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

By Pam Devata and Dana Howells

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.    

Disclosure Requirements.

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:
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By Pam Devata and Dana Howells

Complying with the federal Fair Credit Reporting Act (the FCRA) is not easy. Compliance with both the FCRA and California restrictions on credit and background checks is much more challenging. Given California’s extra-strength privacy protections and penchant for workplace regulation, it is not surprising that California has peculiarities when it comes to credit and other background checks.  In Part 1 of a three part blog, we take a dive into credit checks—California style.

California is one of  a growing number of states with laws restricting use of credit history for employment. Effective January 1, 2012, California Labor Code Section 1024.5 generally prohibits the use of credit reports for employment purposes by private sector employers.  If an exception to Section 1024.5 permits an employer to use credit reports, California employers must comply with both the FCRA and the California Consumer Credit Reporting Agencies Act, which are not always congruent. 

Comparing and contrasting the FCRA with the California Consumer Credit Reporting Agencies Act

What FCRA requires—in a nutshell.  Prior to conducting a background check on an applicant or employee through a third party, an employer must:

  • Provide a notice/disclosure to the employee/applicant that the employer will seek a credit report.  The disclosure must be clear, conspicuous, and made in a document consisting solely of the disclosure.  This is a huge area of class action litigation.
  • Supply a copy of  “A Summary of Your Rights Under the Fair Credit Reporting Act.”
  • Obtain written authorization/consent from the applicant/employee. 

Prior to taking adverse employment action against an applicant/employee based, in whole or in part, on a consumer credit report (or investigative consumer report—more about those in Part 2), employers must follow a two-step notification process required by the FCRA:
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