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Overlapping Regulations Compel Extreme Caution by California Employers Before Conducting Employee Background Checks

Published by on October 19, 2015

California has two laws that regulate consumer information that can be collected and provided to employers for use during the process of making employment decisions. Unfortunately, each of the laws have differing disclosure and authorization requirements with which California employers must comply, making background check compliance confusing and fraught with potential violations. The Consumer Credit […]

California has two laws that regulate consumer information that can be collected and provided to employers for use during the process of making employment decisions. Unfortunately, each of the laws have differing disclosure and authorization requirements with which California employers must comply, making background check compliance confusing and fraught with potential violations.

The Consumer Credit Reporting Agencies Act (“CCRAA”) (California Civil Code § 1785.1 et seq.) allows a credit reporting agency to provide an employer with a consumer credit report, which is a report containing information about “a consumer’s credit worthiness, credit standing, or credit capacity.” A consumer credit report, however, does not include “any report containing information solely on a consumer’s character, general reputation, personal characteristics, or mode of living . . . .”

The CCRAA does not require the employee’s written authorization prior to the employer obtaining a consumer credit report about the employee.

The Investigative Consumer Reporting Agencies Act (“ICRAA”) (California Civil Code § 1786 et seq.), on the other hand, allows an “investigative consumer reporting agency” to provide an employer with an “investigative consumer report,” which is a report containing “information on a consumer’s character, general reputation, personal characteristics, or mode of living.” An employer must provide the employee with a detailed notice and disclosure and obtain the employee’s written authorization before obtaining an investigative consumer report about the employee.

If the employer fails to provide the required disclosure notice and/or fails to obtain the written authorization from the employee, the employer can be liable for a minimum fine of $10,000, plus attorneys’ fees and punitive damages. Clearly, the requirements and limitations are different for each act, making it very important for employers to understand the type of information they seek to obtain about an employee.

The Second Appellate District of the California Court of Appeal recently addressed the interplay and differing requirements between the CCRAA and the ICRAA in Connor v. First Student, Inc., 239 Cal. App. 4th 526 (2015). The plaintiff, Eileen Connor, was a school bus driver for Laidlaw Education Services (“Laidlaw”). When First Student, Inc. (“First”) acquired Laidlaw, First hired an investigative consumer reporting agency to conduct background checks on Connor and all other former Laidlaw bus drivers.

The background checks included information from criminal records, sex offender registries, address history, driving records, and employment history. Before conducting the background checks, First sent each employee a notice and disclosure advising that a background check may be performed and that the report “may include . . . names and dates of previous employers, reason for termination of employment, work experience, accidents, academic history, professional credentials, drugs/alcohol use, information relating to your character, general reputation, educational background, or any other information about you which may reflect upon your potential for employment.” The notice advised employees that they could view or obtain copies of the reports by checking a box on the notice, and it provided other disclosures required by the ICRAA.

Connor sued First, alleging that the notice did not satisfy the requirements of the ICRAA, specifically that First did not obtain her written authorization to conduct the background check in the first place. First moved for summary judgment, arguing that when the information can be categorized as both character information (governed by the ICRAA) and creditworthiness information (governed by the CCRAA), the statutory scheme cannot be constitutionally enforced because it does not give adequate notice of whether the ICRAA or the CCRAA governs the information.

Because the ICRAA was unenforceable under these circumstances, First argued it did not have to comply with the ICRAA’s requirement of obtaining written authorization from an employee prior to conducting a background check. The trial court granted First’s motion for summary judgment.

On her appeal to the Second Appellate District, Connor argued that under its plain language, the ICRAA applied to the background checks performed by First, and the fact that the CCRAA may also apply to the background checks did not make the ICRAA unenforceable, allowing First to disregard the ICRAA’s requirements.

The Second Appellate District found that “[t]here is no question that the background checks included information on the employees’ (or prospective employees’) ‘character, general reputation, personal characteristics, or mode of living,’ and thus were investigative consumer reports” pursuant to the ICRAA. Even though the Second Appellate District determined the CCRAA did not apply to First’s background checks because they did not seek information about the employees’ creditworthiness, the Court held that there was nothing in the ICRAA or the CCRAA that precluded their concurrent application to one consumer report containing both character and creditworthiness information.

The Court stated, “The fact that the two acts overlap in their coverage of some consumer reports does not render the acts unconstitutionally vague to the extent of that overlap.”

Laconic Lookout:

If you want to perform background checks on your employees in California, make sure you have spoken to counsel about the information you intend to obtain (whether character information, creditworthiness information, or both) and the requirements you must meet pursuant to either or both the ICRAA and the CCRAA. Where it is unclear if the information you seek is character information or creditworthiness information, it is prudent for you to comply with the generally stricter disclosure and authorization requirements of the ICRAA and obtain written authorization from your employees prior to conducting the background checks.

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