The use and disclosure of employee/prospective employee background check information is becoming a highly-litigated issue. This controversial area has culminated in a recent federal court decision about employers’ specific obligations surrounding employee/prospective employee background check reports. (Gilberg v. California Check Cashing Stores, LLC,  No. 17-16263 (9th Cir. January 29, 2019).) Given this recent increased scrutiny and enforcement, it is critical that employers comply with federal and state law when conducting background checks on employees/prospective employees.

CLEAR AND CONSPICUOUS DISCLOSURE

Under the Fair Credit and Reporting Act ("FCRA"), employers who obtain a “consumer report” (which includes information bearing on a consumer’s credit, character, general reputation, personal characteristics, or mode of living) on an employee/prospective employee must provide a "clear and conspicuous disclosure" that the employer may obtain such a report. This disclosure must be "in a document that consists solely of the disclosure" before procuring the report. (15 U.S.C. § 1681b(b)(2)(A)(i).)

Similarly, California has its own version of the FCRA: the Investigative Consumer Reporting Agencies Act (“ICRAA”), which applies when an employer intends to obtain an “investigative consumer report.” (California Civil Code § 1786 et seq.) “Investigative consumer reports” are reports containing information on a consumer’s “character, general reputation, personal characteristics, or mode of living.” (Id. at § 1786.2(c).)

ICRAA, like the FCRA, requires employers who obtain investigative consumer reports on employees/prospective employees to provide a “clear and conspicuous disclosure in writing” before the report is procured. (Id. at § 1786.16(2)(B).) This disclosure must contain specific information, including, but not limited to, the nature and scope of the investigation requested, as well as information about the consumer reporting agency conducting the investigation. (Id.)

WRITTEN NOTICE AND STAND-ALONE DISCLOSURES

In addition, California also requires written notice when employers intend to obtain a “consumer credit report” for employment purposes. (Cal. Civ. Code § 1785.20.5.) Consumer credit reports, unlike investigative consumer reports, are reports that solely contain information related to a consumer’s credit worthiness, credit standing, or credit capacity. (Id. at § 1785.3(c).) Like the notice requirements of ICRAA, this notice must also state specific information. And, it can only be procured if there is a lawful basis to do so under the law. (Cal. Civ. Code § 1785.20.5; see also Cal. Labor Code § 1024.5 [identifying the eight reasons for procuring consumer credit reports].). Lawful bases include using consumer credit reports for persons in or being considered for management positions, for persons who require access to confidential or proprietary information, or for persons who are authorized to enter into financial transactions on behalf of the employer.

While most employers bundle these various disclosure notices together, the Ninth Circuit Court recently held that employers may no longer combine these disclosure notices. The court in that decision held that a prospective employer violates the FCRA when it includes extraneous information relating to various state disclosure requirements in its FRCA disclosure—ultimately holding that a disclosure under the FCRA must completely stand alone and be separate from any state-mandated disclosures. (Gilberg v. California Check Cashing Stores, LLC, No. 17-16263.)

This case brings to light many issues that should be addressed by every employer. Not only should employers make sure that its state and federal background check disclosures are properly separated from one another, but employers should also confirm that their disclosures contain the appropriate "clear and conspicuous information" that is specifically required by federal and state law. (15 U.S.C. § 1681b(b)(2)(A)(i); Cal. Civ. Code § 1786.16(2)(B); see also Cal. Civ. Code § 1785.20.5(a).)

Failure to comply with federal and state laws on this issue can result in civil damages, penalties, and attorneys' fees. Please don't hesitate to reach out to Maier Law Group if you would like us to help your company comply with the law governing background checks on employees and prospective employees.

Author: Kymberly LeGolvan, Associate.

The Maier Law Group helps companies ensure that their policies and practices comply with the relevant workplace regulations.  Please contact us at info@maierlawgroup.com for more information.

This article has been prepared for general informational purposes only and does not constitute advertising, solicitation, or legal advice. If you have questions about a particular matter, please contact the Maier Law Group directly.