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.
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Before a conditional offer can be rescinded, a California employer must perform an individualized assessment as to whether the applicant’s criminal history “has a direct and adverse relationship with the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.
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.
• 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.
• 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.
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.
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.
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.
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.
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.
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.
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.
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.
Every business has a “legal” or “true name.” When researching a company, it is important to identify its legal name. In the case of a corporation or limited liability company, the legal name is the one on its formation document — e.g., the articles of incorporation or articles of organization. As an example, Scherzer International’s legal name is Scherzer International Corporation.
If the company does business under another name, it is commonly referred to as a DBA – which stands for “doing business as.” DBAs are also sometimes referred to as an “assumed name,” “fictitious business name,” or “trade name.” State and local laws generally require a company to register a DBA it is using; however, it is important to note that registering and doing business under a DBA name is not the same as forming a business or a business entity.
Almost everyone has heard the terms DWI and DUI, and many think that both are interchangeable. New York law uses a third term – DWAI. None of these terms are interchangeable and New York law does not use the term DUI or driving under the influence.
In New York, there are two main “drunk driving offenses” – DWI and DWAI. DWI stands for “driving while intoxicated,” while DWAI stands for “driving while ability impaired.” A DWI means that the driver is legally intoxicated, with a blood alcohol content of at least 0.08 percent. A DWAI involving alcohol means the driver’s blood alcohol content is between 0.05 and 0.07 percent.
Although the penalties for a New York DWI and DWAI are nearly the same, there is a big difference between them regarding the offense level. A DWI conviction is a criminal offence, while a DWAI conviction is a violation – which in New York is a non-criminal offence.
The practical effect of this distinction is that a DWAI conviction will appear on a New York driving record (usually stated as “driving while impaired”), but the court conviction will not appear on a New York Statewide CHRS report because these reports do not include non-criminal offenses such as violations.