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California Imposes New Background Check Requirements On California Employers

By Brandon T. Willenberg

In addition to the California Wage Theft Protection Act, which you can read about here, and thanks to AB 22, California employers will be ringing in the new year with a new California Labor Code provision, Labor Code Section 1024.5, and an amendment to California’s Consumer Credit Reporting Agencies Act (CCRAA), Civil Code Section 1785.20.5. These new laws will limit private and public sector employers’ discretion to use “consumer credit reports” for hiring and personnel decisions. Effective January 1, 2012, both will impose certain notice and disclosure obligations on employers.

California Labor Code Section 1024.5

Private and public sector employers (excluding certain financial institutions) will be allowed to use consumer credit reports for hiring or personnel decisions only if the individual is applying for or works (or will work) in certain types of positions, such as those with direct access to bank accounts, social security numbers, cash, credit cards, or money transfers, and law enforcement. Other positions for which consumer credit reports may be used include managerial positions and those that afford access to trade secret, confidential, or proprietary information.

There are no independent remedies for Labor Code Section 1024.5 violations. Nevertheless, it is likely that civil penalties could be recovered under the California Private Attorneys General Act (PAGA).

Amended Civil Code Section 1785.20.5

An employer triggers the CCRAA when it orders a consumer credit report from a vendor (generally known as “consumer reporting agencies”) for employment purposes.

The amended CCRAA provides that before requesting a consumer credit report for employment purposes, the employer must provide written notice to the employee or applicant identifying the specific authorized purpose under the Labor Code for which the consumer credit report will be used. For example, if an individual is applying for a position that affords access to trade secret, confidential or proprietary information, the written notice must state that use of a consumer report to determine suitability for employment in such a position is authorized under Labor Code 1024.5. Of course, this new requirement is over and above all existing requirements, such as the requirement that an employer provide advance notice and obtain written consent from an individual before obtaining and using a credit report.

So What Do Employers Need to Do?

If you operate in California, use consumer credit reports for employment purposes, and are subject to Labor Code Section 1024.5, then you must determine when and if you may lawfully obtain and use a consumer credit report. If you operate in several states, note that similar laws exist in Hawaii, Washington, Oregon, Illinois, Maryland and Connecticut.

You should also review and revise, as appropriate, the paperwork used in conjunction with employment screening procedures to make certain all notices and forms are compliant with these new laws.

California employers that use background reports other than consumer credit reports, such as criminal background or motor vehicle reports, should also be aware that the CCRAA’s companion statute, the Investigative Consumer Reporting Agencies Act, has been amended to require additional notice requirements. Specifically, effective January 1, 2012, employers that order background reports other than consumer credit reports must notify job applicants and employees of the consumer reporting agency’s Internet website address where the individual can find information about the agency’s privacy practices. As with the CCRAA, these new notice requirements are over and above existing requirements.

Finally, all employers who use consumer reporting agencies to obtain any kind of consumer report for employment purposes should review its internal policies and practices to make sure they are compliant with the requirements of the federal Fair Credit Reporting Act.

These federal and state background check laws are intricate and overlap, but also differ in subtle ways. Therefore it is important to review and revise your employment screening procedures carefully, including with your legal counsel, to ensure proper compliance.

Happy New Year!!!


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