Understanding FCRA, California’s Background Check Law, and Ban the Box Protections: Key Insights for Employers
Employers that rely on background checks by third parties in making employment decisions must comply with several interlacing and tedious protections for employee privacy rights. While the basic legal framework for this process has been in place for many years, case law continues to evolve as protections expand and employment practices remain under scrutiny.
The California Supreme Court recently touched on the scope of these privacy protections, providing some clarity for employers on potential “mischiefs” stemming from the “improper uses of information properly obtained for a specific purpose” and answering the previously open question on whether employers can consider DMV records related to license suspensions without wading into additional conviction history compliance requirements. In short, yes. While California continues to prohibit employers from considering arrests not resulting in convictions, that DMV's disclosure of the reason for license suspension (for example, alcohol-impairment) does not constitute disclosure of information received from law enforcement pertaining to or concerning an arrest and is therefore not prohibited by Labor Code section 432.7(g)(2) or the constitutional right to privacy.
As with many background-check related considerations, understanding the full implication of this holding requires additional context. Below is an overview of the federal Fair Credit Reporting Act (FCRA), California’s separate background check and “ban the box” protections, and further analysis of the Court’s recent opinion.
Fair Credit Reporting Act (FCRA)
The Fair Credit Reporting Act (FCRA) is a federal law enacted to promote the accuracy, fairness, and privacy of information in reports prepared by third-party consumer reporting agencies (CRAs). Non-compliance with FCRA can result in class-action litigation and civil penalties.
Key FCRA requirements include:
Disclosure and Authorization: Before obtaining a background report, employers must inform the applicant or employee in a stand-alone writing and obtain their written consent. The FTC explains “you must provide the prospective employee with a clear and conspicuous written disclosure” that cannot include “extraneous” information. In other words, “keep it simple.”
Pre-Adverse Action: If an employer intends to take adverse action (i.e., not hiring or terminating) based on the background report, it must provide the individual with a copy of the whole report and a summary of their rights under the FCRA, and then wait a “reasonable” amount of time before taking action.
Adverse Action Notice: After taking the adverse action, the employer must inform the individual, providing details such as the name and contact information of the CRA, a statement that the CRA did not make the adverse decision, and a notice of the individual’s right to dispute the accuracy or completeness of the report.
California’s Background Check Laws
California and other states have similar but distinct versions of this protection that add additional layers of regulatory compliance. The California Investigative Consumer Reporting Agencies Act (ICRAA) and the California Consumer Credit Reporting Agencies Act (CCRAA) govern how background checks should be conducted within the state.
Key considerations for California employers include:
Notice and Consent: Like FCRA, employers must provide clear and conspicuous notice to the applicant or employee and obtain their written consent. In 2019, the Ninth Circuit held in Gilberg v. Cal. Check Cashing Stores, LLC that employers are required to use two separate, standalone forms when conducting background checks, rather than combining FCRA and state disclosures into a single document.
Use of Credit Reports: The use of credit reports in employment decisions is restricted. Employers may only request credit reports for specific positions, such as managerial roles, positions involving regular access to confidential information, or roles that entail fiduciary responsibilities. Notice of intent to rely on credit report information must be included in the disclosure and additional detail related to credit reports (including the individual’s score and key factors affecting it) must be included in an adverse action notice.
Limitations on Criminal History: Employers must adhere to the state’s “ban the box” law, which restricts when and how they can inquire about an applicant’s criminal history. The law prohibits employers with five or more employees from asking about an applicant’s conviction history before making a conditional job offer, which is intended to reduce barriers to employment for individuals with criminal records and promote fair hiring practices. The law also expressly limits the type of criminal and conviction history employers may properly consider. If a conviction history report raises any red flags, employers must conduct an individualized assessment, considering factors such as the nature and gravity of the offense, the time that has passed, and the nature of the job sought.
Pre-Adverse Action Notification and Response: Employers must notify the applicant of the preliminary decision to rescind the offer, provide a copy of the background check report, and allow time before taking an adverse action. For conviction history, this notice should specify any conviction and allow the applicant at least five business days to respond with any evidence of rehabilitation or mitigating circumstances (e.g. evidence challenging the accuracy of the conviction history report and/or evidence of rehabilitation or mitigating circumstances, and the deadline for their response. Employers must consider any evidence of inaccuracy, rehabilitation or mitigation timely submitted. If the individual notifies the employer within five business days that he or she is taking steps to gather evidence, the individual must be given an additional five business days to respond to the notice.
Adverse Action Notice. Like FCRA, if the employer decides to proceed with taking adverse action, employers must also provide a final adverse action notice with required information.
Doe v. California Department of Motor Vehicles (Cal. App. 1st Dist., Div. 5, June 21, 2024)
At issue before the California Supreme Court in Doe v. California DMV was a background check’s inclusion of DMV license-suspension information, even when no criminal conviction had resulted. The Court addressed whether DMV may also include on a publicly disclosed driving record the reason for such a suspension —for example, that the driver had an excessive blood-alcohol level—even when the driver has not been convicted. The plaintiffs argued this practice effectively disclosed information about a non-conviction arrest, resulting in violations of protected privacy rights and California’s ban the box law. The Court disagreed and concluded that although “an arrest is an integral part” of the suspension process, disclosure of the reason for a DMV suspension is not improper because it discloses “the result of an independent administrative adjudication.” The Court expanded on this analysis, explaining that privacy protections under Labor Code section 432.7 are in place “to prevent the adverse impact on employment opportunities of information concerning arrests where culpability cannot be proved” and the DMV’s suspension process “provides substantially more reliable results” than the lawfulness of an arrest alone.
In affirming the lower court’s ruling, the Court held that “disclosure of the reason for a DMV suspension issued for alcohol-impaired driving does not constitute the disclosure of information about a non-conviction arrest within the meaning of these privacy provisions.”
This holding provides clarity to employers about the propriety of considering license suspensions and the underlying reason for that suspension, regardless of the fact of an arrest that may or may not have resulted in a conviction. While the implications of this development remain unseen, the ruling suggests that consideration of this information would not trigger an obligation to conduct an individualized assessment under California’s ban-the-box law. But conducting and documenting the assessment remains a good practice, nevertheless.
For employers and HR professionals, understanding federal and state background check laws is an important part of fostering fair and legal hiring practices, and mitigating legal risk resulting from technical non-compliance. Employers with background check practices should review their policies and processes and reach out to experienced counsel for assistance.
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