Employment Decisions

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|

Are independent contractors considered employees under the FCRA?

Unfortunately, there is no clear answer.

The Federal Trade Commission (FTC) in its most recent staff report (in 2011) states that “employment purpose” is interpreted broadly and may apply to situations where individuals are not technically employees. Reports on consumers who are clearly not employees under traditional common law principles can nevertheless be construed as consumer reports for employment purposes.

It is up to the employer to determine the purpose of the background check based on its particular facts and circumstances. Some points to consider include:

1) Is the individual free from control and direction in connection with the performance of the service?

2) Is the service performed outside of the usual course of business of the employer?

3) Is the individual customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed?

If the answer is “yes,” then most likely a report on the individual would not be under the FCRA’s employment purpose.

While a few recent district court decisions have held that the FCRA employment purpose does not apply to contractors, the FTC has not budged on its stance that employees and nontraditional workers alike are protected under the FCRA.

Where there are gray areas, the conservative approach is to follow the employment purpose requirements but modify disclosure and authorization forms and other documents to reflect an independent contractor status.

April 13th, 2022|Compliance Corner, Employment Decisions|

REMINDER TO NYC EMPLOYERS: NEW REQUIREMENTS UNDER FAIR CHANCE ACT GO INTO EFFECT JULY 28, 2021

On January 10, 2021, the New York City Council passed an amendment (Local Law 4) to the city’s Fair Chance Act (FCA) which significantly expands protections for job applicants and employees. The amendment goes into effect July 28, 2021. Below are highlights of Local Law 4:

Expands scope of “criminal history” to include pending arrests and other criminal accusations.
The FCA process must be used to determine if a pending arrest or other “criminal accusation” may be the basis to rescind a conditional job offer. Such rescission may only occur if, after considering the relevant fair chance factors “the employer determines that either (i) there is a direct relationship between the alleged wrongdoing that is the subject of the pending arrest or criminal accusation and the employment sought or held by the person; or (ii) the granting or continuation of the employment would involve an unreasonable risk to property or the safety or welfare of specific individuals or the general public.”

Adds new factors to the individual assessment for pending arrests or criminal charges, or convictions that occur during employment.
Employers will have to consider the following factors, in lieu of the Article 23-A analysis:
The New York City policy “to overcome stigma toward and unnecessary exclusion of persons with criminal justice involvement in the areas of licensure and employment”;
the specific duties and responsibilities “necessarily related” to the job;
the bearing, if any, of the criminal offense or offenses for which the applicant or employee was convicted, or that are alleged in the case of pending arrests or criminal accusations, on the applicant’s or employee’s fitness or ability to perform one or more such duties or responsibilities;
whether the employee or applicant was 25 years of age or younger at the time the criminal offense(s) for which the person was convicted occurred, or that are alleged in the case of pending arrests or criminal accusations;
the seriousness of such offense(s);
the employer’s “legitimate interest” in “protecting property, and the safety and welfare of specific individuals or the general public”; and
any additional information produced by the applicant or employee, or produced on their behalf, regarding their rehabilitation or good conduct, including history of positive performance and conduct on the job or in the community, or any other evidence of good conduct.

Prohibits inquiries about specified criminal matters.
At no time may an employer take an adverse action against an applicant or employee based on that person’s (i) violations; (ii) non-criminal offenses; (iii) non-pending arrests or criminal accusations; (iv) adjournments in contemplation of dismissal; (v) youthful offender adjudications; or (vi) sealed offenses, if disclosure of such matters would violate the New York State Human Rights Law.

Requires employers to solicit from the candidate information related to the FCA process.
Currently, the FCA requires employers to only solicit evidence of rehabilitation and good conduct.

Expands the time for candidates to respond to the employer’s written assessment from three to five days.

Codifies guidance from the New York City Commission on Human Rights on revoking a conditional offer of employment.
Employers may only revoke the conditional offer based on (i) the findings of a criminal background check following an individual assessment conducted pursuant to the FCA process, (ii) the results of a medical examination, consistent with the Americans with Disabilities Act; or (iii) other information obtained by the employer after making the conditional offer, if the employer could not be reasonably expected to have that information prior to making the offer and the employer would not have made the offer if it had possessed such information.

Requires production of evidence to the applicant or employee where the employer takes adverse action pursuant to an alleged misrepresentation by the applicant or employee.
Und3r the existing FCA, an employer may take adverse action against candidates who intentionally misrepresent information to the employer. The Law will continue to allow an employer to take such action, but will require the employer to provide to the candidate the documents or other materials that support the employer’s claim of misrepresentation and permit the individual a “reasonable” amount of time to respond prior to taking the adverse action.

June 10th, 2021|Employment Decisions, Legislation|

2021 UPDATE OF FCRA LITIGATION AND THE EFFECT ON EMPLOYMENT BACKGROUND SCREENING

Fair Credit Reporting Act (FCRA) lawsuits continue to rise with the number of complaints filed in federal courts showing a +5.3% increase in 2020 over 2019[1]. This continues a trend for FCRA litigation as it has consistently shown year-over-year growth since 2010. An issue that garners much attention in FCRA litigation is whether an employer’s disclosure and authorization forms violate the FCRA. Two federal appellate decisions address this issue and provide important guidance for employers on how to draft FCRA disclosure and authorization forms.

FCRA Disclosure and Authorization Forms

Employers that want to obtain a background check report about a job applicant or current employee must comply with the FCRA and provide to the individual a standalone document with a clear and conspicuous disclosure of the employer’s intention to do so, and obtain the individual’s authorization. By way of background, the principal appellate opinion on disclosure and authorization forms is the Ninth Circuit’s Gilberg v. California Check Cashing Stores, LLC, No. No. 17-16263 (January 2019). The Gilberg opinion made clear that any extraneous information in an FCRA disclosure form violates the FCRA’s requirement that the disclosure must be “in a document that consists solely of the disclosure” (the standalone requirement). The employer in Gilberg was found to have violated the standalone requirement by:

Combining the authorization and disclosure into one document; and
Including several state-related disclosures in the form.

Two important cases from 2020 that further addressed the requirements and limitations for the content of an FCRA disclosure form were issued by the Ninth Circuit in Walker v. Fred Meyer, Inc., No. 18-35592 (March 20, 2020) and Luna v. Hansen & Adkins Transport, Inc., No. 18-55804, (April 24, 2020).

In Walker v. Fred Meyer, the court indicated that background check disclosures may contain some concise explanatory language, but there is a limit to what is explanatory and what is unlawfully extraneous. Among other allegations, the plaintiff in Walker claimed that the FCRA disclosure violated the standalone requirement because, in addition to mentioning consumer reports, it also mentioned investigative consumer reports (a type of consumer report). The Ninth Circuit rejected this claim and ruled that mentioning investigative background checks in the disclosure does not violate the FCRA’s standalone requirement because investigative consumer reports are a subcategory or specific type of consumer report and as long as the investigative background check disclosures are limited to (1) disclosing that such reports may be obtained for employment purposes and (2) providing a very brief description of what that means.

The Ninth Circuit reviewed the employer’s disclosure in Walker in detail, which consisted of five paragraphs, and held that the first three paragraphs did not violate the standalone requirement, but that the last two paragraphs did because they may pull the individual’s attention away from their privacy rights protected by the FCRA. Here are the offending paragraphs in their entirety:

“You may inspect GIS’s files about you (in person, by mail, or by phone) by providing identification to GIS. If you do, GIS will provide you help to understand the files, including communication with trained personnel and an explanation of any codes. Another person may accompany you by providing identification.”

“If GIS obtains any information by interview, you have the right to obtain a complete and accurate disclosure of the scope and nature of the investigation performed.”

The plaintiff in Walker also claimed that the language of the employer’s authorization form, which was in a separate document was confusing and underscored the confusing and distracting nature of disclosure form, thus violating the FCRA’s standalone requirement. The Ninth Circuit rejected this argument because it found that the authorization form is not relevant to the FCRA disclosure form’s standalone requirement where the authorization is not included in the disclosure and is in a separate authorization form.

In Luna v. Hansen, the plaintiff claimed that the FCRA’s physical standalone requirement for hard-copy forms was a temporal one, i.e., the disclosure form should be presented to the individual separate from all other employment-related forms. The plaintiff in Luna had received one packet containing all forms. The Ninth Circuit rejected this argument and held that as long as the background check disclosure itself is in a standalone form, it can be presented with and at the same time as other employment documents.

Key Takeaways

Given the steady uptick in FCRA litigation, it is advisable for employers to review their FCRA disclosure and authorization forms on at least a yearly basis, or whenever important appellate opinions are issued, to ensure compliance with the FCRA. The attached forms from the Gilberg and Walker opinions provide clear examples of what to avoid in FCRA disclosure forms. In general, the guidance provided in the above-referenced opinions indicate that:

background check disclosure forms may contain some concise explanatory language, but there is a limit to what is explanatory and what is unlawfully extraneous;
background check disclosure forms may be presented at the same time as other materials, including application materials, as long as the background check disclosures are on a separate form; and
language in a separate authorization form has no impact on the disclosure form’s compliance with the FCRA standalone requirement.

[1] WebRecon Stats for Dec 2020 and Year in Review

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.

March 23rd, 2021|Employment Decisions, Guidance, Judgment, Lawsuit|

Pre-Employment Screening during the Pandemic

It is a standard practice for employers to run background checks on potential new hires. Such checks help employers protect their company by learning about the trustworthiness of the candidate through their financial, criminal, and driving records and education and employment verifications. But the pandemic has affected the operations of many institutions worldwide. From court closures to remote college campuses, it may be more difficult for the screening provider to check a criminal record or verify an educational background. Nonetheless, the possibility of delay should not cause employers to lower the standards of their screening policies.

The most important reason why an employer should not temporarily waive certain parts of a background check is because it may make it harder to justify its necessity in the future. For example, say a court is closed and is unable to provide information on candidates’ criminal history. Because of this, an employer who is anxious to add the new hire to the frontline chooses to waive the criminal check requirement. Well, when a court begins to provide legal information again and an employer decides to reinstate the criminal check requirement, the employer could face compliance issues.

Under current anti-discrimination laws, namely Title VII of the Civil Rights Act of 1964, employers must demonstrate that its hiring practices are “job related” and “consistent with business necessity.” But if an employer chooses to forgo the criminal checks during the pandemic and wishes to reinstate them later, they may be violating this law. Since the criminal check was once suspended, one could argue that the practice was not job related or that it was not a business necessity. Furthermore, streamlining the employment screening process by waiving certain aspects could lead an employer to overlook valuable insight into a candidate’s character. Therefore, while a shorter background check program during the pandemic could bring short-term benefits, it runs significant long-term risks.

So, what are your options?

We have outlined up two possible avenues available to employers during these times.

Hire now (but reserve the right to run future background checks)

If a company is in a position in which new hires are urgently needed, they may hire the candidates based on the information available to them at the time of the background check and reserve the right to conduct additional background checks post-hire, once information providers resume to normal operations. But if an employer takes this route, they must clearly communicate with both their background check provider and the new hire.

They should work with the background check provider to take note of those candidates whose checks are not yet completed so that the provider can easily revisit the report in the future. Employers should also make it clear in an employee’s offer letter that the offer of employment is contingent upon the successful completion of a background check that may occur at a later date.

Delay the hire

For employers who are required by law to complete background checks prior to a new hire’s start date, they may have to delay the worker’s start date. But whether a background check provider can access the required information for an employment screen depends on the location of the various sources of information, from the courthouses to the educational institutions.

All in all, although background checks may take longer during the pandemic, they are, especially now, critical to manage your risk. With the rising number of job seekers and the remote workforce, companies must do what they can to ensure that they are hiring qualified professionals who will be valuable additions to the company.

September 10th, 2020|Employment Decisions|

Q1 2020: UPDATE OF LAWS AFFECTING EMPLOYMENT BACKGROUND SCREENING

As the year and a new decade unfold, we bring you this update on ban-the-box legislation and laws that restrict credit report usage in employment decisions. And no update would be complete without a reminder about a standard-setting federal appellate opinion from 2019 interpreting the Fair Credit Reporting Act (FCRA) disclosure requirement for an employment background check.

Let’s start with a reminder

In January 2019, the Ninth Circuit’s opinion in Gilberg v. California Check Cashing Stores, LLC made clear that any extraneous information in an FCRA disclosure form regarding an employment background check — even if the information is related to state-mandated expansions of consumer rights — violates the FCRA’s requirement that the disclosure must be “in a document that consists solely of the disclosure.

Even seemingly innocuous content, such as asking for an acknowledgment that the candidate received the FCRA summary of rights or including a statement that hiring decisions are based on legitimate non-discriminatory reasons may run afoul of the FCRA. And any state and local notices regarding the background check must be provided in separate documents, as applicable to each candidate.

Experts believe that the number of class-action lawsuits brought under the FCRA for technical errors will continue to increase. But there is an easy way to comply:

Present the disclosure to the candidate in a separate, standalone, conspicuous document. Make it clear and simple. Keep it short.

Ban-the-box laws continue to proliferate

“Ban-the-box” measures – which generally prohibit employers from inquiring about a candidate’s criminal history (including performing background checks) until later in the hiring process – continue to proliferate. Currently, 14 states (California; Colorado; Connecticut; Hawaii; Illinois; Maryland (effective February 29, 2020); Massachusetts; Minnesota; New Jersey; New Mexico; Oregon; Rhode Island; Vermont and Washington) and 22 local jurisdictions (Austin, TX ; Baltimore, MD; Buffalo, NY; Chicago, IL; Cook County, IL; Columbia, MO; District of Columbia; Grand Rapids, MI; Kansas City, MO; Los Angeles, CA; Montgomery County, MD; New York City, NY; Philadelphia, PA; Portland, OR; Prince George’s County, MD; Rochester, NY; Saint Louis, MO (effective January 1, 2021); San Francisco, CA; Seattle, WA; Spokane, WA; Waterloo, IA (effective July 1, 2020 but lawsuit filed to strike down the ordinance); and Westchester County, NY) have such laws in place for private employers.

Be mindful of credit restrictions

Less popular than state and local legislatures on ban-the-box and prohibitions on salary history inquiries, credit check restrictions remain an important consideration for employers. Ten states California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont, and Washington – as well as Chicago, District of Columbia, New York City, and Philadelphia all place restrictions on employers’ use of credit reports with exceptions for the use of such checks when required by law or the responsibilities of the position.

Arguably, the most imposing local credit report law to date continues to be the New York City’s Human Rights amendment that went into effect on May 6, 2015, and made requesting and using consumer credit history for hiring and other employment purposes, with certain exceptions, an unlawful discriminatory practice. The law provides that a “consumer credit report” includes “any written or other communication of any information by a consumer reporting agency that bears on a consumer’s creditworthiness, credit standing, credit capacity or credit history.”Many legal experts hold that the broad scope of this definition not only prohibits obtaining a consumer credit report but also searches of liens, judgments, bankruptcies, and financially-related lawsuits if there is no exemption. There is no case law on this matter.

On the national level, the U.S. House of Representatives on January 29, 2020, passed legislation that prohibits employers from using credit reports for employment decisions, except when required by law or for a national security clearance. The bill also prohibits asking questions about applicants’ financial past during job interviews or including questions about credit history on job applications. The U.S. Senate, however, is not expected to introduce the legislation.

March 6th, 2020|Employment Decisions|

Ninth Circuit Defines “Standalone, Clear and Conspicuous” Disclosure for Obtaining Employment-Purpose Background Checks

On January 29, 2019, the U.S. Court of Appeals for the Ninth Circuit in Gilberg v. California Check Cashing Stores, LLC instructed employers about the importance of complying with background check disclosure requirements found in the Fair Credit Reporting Act (FCRA).

Pursuant to the federal statute, employers who want to obtain a consumer report (commonly referred to as a background check report) on a job candidate must provide to the candidate a “clear and conspicuous disclosure” about the report in a document that consists “solely of the disclosure.” 15 U.S.C. § 1681b(b)(2)(A).

But when Desiree Gilberg applied for a job with CheckSmart Financial, she received something different. First Gilberg completed a three-page form containing an employment application, a math screening and an employment history verification. She then signed a separate form entitled, “Disclosure Regarding Background Investigation.”

The one-page form included the required FCRA disclosure as well as mandated state disclosures for California, Maine, Minnesota, New York, Oklahoma, Oregon and Washington.

Gilberg worked for CheckSmart for five months before voluntarily leaving the job. She then filed a putative class action against the company, alleging that it failed to make proper disclosures as set forth in both the FCRA and California’s Investigative Consumer Reporting Agencies Act (ICRAA).

A district court sided with the employer and dismissed the case. The judge agreed with CheckSmart that its disclosure form complied with both statutes. Gilberg appealed to the Ninth Circuit. She argued that the standalone requirement didn’t permit the combination of state and federal disclosures as CheckSmart had tried.

Considering the issue, the Ninth Circuit recalled a 2017 decision in Syed v. M-I, LLC. In that case, which also involved the standalone requirement, the federal appellate panel held that a prospective employer violated the FCRA when it included a liability waiver in the same document as the mandated disclosure. The statute means what it says, the court emphasized: the required disclosure must be in a document that “consist

[s] ‘solely’ of the disclosure.”

In an effort to distinguish its disclosure from that in the Syed case, CheckSmart told the court that the additional information in its form actually furthered the FCRA’s purpose.

“We disagree,” the court wrote. “Syed’s holding and statutory analysis were not limited to liability waivers; Syed considered the standalone requirement with regard to any surplusage. Syed grounded its analysis of the liability waiver in its statutory analysis of the word ‘solely,’ noting that FCRA should not be read to have implied exceptions, especially when the exception – in that case, a liability waiver – was contrary to FCRA’s purpose. Syed also cautioned ‘against finding additional, implied exceptions’ simply because Congress had created one exception. Consistent with Syed, we decline CheckSmart’s invitation to create an implied exception here.”

Plain meaning trumps purpose, the Ninth Circuit said, rejecting the employer’s contention that its disclosure form was consistent with the intent of the FCRA. Since the surplus language included disclosures required by various state laws that were inapplicable to Gilberg, the court was unable to understand how the CheckSmart form comported with the purpose of the federal statute.

“Because the presence of this extraneous information is as likely to confuse as it is to inform, it does not further FCRA’s purpose,” the court declared.

“Syed holds that the standalone requirement forecloses implicit exceptions,” the panel wrote. “The statute’s one express exception does not apply here, and CheckSmart’s disclosure contains extraneous and irrelevant information beyond what FCRA itself requires. The disclosure, therefore, violates FCRA’s standalone document requirement. Even if congressional purpose were relevant, much of the surplusage in CheckSmart’s disclosure form does not effectuate the purposes of the FCRA.”

In addition to ruling that the district court erred in concluding that the employer’s disclosure form satisfied the FCRA’s standalone document requirement, the Ninth Circuit also held that CheckSmart’s disclosure form was not “clear and conspicuous” under either FCRA or ICRAA.

The court grudgingly found the form to be “conspicuous” (despite characterizing the font as “inadvisably” small and cramped) but held it was not “clear.” The disclosure contained language a reasonable person would not understand, the court said, and its content would confuse a reader with the combination of federal and state disclosures.

As “CheckSmart’s disclosure form was not both clear and conspicuous, the district erred in granting CheckSmart’s motion for summary judgment with regard to the FCRA and ICRAA ‘clear and conspicuous’ requirements,” the panel wrote. The Ninth Circuit reversed dismissal of Gilberg’s complaint and remanded the case to the California district court. (As of this writing, there is a petition for rehearing and rehearing en banc pending before the 9th Circuit.)

For employers, the Ninth Circuit opinion could not be more clear: ensure that the FCRA disclosure form provided to job candidates contains no extraneous or surplus language. The decision also provides an important reminder about keeping disclosures forms clear and conspicuous in order to comply with both federal and state laws.

Pursuant to the federal statute, employers who want to obtain a consumer report (commonly referred to as a background check report) on a job candidate must provide to the candidate a “clear and conspicuous disclosure” about the report in a document that consists “solely of the disclosure.” 15 U.S.C. § 1681b(b)(2)(A).

But when Desiree Gilberg applied for a job with CheckSmart Financial, she received something different. First Gilberg completed a three-page form containing an employment application, a math screening and an employment history verification. She then signed a separate form entitled, “Disclosure Regarding Background Investigation.”

The one-page form included the required FCRA disclosure as well as mandated state disclosures for California, Maine, Minnesota, New York, Oklahoma, Oregon and Washington.

Gilberg worked for CheckSmart for five months before voluntarily leaving the job. She then filed a putative class action against the company, alleging that it failed to make proper disclosures as set forth in both the FCRA and California’s Investigative Consumer Reporting Agencies Act (ICRAA).

A district court sided with the employer and dismissed the case. The judge agreed with CheckSmart that its disclosure form complied with both statutes. Gilberg appealed to the Ninth Circuit. She argued that the standalone requirement didn’t permit the combination of state and federal disclosures as CheckSmart had tried.

Considering the issue, the Ninth Circuit recalled a 2017 decision in Syed v. M-I, LLC. In that case, which also involved the standalone requirement, the federal appellate panel held that a prospective employer violated the FCRA when it included a liability waiver in the same document as the mandated disclosure. The statute means what it says, the court emphasized: the required disclosure must be in a document that “consist[s] ‘solely’ of the disclosure.”

In an effort to distinguish its disclosure from that in the Syed case, CheckSmart told the court that the additional information in its form actually furthered the FCRA’s purpose.

“We disagree,” the court wrote. “Syed’s holding and statutory analysis were not limited to liability waivers; Syed considered the standalone requirement with regard to any surplusage. Syed grounded its analysis of the liability waiver in its statutory analysis of the word ‘solely,’ noting that FCRA should not be read to have implied exceptions, especially when the exception – in that case, a liability waiver – was contrary to FCRA’s purpose. Syed also cautioned ‘against finding additional, implied exceptions’ simply because Congress had created one exception. Consistent with Syed, we decline CheckSmart’s invitation to create an implied exception here.”

Plain meaning trumps purpose, the Ninth Circuit said, rejecting the employer’s contention that its disclosure form was consistent with the intent of the FCRA. Since the surplus language included disclosures required by various state laws that were inapplicable to Gilberg, the court was unable to understand how the CheckSmart form comported with the purpose of the federal statute.

“Because the presence of this extraneous information is as likely to confuse as it is to inform, it does not further FCRA’s purpose,” the court declared.

“Syed holds that the standalone requirement forecloses implicit exceptions,” the panel wrote. “The statute’s one express exception does not apply here, and CheckSmart’s disclosure contains extraneous and irrelevant information beyond what FCRA itself requires. The disclosure therefore violates FCRA’s standalone document requirement. Even if congressional purpose were relevant, much of the surplusage in CheckSmart’s disclosure form does not effectuate the purposes of the FCRA.”

In addition to ruling that the district court erred in concluding that the employer’s disclosure form satisfied the FCRA’s standalone document requirement, the Ninth Circuit also held that CheckSmart’s disclosure form was not “clear and conspicuous” under either FCRA or ICRAA.

The court grudgingly found the form to be “conspicuous” (despite characterizing the font as “inadvisably” small and cramped) but held it was not “clear.” The disclosure contained language a reasonable person would not understand, the court said, and its content would confuse a reader with the combination of federal and state disclosures.

As “CheckSmart’s disclosure form was not both clear and conspicuous, the district erred in granting CheckSmart’s motion for summary judgment with regard to the FCRA and ICRAA ‘clear and conspicuous’ requirements,” the panel wrote. The Ninth Circuit reversed dismissal of Gilberg’s complaint and remanded the case to the California district court. (As of this writing, there is a petition for rehearing and rehearing en banc pending before the 9th Circuit.)

For employers, the Ninth Circuit opinion could not be more clear: ensure that the FCRA disclosure form provided to job candidates contains no extraneous or surplus language. The decision also provides an important reminder about keeping disclosures forms clear and conspicuous in order to comply with both federal and state laws.

March 2nd, 2019|Employment Decisions, Judgment|

Independent contractors and the FCRA

Must employers provide the protections required by the Fair Credit Reporting Act (FCRA) to prospective independent contractors?

Not according to a new decision from an Iowa court (see Smith v. Mutual of Omaha Insurance Company, No. 4:17-cv-00443 (S.D. Iowa Oct. 4, 2018)) which grappled with the question in the context of a lawsuit filed by an individual against an insurance company where he applied to contract as a salesperson but was rejected because of a falsely reported felony in his background check. The plaintiff accused the insurance company of violating the FCRA by failing to provide him with the statutorily required prior notice that the background check resulted in his not being hired.

The insurance company asked the court to dismiss the lawsuit, claiming that the FCRA only requires such notice when an applicant seeks to be hired as an employee, and not as an independent contractor. Since the plaintiff applied for an independent contractor position, he was not entitled to the protections of the statute, the insurance company argued.

The plaintiff countered that he was applying to be an employee of the insurance company and that it was too early to dismiss the case, as further discovery was needed. In the alternative, he argued that the FCRA should still govern his relationship even as an independent contractor.

In ruling on the FCRA issue, Judge John Jarvey began with the language of the law. The FCRA is a broad statute, Judge Jarvey said, and some of its most stringent protections apply when a background check is being obtained “for employment purposes.”

The definitions section of the FCRA, at 15 U.S.C. § 1681a(h), states that “

[t]he term ‘employment purposes’ when used in connection with a consumer report means a report used for the purpose of evaluating a consumer for employment, promotion, reassignment or retention as an employee.” This text “makes clear that the pre-adverse action notice requirement only applies when a consumer report is used for employment purposes,” Judge Jarvey wrote. “The meaning of ‘employment purposes’ is specifically defined in the statute, and it is defined as being ‘used for the purpose of evaluating a consumer for employment, promotion, reassignment or retention as an employee.’” District courts in Ohio and Wisconsin have reached the same conclusion, Judge Jarvey noted, citing the decisions for support.

Notably, the Federal Trade Commission (FTC) in its 2011 staff report entitled “40 Years of Experience with the Fair Credit Reporting Act” provided a seemingly contrasting interpretation. The FTC stated that “the term ‘employment purposes’ is interpreted liberally to effectuate the broad remedial purpose of the FCRA and may apply to situations where an entity uses individuals who are not technically employees to perform duties. Thus, it includes a trucking company that obtains consumer reports on individual drivers who own and operate their own equipment; a title insurance company that obtains consumer reports on individuals with whom it frequently enters into contracts to sell its insurance, examine title, and close real property transactions; or a nonprofit organization staffed in whole or in part by volunteers.”

The FTC’s view can be reconciled with that of Judge Jarvey’s by taking the approach that the applicability of FCRA’s requirements depends on the facts and circumstances of the particular relationship, rather than the formal designation of someone as an independent contractor.

Given the still remaining disputed issue of whether or not the plaintiff would have been an employee or an independent contractor for the insurance company, the court ordered limited discovery on the issue and declined to dismiss the suit.

January 2nd, 2019|Employment Decisions, FCRA, Judgment|