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.
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. 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.
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.
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.
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.
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.
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
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 “
For California employers concerned about hiring sex offenders, there are a few important points to keep in mind.
An employer has a duty to keep the workplace free of sexual harassment and other forms of discrimination under state law. Under the California Fair Employment and Housing Act (FEHA), an employer can face significant liability if it knowingly employs a sex offender and fails to take actions to protect its other employees from unlawful behavior by that person.
To avoid this problem, employers would like to know if they are hiring a registered sex offender. But how can they find out?
Since 2005, the state has operated a Megan’s Law website with a database to obtain access to the state’s list of more than 100,000 registered sex offenders. Created to help state residents better protect their families by being able to search for an individual registrant or by geographic location, the site (https://www.meganslaw.ca.gov/Default.aspx) contains the sex offender’s name, aliases, age, gender, race, address, physical description and, in some cases, a photograph.
While the site would appear to be a boon for employers, state law expressly forbids use of the state’s sex offender registry information for employment purposes. California Penal Code section 209.46(l)(2)(E) prohibits the use of information disclosed on the website for purposes relating to health insurance, insurance, loans, credit, education, housing and employment, among other uses.
Statutory exceptions provide for use “to protect a person at risk,” a term not defined by the Penal Code, as well as for employers required by law or authorized to request criminal history from the California Department of Justice. Examples of businesses that meet this standard may include child care centers, financial institutions and governmental agencies.
An employer who runs afoul of the Penal Code’s prohibition can face actual and exemplary damages, attorneys’ fees and a civil fine. Legislative history explains that the website attempts to protect the public while not inflicting additional punishment on registrants.
For employers trying to walk the fine line of protecting other employees and third parties, such as customers, from potential sex offender registrant employees while not violating the Penal Code, two alternate avenues exist to try to find out information about a sex offender: conviction records and employee/applicant self-disclosure.
Following applicable state and federal law, employers can conduct a criminal background check on applicants and employees and learn of a sex offense conviction. (However, convictions past the seven-year cut-off date in California may not appear on a background check report while the individual may still appear in the sex offender registry). An applicant or employee may also self-disclose a conviction.
Providing another wrinkle for California employers, the state’s Fair Chance Act took effect on January 1, 2018, mandating that employers with five or more employees must wait until after a conditional offer of employment has been made to ask any questions about criminal history. This includes inquiries about convictions, running a background check or other efforts to find out about an applicant’s criminal past.
If the employer decides not to hire the applicant, it must conduct an individualized assessment of the conviction at issue to evaluate whether it has a “direct and adverse relationship with the specific duties of the job that justify denying the applicant the position.” Other legal requirements, based on both state and federal law, must also be satisfied if an employer takes an adverse action on the basis of the background check (see our prior blog post (https://scherzer.co/reminder-to-california-employers-about-requirements-when-taking-adverse-action-based-on-a-criminal-record/) for more details).
What if an employer learns that an employee is a registered sex offender from another employee’s perusal of the Megan’s Law website? This situation could trigger liability under section 290.46 and employers should be careful to take action only after evaluating any potential risk the sex offender employee may pose to coworkers or customers, considering all the facts and circumstances.
For many years, employers have struggled with California’s overlapping statutes governing the use of background checks. Now, the state’s highest court has weighed in, ruling that compliance with the requirements of both laws is mandatory, even where the laws overlap.
A little history is necessary to understand the situation. In 1970, Congress passed the Fair Credit Reporting Act (FCRA). The law defined the term “consumer report” to include an individual’s “credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living.” The FCRA distinguished between consumer reports that contained information obtained by personal interviews and consumer reports gathered by other means.
The California legislature responded with two state analogues in 1975: the Investigative Consumer Reporting Agencies Act (ICRAA) and the Consumer Credit Reporting Agencies Act (CCRAA). Modeled on the FCRA, the statutes had similar purposes and were intended to serve complementary goals.
As originally enacted, the ICRAA applied to consumer reports that included character information obtained only through personal interviews. It defined an “investigative consumer report” as one “in which information on a consumer’s character, general reputation, personal characteristics, or mode of living is obtained through any means.” The statute requires that the person procuring the report provide the consumer a “clear and conspicuous disclosure in writing” and that the consumer in turn provide a written authorization for the report’s procurement.
Lawmakers took a slightly different approach with CCRAA, which defined a “consumer credit report” as “any written, oral or other communication of any information by a consumer reporting agency bearing on a consumer’s credit worthiness, credit standing, or credit capacity, which is used or is expected to be used … for … employment purposes.” The definition excluded “any report containing information solely on a consumer’s character, general reputation, personal characteristics, or mode of living which is obtained through personal interviews with neighbors, friends, or associates of the consumer reported on, or others with whom he is acquainted or who may have knowledge concerning any such items of information.”
In 1998, the California legislature amended ICRAA to eliminate the personal interview limitation and expand the statute’s scope to include character information obtained under CCRAA or “obtained through any means.”
Since then, CCRAA continues to govern consumer reports that include character information obtained from a source other than personal interviews, as long as those reports contain information “bearing on a consumer’s credit worthiness, credit standing, or credit capacity.”
What does all this mean for employers? And how did the California Supreme Court get involved?
The two statutes came to the attention of the court when a group of current and former school bus drivers filed suit against their employers, First Student and First Transit, as well as the investigative consumer reporting agency (ICRA) that conducted background checks on the drivers. Eileen Connor led the class action.
After First Student acquired the company where Connor worked as a driver, it requested that the ICRA run background checks to confirm that Connor and the other workers were properly qualified to perform their job duties. The background reports elicited information about the employees’ criminal records, sex offender registries, address history, driving records and employment history.
Prior to conducting the background checks, First Student sent Connor a “Safety Packet” booklet. The booklet included an “Investigative Consumer Report Disclosure and Release” that provided authorization for the ICRA to prepare a consumer report or investigative consumer report. The notice included a checkbox that generally described Connor’s rights under ICRAA, informed her that she could check the box if she wanted to receive a copy of the report and released First Student from all claims and damages arising out of or relating to its background investigation if the box was checked.
Connor filed suit, arguing that the notice failed to satisfy ICRAA’s specific requirements and that First Student neglected to obtain her written authorization to conduct the background check, as required by ICRAA.
First Student asked the court to dismiss the suit, arguing that ICRAA is unconstitutionally vague as applied to the lawsuit because it overlaps with CCRAA and that the notice satisfied CCRAA.
The California Supreme Court found that while the statutes overlap to some degree, achieving compliance with both did not render ICRAA unconstitutional. The two statutes were not intended to be exclusive of each other, the court said, and potential employers can comply with both statutes without undermining the purpose of either.
“If an employer seeks a consumer’s credit records exclusively, then the employer need only comply with CCRAA,” the court explained. “An employer seeking other information that is obtained by any means must comply with ICRAA. In the event that any other information revealed in an ICRAA background check contains a subject’s credit information and the two statutes thus overlap, a regulated party is expected to know and follow the requirements of both statutes, even if that requires greater formality in obtaining a consumer’s credit records.”
First Student complained that because the ICRAA and CCRAA cover the same subject matter, it was unclear which statute applied in the context of employment background checks. But the court disagreed. Connor’s report, for example, fell within the scope of both statutes and “such a duality does not make legal compliance particularly difficult, must less impossible,” the court said.
“Any partial overlap between the statutes does not render one superfluous or unconstitutionally vague,” the court wrote. “They can coexist because both acts are sufficiently clear and each act regulates information that the other does not.”
The California Supreme Court opinion was a loss for First Student and the ICRA, as the court found the defendants had no excuse for not complying with both statutes. For employers more generally, the decision sends an important message: compliance with the requirements of both ICRAA and CCRAA is mandatory, even where the two statutes overlap.