Background Checks in California: Compliance with a Whole Different Set of Rules than the Rest of the Country

By Attorney Lester Rosen, Founder & CEO of Employment Screening Resources (ESR)

You have heard it said before many times in both positive and negative ways: California is different. One example is that California has unique rules for background checks that go beyond the other 49 states and the federal Fair Credit Reporting Act (FCRA) that regulates background checks in the U.S. California employers must follow these rules to the letter, since applicants can sue for up to $10,000 for any violation arguable regardless of damages! And California added more critical screening rules starting January 1, 2012.

Employers in California, and employers doing business in California, need to be aware of two new laws that took effect January 1, 2012 – Senate Bill 909 (SB 909) and Assembly Bill 22 (AB 22) – that have changed how employers conduct background checks in the state. SB 909 relates to the “offshoring” of Personally Identifiable Information (PII) of consumers who are the subjects of background checks outside of the United States and beyond the protection of U.S. privacy laws, while AB 22 regulates the use of credit report checks of job applicants and current employees by employers for employment purposes.

SB 909 requires that a consumer must be notified as part of a disclosure before the background check of the web address where that consumer “may find information about the investigative reporting agency’s privacy practices, including whether the consumer’s personal information will be sent outside the United States or its territories.” SB 909 also requires background check firms to conspicuously post on its primary internet website a statement in their privacy policy entitled “Personal Information Disclosure: United States or Overseas” that indicates whether the personal information will be transferred to third parties outside the U.S. In the event consumers are harmed by a background check firm negligently sending data outside of the U.S., SB 909 provides for damages to consumers.

AB 22 prohibits employers or prospective employers – with the exception of certain financial institutions – from obtaining a consumer credit report for employment purposes unless the position of the person for whom the report is sought is specified under the law.
In addition, AB 22 requires the written notice informing the person for whom a consumer credit report is sought for employment purposes to also inform that person of the specific reason for obtaining the report.

With the passage of AB 22, California becomes the seventh and most recent U.S. state to pass laws restricting credit report checks of job applicants and current employees by employers for employment purposes. The other six states are Connecticut, Hawaii, Illinois, Maryland, Oregon, and Washington.

In addition to the new laws SB 909 and AB 22, California has many existing rules for background checks in the state. Employers must understand the California Investigative Consumer Reporting Agencies (ICRA) Act, CA Labor Code, and the Regulations for the California Department for Fair Employment and Housing Act (FEHA). In California, all background checks are Investigative Consumer Reports (ICR), a different terminology than the FCRA, and employers face substantial civil exposure up to $10,000 for failure to follow the special rules background checks that include the following:

• Special CA Check the box rule for free report (similar to MN and OK)
• Second checkbox if employer obtains public records directly
• Special CA rules for the Consent and Disclosure including name, address and phone of CRA and right to obtain additional information
• Special language on first page of each report about accuracy
• Consent before each ICR

Special additional statements

• Special rule for employer certification-employer needs to certify additional matters above and beyond FCRA certifications
• Spanish language form if applicant requests more information
• 7-year limit on criminal records (unless governmental requirement) but math is tricky
• Strong argument that California seven year rule is pre-empted by FCRA but no court has ruled to date
• California is a “No Arrest” state (but a pending case can be reported)
• Limitation on reporting diversion programs or arrest (with exception for certain hospitals)

Despite all of the special rules mentioned above, “due diligence” through background checks is still mission critical for California employers. Employees are typically a firm’s greatest investment and largest cost, and each hire also represents a large potential risk.

Every employer has the obligation to exercise due diligence in hiring since an employer that hires someone it either knew – or should have known through reasonable screening – was dangerous, unfit, or unqualified for the work can be sued for negligent hiring. The bottom line: California employers must maintain compliance with a whole different set of rules than the rest of the country when conducting due diligence background checks.

Please join me March 20 for the California Employer Resources webinar “Background Checks in California: Recently Passed Legislation, How to Legally Use Credit Inquires, and More.” In just 90 minutes, you’ll understand the legal dos and don’ts for conducting background checks on employees and job applicants.

Attorney Lester Rosen is Founder and CEO of Employment Screening Resources (ESR) –– a background check firm accredited the National Association of Professional Background Screeners (NAPBS) . He is the author of “The Safe Hiring Manual,” the first comprehensive guide for background checks, and a frequent speaker on due diligence issues. He was chair of the steering committee that founded the NAPBS and served as first co-chair. He has qualified and testified as an expert in court cases relating to background checks.