Compliance Corner

LA County Fair Chance Ordinance becomes operational September 3, 2024

What is this about?
On February 27, 2024, the County of Los Angeles Board of Supervisors voted to adopt the County’s Fair Chance Ordinance for Employers (FCO). The FCO aligns with the California Fair Chance Act (FCA), also known as “Ban the Box.” However, it adds several compliance requirements when considering the applicant’s criminal record history to make an employment decision.

Effective Date:The FCO is operative on September 3, 2024.

Who must comply:
The FCO applies to any “employer” located or doing business in the unincorporated areas of Los Angeles County who employs five or more employees regardless of location. The FCO protects both applicants seeking employment and employees seeking promotions, as well as others seeking non-traditional employment, such as contract or freelance work.

New requirements:
Notice of Intent to Conduct Background Check.
This notice must be given along with any conditional offer of employment to the applicant or employee that states (1) the conditional offer is contingent upon a review of a criminal record history and (2) the employer has good cause to conduct the criminal history review “for the specific job position with supporting justification in writing.” It is not enough for the employer to merely state it reviews such information because of a generalized “safety concern.” Specific information is required.

Before employers can take any adverse action against an individual, such as rescinding a conditional job offer, the FCO requires the employer to (1) prepare a written individualized assessment of an applicant’s criminal history in the manner required by the FCO; (2) provide a form of preliminary notice of adverse action with mandatory content; (3) provide a second written individualized assessment if the individual provides information in response to the preliminary notice of adverse action; and (4) provide a final notice of adverse action if the employer makes a final decision to withdraw the conditional offer of employment or take any other adverse action (the final notice must also include mandatory content).

Why compliance matters:
The FCO authorizes public and private remedies, including civil claims. The County of Los Angeles Department of Consumer and Business Affairs (DCBA) is authorized to take appropriate steps to enforce the FCO and conduct investigations of possible violations by an employer. The DCBA may issue monetary penalties of up to $5,000 for the first violation, up to $10,000 for the second violation, and up to $20,000 for the third and subsequent violations.

How SI can help:
SI can help ensure compliance in several ways, including the timing of background checks, the distribution of mandatory and sample notices, and the monitoring of the required time periods for taking adverse action.

August 29th, 2024|Compliance Corner, Employment Decisions|

County of Los Angeles Enacts Fair Chance Ordinance New Hiring Requirements for Employers

What is this about?
On February 27, 2024, the County of Los Angeles Board of Supervisors voted to adopt the County’s Fair Chance Ordinance for Employers (FCO). The FCO aligns with the California Fair Chance Act (FCA), also known as “Ban the Box.” However, it adds several compliance requirements when considering the applicant’s criminal record history to make an employment decision.

Effective Date:
The FCO is operative on September 3, 2024.

Who must comply:
The FCO applies to any “employer” located or doing business in the unincorporated areas of Los Angeles County who employs five or more employees regardless of location. The FCO protects both applicants seeking employment and employees seeking promotions, as well as others seeking non-traditional employment, such as contract or freelance work.

New requirements:
Notice of Intent to Conduct Background Check. This notice must be given along with any conditional offer of employment to the applicant or employee that states (1) the conditional offer is contingent upon a review of a criminal record history and (2) the employer has good cause to conduct the criminal history review “for the specific job position with supporting justification in writing.” It is not enough for the employer to merely state it reviews such information because of a generalized “safety concern.” Specific information is required.

Before employers can take any adverse action against an individual, such as rescinding a conditional job offer, the FCO requires the employer to (1) prepare a written individualized assessment of an applicant’s criminal history in the manner required by the FCO; (2) provide a form of preliminary notice of adverse action with mandatory content; (3) provide a second written individualized assessment if the individual provides information in response to the preliminary notice of adverse action; and (4) provide a final notice of adverse action if the employer makes a final decision to withdraw the conditional offer of employment or take any other adverse action (the final notice must also include mandatory content).

Why compliance matters:
The FCO authorizes public and private remedies, including civil claims. The County of Los Angeles Department of Consumer and Business Affairs (DCBA) is authorized to take appropriate steps to enforce the FCO and conduct investigations of possible violations by an employer. The DCBA may issue monetary penalties of up to $5,000 for the first violation, up to $10,000 for the second violation, and up to $20,000 for the third and subsequent violations.

How SI can help:
SI can help ensure compliance in several ways, including the timing of background checks, the distribution of mandatory and sample notices, and the monitoring of the required time periods for taking adverse action.

April 18th, 2024|Compliance Corner, Employment Decisions|

Reminder about New Requirements for California Employers When Considering Criminal History in Employment Decisions

What is this about:

The California Fair Chance Act requires employers to make a conditional offer of employment before considering an applicant’s criminal history. On October 1, 2023, new regulations by the California Civil Rights Department went into effect regarding how employers can use information about an applicant’s criminal history to rescind a conditional offer.

Effective date:

October 1, 2023

What this means:

Before a conditional offer can be rescinded, a California employer must perform an individualized assessment as to whether the applicant’s criminal history “has a direct and adverse relationship with the specific duties of the job that justify denying the applicant the position.” (California Code of Regulations Section 11017.1(c)(1)).

The specific requirements for the individualized assessment must include, at a minimum, consideration of the following factors: •     the nature and gravity of the offense or conduct;
•     the time that has passed since the offense or conduct occurred or the completion of the sentence;
•     the nature of the job held or sought.

If, after the individualized assessment, the employer makes a preliminary decision to revoke the conditional offer, the employer must notify the applicant in writing of the preliminary decision. The notice (which can be part of the pre-adverse action notice) must include all the following information:

•     the conviction(s) that were the basis for the preliminary decision;
•     a copy of the information relied on for the decision;
•     statement that the applicant or their representative has the right (but is not required) to respond before the decision becomes final, including challenging the information’s accuracy and submitting evidence of rehabilitation or mitigating circumstances;
•     the deadline to respond (no less than five business days after receipt of the notice, and email notice is considered received two business days after it is sent).

If the applicant timely notifies the employer in writing that additional time is needed to respond, the applicant must be given at least five additional business days to respond to the notice before the employer’s preliminary decision becomes final.

The new regulations also expressly prohibit employers from (1) mandating that the applicant respond to the notice or provide information or (2) refusing to consider any information provided by the applicant. The employer must notify the applicant in writing of any final decision to rescind the offer and include information regarding available procedures to challenge the decision and the right to contest the decision by filing a complaint with the California Civil Rights Department.

Why this matters:

Violations of the new regulations can result in damages for failure to consider the new criminal evaluation factors, including back pay, front pay, and hiring or reinstatement.

What else still matters:

City of Los Angeles Fair Chance Initiative for Hiring Ordinance (FCIHO)

•     The FCIHO applies broadly to businesses in the city that employ at least 10 people, with certain exceptions.
•     Employers may not ask about an applicant’s record until a conditional offer of employment has been extended.
•     After learning of an applicant’s record, employers must perform an individualized assessment and consider factors including (i) the age of the offense, (ii) the nature of the offense, and (iii) specific duties of the job sought. Written notice must be provided to applicants.
•     The ordinance provides aggrieved job applicants a private right of action.

City & County of San Francisco Fair Chance Ordinance (FCO)

•     The FCO applies to employers with 5 or more employees worldwide and all City contractors, subcontractors, and leaseholders.
•     Employers may not conduct a background check or ask about criminal records until after making a conditional offer of employment.
•     After learning of an applicant’s record, an employer shall conduct an individualized assessment, considering only (i) directly related convictions, (ii) the time that has elapsed since the conviction or unresolved arrest, and (iii) any evidence of inaccuracy or evidence of rehabilitation or other mitigating factors.
•     The employer must provide the applicant with a copy of the FCO Notice and background check report. The applicant has seven days to respond for the purpose of correcting the record, providing evidence of rehabilitation, or any other mitigating factors.
•     Applicants may bring a civil action against the employer or other person violating this FCO.

Best practices:

California state law, the FCIHO, and FCO all require employers to make a conditional offer of employment before considering an applicant’s criminal history. As a best practice, employers should consider using a two-step process when obtaining a background check report. The first step involves obtaining all non-criminal checks, such as a review of the applicant’s employment and educational history. The second step involves obtaining the applicant’s criminal record history after a conditional offer of employment is made.

Several other cities and Hawaii have enacted “ban-the-box” or “fair chance laws” that require a conditional offer of employment be made to applicants before a criminal background check can be made.

How SI can help:

Experienced in preparing background check reports using a two-step process, SI makes the process seamless. We can also provide sample adverse action notices and other guidance.

Disclaimer: This communication is for general informational purposes only and does not constitute legal advice. No recipient should act or refrain from acting based on any information provided here without advice from a qualified attorney licensed in the applicable jurisdiction.

November 1st, 2023|Compliance Corner, Employment Decisions|

The Significance of Background Screening in SEC’s Proposed Rule for Private Fund Managers

In an ever-evolving financial landscape, the Securities and Exchange Commission (SEC) last year proposed a new rule for regulating and monitoring the activities of investment advisors and private fund managers. The reforms, which are pending, are designed to protect private fund investors by increasing their visibility into certain practices, establishing requirements to address practices that have the potential to lead to investor harm, and prohibiting adviser activity that is contrary to the public interest and protection of investors.

The rule aims to impose stricter requirements on private fund advisors, including more comprehensive reporting and disclosure mandates, risk management measures, and operational safeguards. Although not mentioned specifically, it can easily be inferred that background screening will play an integral part in complying with the rule.

Background screening serves as an essential risk management tool that allows investment firms and the SEC to assess the integrity and competence of individuals seeking to become private fund advisors. By conducting thorough background checks, potential red flags can be identified early on, ensuring that only qualified and trustworthy professionals are entrusted with managing private funds. The following are some key reasons why background screening is relevant to the SEC’s proposed rule:

- Investor Protection – Private fund advisors hold significant influence over their clients’ investment decisions and assets. Background screening helps identify any past misconduct or disciplinary actions, safeguarding investors from potential fraudulent schemes or unethical practices.

- Regulatory Compliance – The rule demands increased compliance from private fund advisors. Implementing stringent background screening procedures will facilitate adherence to these regulations and ensure the eligibility of those operating within the private fund industry.

- Market Integrity – A robust background screening process strengthens market integrity by weeding out bad actors who could potentially tarnish the reputation of the private fund industry. This fosters trust among investors and stakeholders, promoting a healthy and sustainable financial ecosystem.

- Risk Mitigation – Background screening helps mitigate operational risks associated with hiring individuals with questionable backgrounds. Identifying potential risks early can prevent potential legal and financial liabilities that may arise due to non-compliance or misconduct.

- Risk Management – For private fund advisors, maintaining a positive reputation is critical for attracting new investors and retaining existing clients. Background screening assists in upholding a firm’s reputation by ensuring the integrity of its team members.

- Consistency with Other Industries – Background screening is a standard practice in many sectors of the financial industry, such as banking and accounting, and extending background screening to private fund advisors aligns this sector of the financial industry with prevailing best practices in risk management and compliance.

As the SEC finalizes its proposed rule, it is essential for private fund advisors to adopt background screening as a proactive measure that not only aligns with regulatory expectations but also contributes to their reputation as responsible and reliable investment professionals. In doing so, the private fund industry can continue to thrive and attract investors with the assurance of a well-regulated and trustworthy financial environment.

July 26th, 2023|Compliance Corner|

Minnesota Petty Misdemeanors and How to Report Them

Although nearly all state laws include criminal offense levels divided into two types – felonies and misdemeanors – there are many states with offense levels peculiar to their state law. One such peculiarity is Minnesota’s petty misdemeanor offense level.

In Minnesota, a petty misdemeanor is the lowest level of offense. Many but not all Minnesota traffic violations are petty misdemeanors. The unique aspect of a petty misdemeanor is that it is not considered a crime. (See for yourself here: Minn. Stat. § 609.02, subd. 4a or the accompanying attachment.) A petty misdemeanor does not carry a jail sentence but can result in a fine of up to $300.

August 19th, 2022|Compliance Corner|

Reporting Criminal Convictions, the FCRA, and State Laws

Under the Fair Credit Reporting Act (FCRA), criminal convictions can appear in a background report regardless of when they occurred. It does not matter how old the conviction is. However, some states have passed their own legislation similar to the FCRA that does place restrictions on reporting criminal convictions.

Which states restrict reporting on convictions?

California, Colorado, Hawaii, Kansas, Maryland, Massachusetts, Montana, New Mexico, New York, New Hampshire, Texas, and Washington all have laws that limit the scope of reporting criminal convictions to seven years. In Hawaii, the seven-year limit is for felonies only; the reporting of misdemeanors is limited to five years. The District of Columbia limits the reporting of criminal convictions to 10 years.

All states not listed above follow the FCRA rule that criminal convictions can appear in a background report regardless of when they occurred.

The Salary Exception States

Seven of the states listed above allow an exception to their rule of limiting reporting criminal convictions to seven years. The exception is based on the salary the candidate is expected to make. If the salary exceeds a certain threshold, the seven-year limitation does not apply, and criminal convictions can appear in the candidate’s background report regardless of when they occurred.

Salary Exception States	Candidate’s Potential Salary Threshold
Colorado	$75,000
Kansas	$20,000
Maryland	$20,000
New Hampshire	$20,000
New York	$25,000
Texas	$75,000
Washington	$20,000

August 15th, 2022|Compliance Corner|

Workplace Investigations and the FCRA

Before a background check can be conducted on an applicant or employee, the FCRA requires that an employer (our client) provide a written disclosure form and obtain a signed authorization from the applicant or employee. While these requirements will apply to nearly all background checks, there are two situations in which the FCRA permits an employer to dispense with the disclosure and authorization requirements — an investigation of (1) suspected misconduct relating to employment or (2) compliance with federal, state, or local laws and regulations, the rules of a self-regulatory organization, or any preexisting written policies of the employer.

This alleviates the concern that providing the subject with advance disclosure of the investigation and obtaining the subject’s authorization to conduct the investigation would greatly hamper the investigation itself.

However, the FCRA does impose an obligation on the employer if adverse action, such as termination or suspension, is taken against the employee because of the investigation. In those situations, the FCRA requires the employer to provide the employee with a summary of the nature and substance of the investigation. Although the FCRA does not specify the time period within which the employer must provide the summary, it seems reasonable to provide it just after the adverse action is taken.

The FCRA does not require the employer to provide the employee with a copy of any report prepared for the investigation, nor does the FCRA require the employer to disclose in the summary the sources of the information obtained in the investigation. If co-workers, vendors, customers, or other individuals provided damaging information about the employee, their identities would not need to be disclosed to the employee in the FCRA summary.

August 11th, 2022|Compliance Corner|

CFPB’s Advisory Opinion on Name-Only Matching for Consumer Reporting

On July 12, 2022, the Consumer Financial Protection Bureau (CFPB) issued an advisory opinion regarding the “permissible purpose requirement” of the Fair Credit Reporting Act (FCRA) as it applies to both a consumer reporting agency (CRA) and a user of consumer reports (e.g., employer).

The CFPB’s position is that name-only matching records in a consumer report violate the permissible purpose requirement in FCRA section 604(a)(3). The CFPB noted that consumer report users must ensure they do not violate a person’s privacy by obtaining or using a report without a permissible purpose, and that a consumer reporting agency should not provide reports with “possible matches” to users.

The CFPB further warned that including a disclaimer in the report, such as “this record was matched to the subject by First Name, Last Name ONLY and may not belong to your subject; your further review of the [source] is required in order to determine if this is your subject” does not adequately address the problem of using name-only matching procedures because the report may include information about a person other than the subject for whom the CRA has a permissible purpose. In the CFPB’s view, a disclaimer “will not change the fact that the consumer reporting company has failed to satisfy the requirements of 604(a)(3) and has provided a consumer report about a person lacking a permissible purpose with respect to that person.”

The CFPB’s advisory opinion raises the possibility that employers, as users of such consumer reports, could be held liable for FCRA permissible purpose violations resulting from a CRA’s matching procedures or mistakes. The opinion emphasized the CFPB’s position that there is strict liability for obtaining or using a consumer report without a permissible purpose and also included a reminder about criminal liability for knowing or willful violations of the FCRA provisions.

July 19th, 2022|Compliance Corner|

Civil Judgments v. Judgment Liens: What is the Difference?

A civil judgment and a judgment lien are not the same things, although they do relate to the same debt.

A civil judgment is an official decision by the court regarding a civil lawsuit. If the judgment is in favor of the plaintiff (the party filing the lawsuit), the judgment typically awards the plaintiff a sum of money that must be paid by the defendant (the party sued by the plaintiff). A civil judgment can be located in a search of civil court records.

If the judgment debtor (the defendant who lost the lawsuit) fails to voluntarily pay or “satisfy the judgment,” it is up to the judgment creditor (the plaintiff who won the lawsuit) to enforce or collect the judgment.

There are a variety of ways to enforce a civil judgment. A common method of enforcing a judgment is for the judgment creditor to file a judgment lien, which is also often referred to as an “abstract of judgment.” This is an involuntary lien that the judgment creditor files to attach to the judgment debtor’s property in the jurisdiction where the judgment lien is filed. The judgment lien is typically filed in the county recorder’s office but may also be filed at the courthouse in some jurisdictions. In general, the lien is satisfied from the sale proceeds when the judgment debtor sells the property or when a refinance occurs.

July 14th, 2022|Compliance Corner|

State and Federal Court Searches: Removal vs. Remand

The U.S. has a dual court system — state courts and federal courts. State courts are established by state law and have broad jurisdiction, which means they handle many types of cases. Federal courts are established under the U.S. Constitution and have a limited jurisdiction, typically limited to cases involving the Constitution and laws passed by Congress.

In some cases, the parties may disagree about whether the case should be heard in state or federal court. When this occurs, your court searches may locate state cases that have been “removed to federal court” or federal cases that have been “remanded back to state court” – and sometimes both procedures will happen to the same case.

“Removal” is when a defendant takes a case that was filed by the plaintiff in state court and then brings it to federal court. A defendant can remove a case from state court to federal court if the case originally could have been brought in federal court. The plaintiff can challenge the removal to federal court and, if the challenge is successful, the federal court will “remand” the case back to state court.

July 12th, 2022|Compliance Corner|