What are the California rules regarding employer use of an outside agency to perform background checks? How do these rules differ from federal law?

Employers that use an outside agency to perform a background check must be familiar with the requirements under the California Investigative Consumer Reporting Agencies Act (ICRAA). Under the ICRAA, an employer may not ask an outside agency to perform a background or credit check on an applicant or employee in California without first obtaining the individual's consent, giving proper notice to the individual and giving the individual an opportunity to request a copy of the report. The employer's notice must be clear and conspicuous on a form that contains only the disclosure. Courts have ruled that inclusion of state disclosure information on a federal Fair Credit Reporting Act disclosure notice is not acceptable. Employers must use separate disclosure forms for state and federal law. The disclosure must include very specific information, including the following:

• A statement that an investigative consumer report may be obtained.
• A statement that the investigative consumer report is being sought for the permissible purpose of using the information for employment purposes.
• A statement that the report may contain information on the employee or applicant's character, general reputation, personal characteristics and mode of living.
• The name, address and telephone number of the reporting agency.
• The nature and scope of the investigation requested.
• Obligations of the agency, such as how the consumer can view the file.
• The Internet website address of the investigative consumer reporting agency or, if the agency has no Internet website address, the telephone number of the agency where the consumer may find information about the investigative reporting agency's privacy practices, including whether the consumer's personal information will be sent outside the United States or its territories and other required information.

Unlike federal law, California law also requires new consent each time an investigative report is sought during employment if the report is for purposes other than suspicion of wrongdoing or misconduct.

Employers must provide the applicant or employee with the opportunity to request a copy of the report. A check box on the consent form is acceptable. If requested, the employer must send the report containing the name, address and telephone number of the reporting agency to the applicant within three business days of the date it is provided to the employer. Employers are permitted to contract with the outside agency to send the report directly to the applicant or employee.

The ICRAA also regulates what type of information may be included in a background report. Some important points about this information are outlined below.  

Employers should be aware that California law generally limits an investigative consumer report inquiry regarding public records to the past seven years (10 years for bankruptcy filings). Exceptions to this requirement are allowed only for employers that are required by a government agency to review records for a longer period of time. Criminal convictions can be reported for only seven years (indefinitely under federal law) unless another law requires employers to look more deeply into the employee's background. Convictions cannot be reported if a full pardon has been granted. Public record information (e.g., civil actions, tax liens and outstanding judgments) cannot be included unless the background checking agency has verified the accuracy of the information during the 30-day period before the report is issued. An investigative consumer reporting agency is prohibited from reporting on convictions that resulted in full pardons or arrests that did not result in conviction, except where judgment has not yet been pronounced. An exception exists for inquiries about arrests where the individual is currently on bail or released on his or her own recognizance. The exception does not allow an employer to take adverse action based on the current arrest; the employer might be able to take action following its own investigation into suspected misconduct.

Employers are advised to send written notices to their consumer or investigative consumer reporting agencies that they do not wish to receive information that would be contrary to the requirements of the California Labor Code governing an employer's inquiry into arrest and marijuana-related conviction information.

Before taking any adverse employment action based on a report (such as deciding against making a job offer, terminating employment or demotion), employers must provide the name, address and phone number of the reporting agency and a copy of the report to the applicant or employee.

The notice and consent rules under the ICRAA do not apply if the employer suspects the employee of wrongdoing or misconduct. The Consumer Credit Reporting Agencies Act (CCRAA) is a separate but similar state law that imposes similar kinds of notice and consent requirements when seeking employee or applicant credit information that is excluded from the definition in the ICRAA.

When California employers conduct their own background checks without contracting with a third party, some of the provisions of the state law apply but not all. For example, employers must still ask on the job application or elsewhere if individuals want to waive their right to receive a copy of any public record obtained, and when not waived, employers must provide individuals with a copy of the information obtained during the background check within seven days. For more details regarding obligations when an employer conducts its own background check, see CA Labor Code 1786.53. There are no obligations under the federal FCRA when an employer is not using a third-party consumer reporting agency.