords access to confidential or proprietary information; or
  • a position that affords regular access during the workday to the employer's, a customer's or a client's cash totaling at least $10,000.

Setting aside state and federal disclosure and authorization requirements discussed above, any California employer that intends to order a credit check on a position identified above must notify the individual in writing why the employer is using a credit report (e.g., the individual is applying for or holds a position that affords access to confidential or proprietary information).

California's State and Local Ban-the-Box Laws Restrict Use of "Criminal History"

California's statewide ban-the-box law (Gov't Code § 12952), as of January 1, 2018, requires employers with five or more employees (subject to few exceptions) to follow certain procedures when requesting and using criminal history information for pre-hire purposes. Specifically, regardless of the source of the criminal history information, employers must:

  • Wait until after a conditional offer of employment to inquire about criminal history, which means asking applicants directly whether they have been convicted of a crime, ordering a criminal history background check, or making any other inquiry about an applicant's criminal history.
  • Conduct an individualized assessment of an applicant's conviction to determine whether it has a "direct and adverse relationship with the specific duties of the job that justify denying the applicant the position." Unlike the Los Angeles ban-the-box ordinance (discussed below), the California law does not require employers to provide the applicant with their assessment.
  • Notify the applicant of any potential adverse action based on the conviction history. The notice must identify the conviction, include a copy of any conviction history report (regardless of the source), and state the deadline for the applicant to provide additional information, such as evidence of inaccuracy, rehabilitation, or other mitigating circumstances.
  • After waiting the requisite time period, notify the applicant of any final adverse action, of any existing procedure the applicant has to challenge the decision or request reconsideration, and of the applicant's right to file a complaint with the Department of Fair Employment and Housing.

In contrast to the FCRA pre-adverse and adverse action notices—required only if the adverse decision is based on information obtained from a background check report from a CRA—the California notices are required even if the employer doesn't order criminal background check reports from a CRA, but learns of the criminal history from a different source (such as an applicant self-disclosure).

Substantively, a wide range of criminal records are off-limits to California employers (unless the employer qualifies for very narrow exceptions identified in the Labor Code). Records that cannot be used are:

  • arrests that did not lead to a conviction;
  • non-felony marijuana convictions that are older than two years;
  • juvenile records; and
  • diversions and deferrals.

Although complying with California law can be challenging, employers that hire in the cities of Los Angeles and San Francisco must also look to the ban-the-box ordinances in these jurisdictions, which exceed the requirements found in the FCRA and the California ban-the-box law.

The Los Angeles Fair Chance Initiative for Hiring Ordinance

The Los Angeles ordinance, effective January 22, 2017, applies to any "employer" located or doing business in the City of Los Angeles and employs 10 or more employees. An employee is any person who performs at least two hours of work on average each week in the City of Los Angeles and who is covered by California's minimum wage law. The ordinance also applies to job placement and referral agencies and is broad enough to cover other types of work, including temporary and seasonal workers and independent contractors.

The L.A. ordinance goes beyond California-imposed requirements by imposing the following onerous steps on employers when considering criminal history (regardless of the source):

  • Perform a written assessment that "effectively links the specific aspects of the Applicant's Criminal History with risks inherent in the duties of the Employment position sought by the Applicant." The assessment form that contains the relevant factors can be found on the city's website.
  • Provide the applicant a "Fair Chance Process"—giving the applicant an opportunity to provide information or documentation the employer should consider before making a final decision, including evidence that the criminal record is inaccurate, or evidence of rehabilitation or other mitigating factors. As part of this process, the employer must include with the pre-adverse action notice a copy of the written assessment and any other information supporting the employer's proposed adverse action.
  • Wait at least five business days to take adverse action or fill the position. If the applicant provides additional information or documentation, the employer must consider the new information and perform a written reassessment, which is at the bottom of the form mentioned above. If the employer still decides to take adverse action against the applicant, the employer must notify the candidate and attach a copy of the reassessment with the adverse action notice.

Los Angeles also states that all solicitations and advertisements for Los Angeles opportunities must state that the employer will consider qualified candidates with criminal histories in a manner consistent with the law.

Moreover, employers must post, in a conspicuous workplace that applicants visit, a notice that informs candidates of the Los Angeles ordinance. Copies of the notice must be sent to each labor union or representative of workers that has a collective bargaining agreement or other agreement applicable to employees in Los Angeles. This notice can be found on the City's website.

San Francisco's Fair Chance Ordinance

San Francisco, as of August 13, 2014, became California's first city to enact a ban-the-box law. Because the new California ban-the-box law provided greater protections to job applicants, the City and County of San Francisco Board of Supervisors (on April 3, 2018) amended the Fair Chance Ordinance (Article 49) to align (in some respects) with the California law. However, employers with five or more employees working in San Francisco that intend to inquire about and consider criminal history (regardless of the source) also must:

  • Provide the applicant or employee with a copy of the Office of Labor Standards Enforcement's ("OLSE") Fair Chance Act Notice before inquiring about criminal history or ordering a criminal history background check.
  • Post the OLSE Notice "in a conspicuous place at every workplace, job site, or other location in San Francisco under the Employer's control frequently visited by their employees or applicants," and "send a copy of this notice to each labor union or representative of workers with which they have a collective bargaining agreement or other agreement or understanding, that is applicable to employees in San Francisco." The posted Notice must be in English, Spanish, Chinese, and any language spoken by at least 5% of the employees at the workplace, job site, or other location at which it is posted. The Notice currently is on the OLSE's website.

Covered San Francisco employers are barred from considering the following types of criminal records (even though these records are not off-limits in other California cities), subject to narrow exceptions: (i) infractions; (ii) convictions that are older than seven years (measured from the date of sentencing); and (iii) any conviction that arises out of conduct that has been decriminalized since the date of the conviction, measured from the date of sentencing (which would include convictions for certain marijuana and cannabis offenses).

California Workplace Solutions

Class actions against employers for failing to follow hyper-technical requirements for background checks have come to dominate the news. Employers in California and elsewhere will want to conduct (privileged) assessments to strengthen their compliance with the myriad laws that regulate use of an individual's criminal and credit history. Suggested next steps include:

  • Assess coverage under the California, Los Angeles, and San Francisco ban-the-box laws, and California's law restricting use of credit reports.
  • Review job advertisements and postings both for unlawful and mandatory language regarding criminal history.
  • Review job application and related forms for unlawful inquiries regarding criminal history.
  • Train employees who conduct job interviews and make or influence hiring and personnel decisions, regarding inquiries into, and uses of, credit and criminal history, including best practices for documentation and record retention.
  • Review the hiring process to ensure compliance, including the timing of criminal history background checks, the distribution of mandatory notices, and the application of necessary waiting periods.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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