Can Employers Do Background (Criminal and Credit) Checks of Potential Employees?
Ron Stormoen
SHORT ANSWERS
As to criminal background checks, the answer is yes but there is a question of timing. The employer cannot do a criminal conviction history check prior to making an offer. California law makes it an unlawful employment practice for an employer with five or more employees to include any question on an employment application regarding an applicant’s conviction history (or even to inquire into or to consider an applicant’s conviction history), until after the employer has made a conditional offer of employment to the applicant. This means the employer can make a conditional offer(s) based on the results of a criminal conviction background check.
Also, once the employer obtains the report, realize that, if it is negative, potentially withdrawing the offer has certain statutory requirements that the employer must meet before withdrawing the offer.
As to credit background check requirements, as opposed to the criminal background check, the answer is yes but the limitations are both more and less. Under California law, an employer cannot use a consumer credit report for employment purposes unless the employment is for a few defined employment positions. Those potentially relevant in most positions include: 1) a managerial position, 2) a position that involves access to confidential information (including financial information, security data, trade secrets), 3) a position that involves regular access to bank or credit card information, social security number or date of birth, or, 4) a position that involves regular access to cash totaling $10,000 or more of the employer, customer, or client [which would include a donor; cash could include credit and checks].
So, regarding credit checks, there is a limitation on the “who.” In California, an employer cannot do credit checks on just any prospective employee; it must be a person who falls into one of the specified positions.
Unlike the criminal history background check, there is no requirement for the employer to wait and condition employment on the results of a credit report. The law says that in the limited positions summarized above, an employer can request a credit report “for employment purposes,” which means as part of the pre-screening process, which means not necessarily as a part of the job offer.
However, the employer needs to provide prior written notice of the request for a credit report which informs the prospective employee that a report will be used for employment purposes and the notice must identify the specific basis for the use of the report (i.e., the employment position for which it is to be used). Along with the notice to obtain and consider the credit report, there must also be a written provision which informs the prospective employee that he/she has the right to receive a copy of the report contemporaneously at no charge. Moreover, under Federal law, the prospective employee must give written authorization for the credit report in a separate document (not part of the employment application) and in that separate document the employer must also specifically disclose in writing that the credit report is only obtained for employment purposes; and (ii) the person has authorized in writing the procurement of the report by the employer.
While an employer could technically obtain a credit report of a prospective employee without a conditional offer of employment, due to the onerous notice and disclosure requirements, the better practice is to make an offer conditioned on the employer obtaining and evaluating the credit report, along with the criminal background report.
If employment is denied based on the credit report, there are many requirements that employer must follow in written communication with the prospective (and now rejected) employee.
Finally, as a general rule, any time an employer uses an applicant’s or employee’s background information to make an employment decision, regardless of how it got the information, the employer must comply with federal laws that protect applicants and employees from discrimination. That includes discrimination based on race, color, national origin, sex, or religion; disability; genetic information (including family medical history); and age (40 or older). These laws are enforced by the Equal Employment Opportunity Commission (EEOC). In addition, when the employer runs background checks through a company in the business of compiling background information, it (the company AND the employer) must comply with the Fair Credit Reporting Act (FCRA). If an employer makes the decision to obtain background reports for applicants or employees, the practice of obtaining the reports needs to be uniformly applied. Simply by complying with the federal and state requirements for background reports and credit checks does not shield an employer from discrimination claims or other claims that the practice used by the employer is illegal.
LONGER LEGAL DISCUSSION
CALIFORNIA LAW ON EMPLOYER BACKGROUND CHECKS (CONVICTION HISTORY)
The Fair Chance Act, effective January 1, 2018, added a new section to the Fair Employment and Housing Act (at Government Code section 12952) making it illegal for most employers in California to ask about the criminal record of job applicants before making a job offer. This means ads, job applications, and interview questions cannot include inquiries into an applicant’s criminal record. The purpose of the law is to allow applicants to be judged based on their qualifications.
Government Code section 12952 provides:
(a) Except as provided in subdivision (d), it is an unlawful employment practice for an employer with five or more employees to do any of the following:
(1) To include on any application for employment, before the employer makes a conditional offer of employment to the applicant, any question that seeks the disclosure of an applicant’s conviction history.
(2) To inquire into or consider the conviction history of the applicant, including any inquiry about conviction history on any employment application, until after the employer has made a conditional offer of employment to the applicant.
(3) To consider, distribute, or disseminate information about any of the following while conducting a conviction history background check in connection with any application for employment:
(A) Arrest not followed by conviction, except in the circumstances as permitted in paragraph (1) of subdivision (a) and subdivision (f) of Section 432.7 of the Labor Code.
(B) Referral to or participation in a pretrial or post-trial diversion program.
(C) Convictions that have been sealed, dismissed, expunged, or statutorily eradicated pursuant to law, or any conviction for which the convicted person has received a full pardon or has been issued a certificate of rehabilitation.
(4) To interfere with, restrain, or deny the exercise of, or the attempt to exercise, any right provided under this section.
(b) This section shall not be construed to prevent an employer from conducting a conviction history background check not in conflict with the provisions of subdivision (a).
[Comment: The following becomes relevant if the employer intends to deny or withdraw an employment offer based on the person’s conviction history]:
(c) (1) (A) An employer that intends to deny an applicant a position of employment solely or in part because of the applicant’s conviction history shall make an individualized assessment of whether the applicant’s conviction history has a direct and adverse relationship with the specific duties of the job that justify denying the applicant the position. In making the assessment described in this paragraph, the employer shall consider all of the following:
(i) The nature and gravity of the offense or conduct.
(ii) The time that has passed since the offense or conduct and completion of the sentence.
(iii) The nature of the job held or sought.
(B) An employer may, but is not required to, commit the results of this individualized assessment to writing.
(2) If the employer makes a preliminary decision that the applicant’s conviction history disqualifies the applicant from employment, the employer shall notify the applicant of this preliminary decision in writing. That notification may, but is not required to, justify or explain the employer’s reasoning for making the preliminary decision. The notification shall contain all of the following:
(A) Notice of the disqualifying conviction or convictions that are the basis for the preliminary decision to rescind the offer.
(B) A copy of the conviction history report, if any.
(C) An explanation of the applicant’s right to respond to the notice of the employer’s preliminary decision before that decision becomes final and the deadline by which to respond. The explanation shall inform the applicant that the response may include submission of evidence challenging the accuracy of the conviction history report that is the basis for rescinding the offer, evidence of rehabilitation or mitigating circumstances, or both.
(3) The applicant shall have at least five business days to respond to the notice provided to the applicant under paragraph (2) before the employer may make a final decision. If, within the five business days, the applicant notifies the employer in writing that the applicant disputes the accuracy of the conviction history report that was the basis for the preliminary decision to rescind the offer and that the applicant is taking specific steps to obtain evidence supporting that assertion, then the applicant shall have five additional business days to respond to the notice.
(4) The employer shall consider information submitted by the applicant pursuant to paragraph (3) before making a final decision.
(5) If an employer makes a final decision to deny an application solely or in part because of the applicant’s conviction history, the employer shall notify the applicant in writing of all the following:
(A) The final denial or disqualification. The employer may, but is not required to, justify or explain the employer’s reasoning for making the final denial or disqualification.
(B) Any existing procedure the employer has for the applicant to challenge the decision or request reconsideration.
(C) The right to file a complaint with the department.
(d) . . . [Intentionally omitted]
(f) For purposes of this section:
(1) “Conviction” has the same meaning as defined in paragraphs (1) and (3) of subdivision (a) of Section 432.7 of the Labor Code.
(2) Notwithstanding paragraph (1), the term “conviction history” includes:
(A) An arrest not resulting in conviction only in the specific, limited circumstances described in subdivision (f) of Section 432.7 of the Labor Code, when an employer at a health facility, as defined in Section 1250 of the Health and Safety Code, may ask an applicant for certain positions about specified types of arrests.
(B) An arrest for which an individual is out on bail or his or her own recognizance pending trial.
Labor Code section 432.7 provides more definition (or limitations) of discoverable criminal background and the penalties for violating this law. Per Labor Code section 432.7:
(a) (1) An employer, whether a public agency or private individual or corporation, shall not ask an applicant for employment to disclose, through any written form or verbally, information concerning an arrest or detention that did not result in conviction, or information concerning a referral to, and participation in, any pretrial or post trial diversion program, or concerning a conviction that has been judicially dismissed or ordered sealed pursuant to law, including, but not limited to, Sections 1203.4, 1203.4a, 1203.45, and 1210.1 of the Penal Code. An employer also shall not seek from any source whatsoever, or utilize, as a factor in determining any condition of employment including hiring, promotion, termination, or any apprenticeship training program or any other training program leading to employment, any record of arrest or detention that did not result in conviction, or any record regarding a referral to, and participation in, any pretrial or post trial diversion program, or concerning a conviction that has been judicially dismissed or ordered sealed pursuant to law, including, but not limited to, Sections 1203.4, 1203.4a, 1203.45, and 1210.1 of the Penal Code. This section shall not prevent an employer from asking an employee or applicant for employment about an arrest for which the employee or applicant is out on bail or on his or her own recognizance pending trial.
. . . [Intentionally omitted]
(3) For purposes of this section:
(A) “Conviction” includes a plea, verdict, or finding of guilt, regardless of whether a sentence is imposed by the court.
(B) “Conviction” does not include, and shall not be construed to include, any adjudication by a juvenile court or any other court order or action taken with respect to a person who is under the process and jurisdiction of the juvenile court.
. . . [Intentionally omitted]
(c) If a person violates this section, or Article 6 (commencing with Section 11140) of Chapter 1 of Title 1 of Part 4 of the Penal Code, the applicant may bring an action to recover from that person actual damages or two hundred dollars ($200), whichever is greater, plus costs, and reasonable attorney’s fees. An intentional violation of this section shall entitle the applicant to treble actual damages, or five hundred dollars ($500), whichever is greater, plus costs, and reasonable attorney’s fees. An intentional violation of this section is a misdemeanor punishable by a fine not to exceed five hundred dollars ($500).
. . . [Intentionally omitted]
(f) (1) Except as provided in paragraph (2), this section does not prohibit an employer at a health facility, as defined in Section 1250 of the Health and Safety Code, from asking an applicant for employment either of the following: . . .
[Intentionally omitted
(n) Nothing in this section shall prohibit an employer, whether a public agency or private individual or corporation, required by state, federal, or local law to conduct criminal background checks for employment purposes or to restrict employment based on criminal history from complying with those requirements, or to prohibit the employer from seeking or receiving an applicant’s criminal history report that has been obtained pursuant to procedures otherwise provided for under federal, state, or local law. [. . . Omitted]
The California Department of Fair Employment and Housing has provided some guidelines as to what can be asked regarding criminal history, which fairly summarizes the law and what an employer can ask and what happens when the employer wants to withdraw the offer:
“After a conditional offer of employment, what can an employer ask me about my criminal history?
After a conditional offer, an employer may ask you if you have any history of convictions. But employers may not ask about or consider information about (1) an arrest that did not result in a conviction (subject to the exceptions in Labor Code § 432.7(a)(1) and (f)); (2) referral to or participation in a pretrial or post trial diversion program; or (3) convictions that have been sealed, dismissed, expunged or statutorily eradicated pursuant to law.
The following is an example of a permissible question after a conditional offer:
Have you ever been convicted of a misdemeanor or felony? Answer “NO” if : (1) you have never been convicted of a misdemeanor or felony; (2) the misdemeanor or felony was sealed, dismissed, expunged, or reversed on appeal; (3) you withdrew your plea after completing a court program and were not convicted of a misdemeanor or felony.
The law provides you with important rights if the employer wants to take back (rescind) your conditional job offer because of your criminal history.
Individualized assessment: The employer must make an individualized assessment about your conviction history. That means that an employer has to consider the nature and gravity of your criminal history (the harm caused by the criminal conduct), the amount of time that has passed since the conviction, and the nature of the job you are seeking (the essential functions and the job environment). The employer cannot simply say that they won’t hire anyone convicted of a certain crime.
Notification in writing: The employer must notify you in writing of the preliminary decision that your conviction history disqualifies you from employment.
Notice of disqualifying conviction: The employer must provide you a notice of the convictions that disqualify you from employment.
Copy of conviction history report: If the employer obtained a copy of your conviction history report, they must provide you with a copy of the report.
Chance to respond: The employer has to give you at least five business days to respond to the preliminary decision to take back your job offer (and has to tell you that you can respond). If you dispute the conviction history report, and you tell the employer within five days, then you get an additional five days to respond. The employer has to tell you that your response can include any evidence challenging the accuracy of the conviction history report, plus any evidence of your rehabilitation or circumstances that you believe are important for the employer to consider about your life or the crime. Examples of this type of evidence include your employment history, an explanation of circumstances about your involvement in the crime, and rehabilitation efforts such as education or training.
Consideration of your response: The employer must consider any information you submit in response.
Final notification in writing: After considering any information you submit, the employer must notify you in writing of any final disqualification from the job, any procedure the employer has to challenge that final disqualification, and your right to file a complaint with the Department of Fair Housing and Employment.” See https://www.dfeh.ca.gov/resources/frequently-asked-questions/criminalhistoryinfoinemploymentfaqs/
[These statements from DFEH is also a general summary of the Fair Chance Act, Government Code section 12952(c)(2).]
FEDERAL LAW ON EMPLOYER BACKGROUND CHECKS (CONVICTION HISTORY)
Although there is no federal prohibition on when an employer can ask applicants about criminal history, the U.S. Equal Employment Opportunity Commission (EEOC) states, "as a best practice, and consistent with applicable laws, the Commission recommends that employers not ask about convictions on job applications and that, if and when they make such inquiries, the inquiries be limited to convictions for which exclusion would be job related for the position in question and consistent with business necessity."
Further, the EEOC has taken the position that use of criminal history may sometimes violate Title VII of the Civil Rights Act of 1964. This can happen, the EEOC says, when employers treat criminal history differently for different applicants or employees. A person cannot be denied employment based on a criminal record alone. Instead, the decision to hire or not must be based on a “business necessity,” which requires the employer to consider:
1. The nature and gravity of the offense or offenses.
2. The time that has passed since the conviction and or completion of the sentence.
3. The nature of the job held or sought.
Because California law is so comprehensive and protective in this area, following California law (and making the offer conditional on a criminal check) provides the protection the employer needs, from a risk management perspective.
CALIFORNIA LAW ON EMPLOYER BACKGROUND CREDIT CHECKS
California law makes it illegal for most businesses to rely on credit checks during the hiring process. However, California law does not prohibit credit checks in all hiring circumstances. The legal issue will fall on whether the credit check is a necessity for the position. For example, a business that deals with money, crime or large transactions, such as a financial institution or law enforcement agency, may argue that it is a legal necessity to check the credit of its employees in an effort to prevent or detect the possibility of fraud or abuse. Depending on the position, an employer should be able to require credit checks for some positions (but not all).
Per California Labor Code section 1024.5:
(a) An employer or prospective employer shall not use a consumer credit report for employment purposes unless the position of the person for whom the report is sought is any of the following:
(1) A managerial position.
(2) A position in the state Department of Justice.
(3) That of a sworn peace officer or other law enforcement position.
(4) A position for which the information contained in the report is required by law to be disclosed or obtained.
(5) A position that involves regular access, for any purpose other than the routine solicitation and processing of credit card applications in a retail establishment, to all of the following types of information of any one person:
(A) Bank or credit card account information.
(B) Social security number.
(C) Date of birth.
(6) A position in which the person is, or would be, any of the following:
(A) A named signatory on the bank or credit card account of the employer.
(B) Authorized to transfer money on behalf of the employer.
(C) Authorized to enter into financial contracts on behalf of the employer.
(7) A position that involves access to confidential or proprietary information, including a formula, pattern, compilation, program, device, method, technique, process or trade secret that (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who may obtain economic value from the disclosure or use of the information, and (ii) is the subject of an effort that is reasonable under the circumstances to maintain secrecy of the information.
(8) A position that involves regular access to cash totaling ten thousand dollars ($10,000) or more of the employer, a customer, or client, during the workday.
(b) This section does not apply to a person or business subject to Sections 6801 to 6809, inclusive, of Title 15 of the United States Code and state and federal statutes or regulations implementing those sections if the person or business is subject to compliance oversight by a state or federal regulatory agency with respect to those laws [i.e., financial institutions].
(c) The following definitions apply to this section:
(1) “Consumer credit report” has the same meaning as defined in subdivision (c) of Section 1785.3 of the Civil Code, but does not include a report that (A) verifies income or employment, and (B) does not include credit-related information, such as credit history, credit score, or credit record.
(2) “Managerial position” means an employee covered by the executive exemption [if this is relevant, we can discuss the definition: mostly one who manages others and makes discretionary decisions for the company] set forth in subparagraph (1) of paragraph (A) of Section 1 of Wage Order 4 of the Industrial Welfare Commission (8 Cal. Code Regs. 11040).
Prior to the employer obtaining credit information (for the defined prospective positions), Civil Code section 1785.20.5 has certain requirements:
(a) Prior to requesting a consumer credit report for employment purposes, the user of the report shall provide written notice to the person involved. The notice shall inform the person that a report will be used, and shall identify the specific basis under subdivision (a) of Section 1024.5 of the Labor Code for use of the report. The notice shall also inform the person of the source of the report, and shall contain a box that the person may check off to receive a copy of the credit report. If the consumer indicates that he or she wishes to receive a copy of the report, the user shall request that a copy be provided to the person when the user requests its copy from the credit reporting agency. The report to the user and to the subject person shall be provided contemporaneously and at no charge to the subject person.
(b) Whenever employment involving a consumer is denied either wholly or partly because of information contained in a consumer credit report from a consumer credit reporting agency, the user of the consumer credit report shall so advise the consumer against whom the adverse action has been taken and supply the name and address or addresses of the consumer credit reporting agency making the report. No person shall be held liable for any violation of this section if he or she shows by a preponderance of the evidence that, at the time of the alleged violation, he or she maintained reasonable procedures to assure compliance with this section.
If the candidate fits one of the definitions above, the employer can obtain a credit report on the prospective employee.
FEDERAL LAW ON EMPLOYER CREDIT CHECKS
The Federal Fair Credit Reporting Act (FCRA) provides federal requirements for employers seeking to obtain credit reports on prospective employees. It is not as limited as to the type of employees. However, in this area, a California employer will be governed by the more restrictive law (California), so it should follow the limitations based on position. However, the conditions for obtaining and utilizing credit reports under Federal law seem to independently apply, even if California law applies on the limited positions set forth above. Therefore, when a prospective employee meets one of the qualifications for one of positions mentioned above, the employer should also comply with the following rules regarding obtaining and using credit reports regarding notice and disclosure:
15 US Code section 1681b et seq. provides in pertinent part as follows:
. . .
(b) Conditions for furnishing and using consumer reports for employment purposes
(1) Certification from user
A consumer reporting agency may furnish a consumer report [e.g., a credit report] for employment purposes [this impacts both the agency used, like Good Hire, and the employer] only if—
(A) the person [the employer] who obtains such report from the agency certifies to the agency that— (i) the person has complied with paragraph (2) [below] with respect to the consumer report, and the person [the employer] will comply with paragraph (3) with respect to the consumer report if paragraph (3) becomes applicable; and (ii) information from the consumer report will not be used in violation of any applicable Federal or State equal employment opportunity law or regulation; and
(B) the consumer reporting agency provides with the report, or has previously provided, a summary of the consumer’s rights under this subchapter, as prescribed by the Bureau under section 1681g(c)(3) 1 of this title.
(2) Disclosure to consumer
(A) In general
Except as provided in subparagraph (B), a person may not procure a consumer report, or cause a consumer report to be procured, for employment purposes with respect to any consumer, unless— (i) a clear and conspicuous disclosure has been made in writing to the consumer at any time before the report is procured or caused to be procured, in a document that consists solely of the disclosure, that a consumer report may be obtained for employment purposes; and (ii) the consumer has authorized in writing (which authorization may be made on the document referred to in clause (i)) the procurement of the report by that person.
(3) Conditions on use for adverse actions
(A) In general
Except as provided in subparagraph (B), in using a consumer report for employment purposes, before taking any adverse action based in whole or in part on the report, the person intending to take such adverse action shall provide to the consumer to whom the report relates— (i) a copy of the report; and (ii) a description in writing of the rights of the consumer under this subchapter, as prescribed by the Bureau under section 1681g(c)(3) 1 of this title.
(B) Application by mail, telephone, computer, or other similar means
If a consumer described in subparagraph (C) applies for employment by mail, telephone, computer, or other similar means, at any time before a consumer report is procured or caused to be procured in connection with that application— (i) the person who procures the consumer report on the consumer for employment purposes shall provide to the consumer, by oral, written, or electronic means, notice that a consumer report may be obtained for employment purposes, and a summary of the consumer’s rights under section 1681m(a)(3) 1 of this title; and (ii) the consumer shall have consented, orally, in writing, or electronically to the procurement of the report by that person.
In sum, per California law, criminal background checks (as defined above) should only be done with a conditional offer. Financial background checks, as a best practice, should also be done with a conditional offer and should be limited to the defined positions mentioned in Labor Code section 1024.5. If the employer intends to deny employment based on a background check, the employer must consider and implement the protocol set forth in referenced in the statutes above.
STANDARDIZED POLICIES
The following is from the Federal government (the EEOC), but California (Dept. of Fair Housing and Employment says something similar) and provides a common sense approach on how and why the pre-hiring processes on background checks should be standardized:
“In all cases, make sure that you're treating everyone equally. It's illegal to check the background of applicants and employees when that decision is based on a person's race, national origin, color, sex, religion, disability, genetic information (including family medical history), or age (40 or older). For example, asking only people of a certain race about their financial histories or criminal records is evidence of discrimination. When making personnel decisions - including hiring, retention, promotion, and reassignment - employers sometimes want to consider the backgrounds of applicants and employees. For example, some employers might try to find out about the person's work history, education, criminal record, financial history, medical history, or use of social media. As a general rule [my comment: and, of course, there is a need to follow the law mentioned above], it is not illegal for an employer to ask questions about an applicant's or employee's background, or to require a background check. However, any time you use an applicant's or employee's background information to make an employment decision, regardless of how you got the information, you must comply with federal laws that protect applicants and employees from discrimination. That includes discrimination based on race, color, national origin, sex, or religion; disability; genetic information (including family medical history); and age (40 or older). These laws are enforced by the Equal Employment Opportunity Commission (EEOC). In addition, when you run background checks through a company in the business of compiling background information, you must comply with the Fair Credit Reporting Act (FCRA).”
In closing, treating all prospective employees alike as they relate to background checks (and, as mentioned, being mindful of the foregoing limitations), is the best practice.
Disclaimer
This entry does not give specific legal advice about your specific legal problem. No text or graphic contained in this entry is to be or should be used or relied upon as legal advice. This entry does not create an attorney-client relationship. If you want specific legal advice about your particular legal issues, or if you want to create an attorney-client relationship, you need to retain the Law Offices of Ron A. Stormoen by a signed written retainer agreement.