Background checks in employment decisions continues to raise complicated legal issues

Background checks may take a variety of forms, but common examples include criminal records checks, litigation history, and driving records. California employers who use background checks in making personnel decisions about employees and job applicants are expected to navigate a veritable minefield of strict legal requirements at all stages of the hiring process. These include the federal Fair Credit Reporting Act (FCRA), the California Investigative Consumer Reporting Agencies Act (ICRAA), and a number of other smaller, fragmented California laws that interplay with each other.

For example, starting Jan. 1, 2018, California's Fair Chance Act (aka the "Ban the Box" law) went into effect, amending the state's Fair Employment and Housing Act to now prohibit employers with five or more employees from inquiring about conviction history before a job is offered to an applicant. The law also restricts the sorts of questions that can be asked after a conditional offer of employment is made, adding to the limitations that the California Legislature had already codified within California Labor Code Section 432.7. The state's restrictions extend into non-criminal information as well, such as with California Labor Code Section 432.3, which also came into effect on Jan. 1, 2018 and which instituted a ban on employers or their agents from inquiring into an applicant's salary history in most instances. And from time to time, this complicated maze of background check rules can be made more onerous by the courts interpreting these statutes and regulations.

The most recent notable example occurred in Gilberg v. California Check Cashing Stores, LLC, a 9th U.S. Circuit Court of Appeals decision that applied an unforgiving interpretation of the federal FCRA and California's ICRAA to find an employer in violation of both laws because they combined their federal and state disclosure notices into a single document. The employer, CheckSmart, provided the plaintiff, Desiree Gilberg, with a job application packet that included a one-page disclosure form to obtain her credit report and criminal background report. The form included disclosures required not only by the FCRA, but by equivalent laws of various states in which CheckSmart operated, including California. After Gilberg signed the disclosure form and her background check cleared, CheckSmart hired Gilberg, who worked for the company for the next five months. Gilberg then resigned and filed a class action alleging that CheckSmart failed to provide proper FCRA and ICRAA disclosures.

The FCRA generally prohibits an employer from obtaining the consumer report of an employee or job applicant without first obtaining that person's consent and providing the employee or job applicant with certain disclosures. The disclosures must be "clear and conspicuous" and included "in a document that consists solely of the disclosure." The latter requirement is commonly referred to as the "standalone document" requirement. Substantially similar requirements are set forth in the ICRAA. The 9th Circuit found that CheckSmart violated the "standalone" document requirements of the FCRA and ICRAA by including in the same disclosure form extraneous information relating to the disclosures mandated by other jurisdictions. Under this interpretation, the presence of any extraneous information not part of the FCRA-mandated disclosures will violate both the FCRA and ICRAA.

The Gilberg decision followed another 9th Circuit decision, Syed v. M-I, LLC, which similarly held that an employer violated the FCRA's standalone document requirement when it included a liability waiver in the same document as the disclosure.

Both the Gilberg and Syed decisions demonstrate how courts strictly construe the disclosure requirements of the FCRA and ICRAA, and why employers should carefully reassess whether their current disclosure practices, or those of the background check companies they contract, are legally compliant. For example, the FCRA and ICRAA disclosures must appear in separate, standalone documents, even though it may seem to be more efficient to combine the disclosures into a single document. Any extraneous information, no matter how closely related to the statutory mandated disclosures, should be excluded from each disclosure form. The language used in the disclosure form should also be clearly worded and appear in a conspicuous manner that is "readily noticeable" to the reader; employers are well advised to avoid legalese, use headings formatted in bold and underline, and apply a type size that is greater than eight.

Perhaps most importantly, employers should not rest on their laurels simply because they hired a third-party contractor to handle background check services they utilize in their hiring processes. For many of California's restrictions, employers share in liability for any violation caused by contractors that they use. As a result, they should be vigilant to ensure even their outside contractors perform these background check services compliant with California law.