Both federal and California law impose additional requirements on the users of “background checks” over and above the requirements for “consumer credit reports.” California’s most significant peculiarity is that it regulates not only background checks done by a consumer reporting agency, but also background checks done by employers in-house. In this second part of a three-part series, we focus on California background checks done by an investigative consumer reporting agency.
Employers who use agencies to conduct background checks need a disclosure and authorization under both state and federal law. However, California’s imposes additional burdens on employers.
Federal Law: The federal Fair Credit Reporting Act (the FCRA) imposes requirements on users of “investigative consumer reports.” Investigative consumer reports are defined by federal law as containing information obtained through personal interviews of neighbors, friends, and other associates about character, general reputation, personal characteristics and mode of living.
California’s definition is broader.
California Law: The California Investigative Consumer Reporting Agencies Act’s (“ICRRA’s”) more expansive definition of “investigative consumer report” includes all third party collection of information about character obtained through “any means,” not just personal interviews with acquaintances. This broad definition would include reference checks performed by a third party. An employee could argue that any type of background check—other than a pure credit check—is covered by the ICRRA. In several recent lawsuits, courts have found the ICRRA unconstitutionally vague because criminal background checks concern both credit-worthiness and character. Therefore, it is unclear whether ICRRA or the less severe California Consumer Credit Reporting Agencies Act is the governing law.
Under California’s ICRRA, employers seeking authorization to procure an investigative consumer report must disclose:
- An investigative consumer report will be obtained for employment purposes (federal law imposes the same requirement);
- The report may contain information bearing on character, general reputation, personal characteristics, mode of living (federal law requires this only if personal interviews are used);
- The nature and scope of the investigation;
- The name, address, telephone number and website of the investigative consumer reporting agency (CRA) that will generate the report. If there is no website, then a telephone number where a consumer can obtain information regarding the CRA’s privacy practices and whether the individual’s private information will be sent out of the U.S.;
- Notice of the employees/applicant’s rights to inspect the CRA’s files in person, to have the file summarized over the telephone, or to have a copy of the file mailed by certified mail;
- A check-box for requesting a free copy of the report (which must be provided within 3 business days of the date the report is provided to the employer);
These disclosure requirements are exacting, as is the requirement that authorization be obtained. Because of the language in the statutes, however, the validity of continuing authorization is an open question. Cautious California employers may want to notify the employee/applicant, provide the disclosure form and obtain authorization each time an investigative consumer report is obtained.
Substantive limitations on information that can be reported by an Investigative Consumer Reporting Agency under ICCRA. Subject to certain exceptions, California’s ICCRA prohibits investigative consumer reporting agencies (CRAs) from including information older than specified time limits. For example, reports may not include convictions, arrests, indictments pre-dating the report by more than 7 years or bankruptcies older than 10 years.
However, an important exception to ICCRA allows employers explicitly required by a government regulatory agency to check for records otherwise too old and allows CRAs to report such information. As an example, certain types of securities-related or banking-related convictions will disqualify a person from working in the industry for ten years—in order to comply with this restriction, an employer must seek information on convictions older than 7 years.
Adverse Action and Pre-Adverse Action Notices.
If a California employer plans to take an adverse action based on information included in an investigative consumer report, it must follow the same three steps set forth under federal law in the FCRA:
Step 1:Send a pre-adverse action notice. The notice states that adverse action may be taken in whole or in part because of information included in an investigative consumer report from a CRA.
The notice must contain the name and address of the CRA, a copy of the report, and a copy of a federal government publication called Your Rights Under the Fair Credit and Reporting Act. Important Note: The applicant/employee must get a copy of the report, regardless of whether the box requesting a copy was checked.
Step 2:Wait a reasonable period of time (five days is generally recommended) before taking final adverse action.
Step 3:Send final adverse action notice.
“Adverse action” means any decision which adversely affects any current or prospective employee.
And You Thought California Was Peculiar? San Francisco’s Fair Chance Ordinance.
California employers doing business in San Francisco must also be aware of San Francisco’s Fair Chance Ordinance, which applies whenever a background check includes criminal history. Section 4903 of the Ordinance defines “inquire” as requesting or running a background check, and it imposes substantive restrictions on the information that employers may seek.*
- The ordinance requires using a different, more explicit pre-adverse action notice and a different timetable. Specifically, it requires not only notifying an applicant of an intended adverse employment action and supplying a copy of the CRA report, but disclosing the specific items from the report triggering the intention to deny employment.
- The Ordinance requires an applicant to be able to refute orally or in writing, with a 7 day waiting period before the final decision.
- After receipt of any information explaining criminal convictions, an employer must reconsider its decision for a reasonable period of time.
- The Ordinance includes a requirement that employers post a notice in the workplace. and revise employment advertisements/postings to state that the employer will consider qualified applicants with criminal histories. Employers must retain all pertinent records, including applications, for three years.
The SF Ordinance applies to employers that are located or doing business within the City with 20 or more employees, regardless of location.
Workplace Solutions: California employers must be aware of the requirements for CRA-run background checks under federal state and local laws and comply with all of them. Expert assistance in setting up a compliance program and use of compliant notices and forms is essential.
Edited by Julie Yap
- arrests not leading to convictions (though employers may obtain and consider current pending arrests);
- participation in or completion of a diversion or a deferral of judgment program;
- convictions that have been judicially dismissed, expunged, or voided; juvenile convictions;
- convictions that are more than seven years old—the date of conviction being the date of sentencing; or
- information pertaining to an offense other than a felony or misdemeanor, such as an infraction.