FCRA stands for Fair Credit Reporting Act, a federal law that regulates how consumer credit reports are collected, used, and shared1. It aims to protect consumers from inaccurate or unfair information in their credit reports

Reminder about New Requirements for California Employers When Considering Criminal History in Employment Decisions

What is this about:The California Fair Chance Act requires employers to make a conditional offer of employment before considering an applicant’s criminal history. On October 1, 2023, new regulations by the California Civil Rights Department went into effect regarding how employers can use information about an applicant’s criminal history to rescind a conditional offer.
Effective date:October 1, 2023
What this means:Before a conditional offer can be rescinded, a California employer must perform an individualized assessment as to whether the applicant’s criminal history “has a direct and adverse relationship with the specific duties of the job that justify denying the applicant the position.” (California Code of Regulations Section 11017.1(c)(1)).

The specific requirements for the individualized assessment must include, at a minimum, consideration of the following factors: •     the nature and gravity of the offense or conduct;
•     the time that has passed since the offense or conduct occurred or the completion of the sentence;
•     the nature of the job held or sought.  

If, after the individualized assessment, the employer makes a preliminary decision to revoke the conditional offer, the employer must notify the applicant in writing of the preliminary decision. The notice (which can be part of the pre-adverse action notice) must include all the following information:

•     the conviction(s) that were the basis for the preliminary decision;
•     a copy of the information relied on for the decision;
•     statement that the applicant or their representative has the right (but is not required) to respond before the decision becomes final, including challenging the information’s accuracy and submitting evidence of rehabilitation or mitigating circumstances;
•     the deadline to respond (no less than five business days after receipt of the notice, and email notice is considered received two business days after it is sent).  

If the applicant timely notifies the employer in writing that additional time is needed to respond, the applicant must be given at least five additional business days to respond to the notice before the employer’s preliminary decision becomes final.  

The new regulations also expressly prohibit employers from (1) mandating that the applicant respond to the notice or provide information or (2) refusing to consider any information provided by the applicant.   The employer must notify the applicant in writing of any final decision to rescind the offer and include information regarding available procedures to challenge the decision and the right to contest the decision by filing a complaint with the California Civil Rights Department.    
Why this matters:Violations of the new regulations can result in damages for failure to consider the new criminal evaluation factors, including back pay, front pay, and hiring or reinstatement.
What else still matters:City of Los Angeles Fair Chance Initiative for Hiring Ordinance (FCIHO)  

•     The FCIHO applies broadly to businesses in the city that employ at least 10 people, with certain exceptions.
•     Employers may not ask about an applicant’s record until a conditional offer of employment has been extended.
•     After learning of an applicant’s record, employers must perform an individualized assessment and consider factors including (i) the age of the offense, (ii) the nature of the offense, and (iii) specific duties of the job sought. Written notice must be provided to applicants.
•     The ordinance provides aggrieved job applicants a private right of action.  

City & County of San Francisco Fair Chance Ordinance (FCO)  

•     The FCO applies to employers with 5 or more employees worldwide and all City contractors, subcontractors, and leaseholders.
•     Employers may not conduct a background check or ask about criminal records until after making a conditional offer of employment.
•     After learning of an applicant’s record, an employer shall conduct an individualized assessment, considering only (i) directly related convictions, (ii) the time that has elapsed since the conviction or unresolved arrest, and (iii) any evidence of inaccuracy or evidence of rehabilitation or other mitigating factors.
•     The employer must provide the applicant with a copy of the FCO Notice and background check report. The applicant has seven days to respond for the purpose of correcting the record, providing evidence of rehabilitation, or any other mitigating factors.
•     Applicants may bring a civil action against the employer or other person violating this FCO.  
Best practices:California state law, the FCIHO, and FCO all require employers to make a conditional offer of employment before considering an applicant’s criminal history. As a best practice, employers should consider using a two-step process when obtaining a background check report. The first step involves obtaining all non-criminal checks, such as a review of the applicant’s employment and educational history. The second step involves obtaining the applicant’s criminal record history after a conditional offer of employment is made.  

Several other cities and Hawaii have enacted “ban-the-box” or “fair chance laws” that require a conditional offer of employment be made to applicants before a criminal background check can be made.  
How SI can help:Experienced in preparing background check reports using a two-step process, SI makes the process seamless. We can also provide sample adverse action notices and other guidance.

Disclaimer: This communication is for general informational purposes only and does not constitute legal advice. No recipient should act or refrain from acting based on any information provided here without advice from a qualified attorney licensed in the applicable jurisdiction.

The Significance of Background Screening in SEC’s Proposed Rule for Private Fund Managers

In an ever-evolving financial landscape, the Securities and Exchange Commission (SEC) last year proposed a new rule for regulating and monitoring the activities of investment advisors and private fund managers. The reforms, which are pending, are designed to protect private fund investors by increasing their visibility into certain practices, establishing requirements to address practices that have the potential to lead to investor harm, and prohibiting adviser activity that is contrary to the public interest and protection of investors.

The rule aims to impose stricter requirements on private fund advisors, including more comprehensive reporting and disclosure mandates, risk management measures, and operational safeguards. Although not mentioned specifically, it can easily be inferred that background screening will play an integral part in complying with the rule.

Background screening serves as an essential risk management tool that allows investment firms and the SEC to assess the integrity and competence of individuals seeking to become private fund advisors. By conducting thorough background checks, potential red flags can be identified early on, ensuring that only qualified and trustworthy professionals are entrusted with managing private funds. The following are some key reasons why background screening is relevant to the SEC’s proposed rule:

  • Investor Protection – Private fund advisors hold significant influence over their clients’ investment decisions and assets. Background screening helps identify any past misconduct or disciplinary actions, safeguarding investors from potential fraudulent schemes or unethical practices.
  • Regulatory Compliance – The rule demands increased compliance from private fund advisors. Implementing stringent background screening procedures will facilitate adherence to these regulations and ensure the eligibility of those operating within the private fund industry.
  • Market Integrity – A robust background screening process strengthens market integrity by weeding out bad actors who could potentially tarnish the reputation of the private fund industry. This fosters trust among investors and stakeholders, promoting a healthy and sustainable financial ecosystem.
  • Risk Mitigation – Background screening helps mitigate operational risks associated with hiring individuals with questionable backgrounds. Identifying potential risks early can prevent potential legal and financial liabilities that may arise due to non-compliance or misconduct.
  • Risk Management – For private fund advisors, maintaining a positive reputation is critical for attracting new investors and retaining existing clients. Background screening assists in upholding a firm’s reputation by ensuring the integrity of its team members.
  • Consistency with Other Industries – Background screening is a standard practice in many sectors of the financial industry, such as banking and accounting, and extending background screening to private fund advisors aligns this sector of the financial industry with prevailing best practices in risk management and compliance.

As the SEC finalizes its proposed rule, it is essential for private fund advisors to adopt background screening as a proactive measure that not only aligns with regulatory expectations but also contributes to their reputation as responsible and reliable investment professionals. In doing so, the private fund industry can continue to thrive and attract investors with the assurance of a well-regulated and trustworthy financial environment.

The NYC Fair Chance Act and the Timing of the Conditional Offer Requirement

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Most are familiar with the two-step process for employment background check reports required by the New York City Fair Chance Act (FCA). The first step is performing searches of all relevant records, excluding all records disclosing criminal history information.

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California’s FEHA amendment bans employment discrimination for marijuana use

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In September 2022, the California Fair Employment and Housing Act (FEHA) was amended to make it unlawful to discriminate against an applicant or employee who has engaged in the lawful use of marijuana outside of work. When the new law (known as “AB 1288”) takes effect on January 1, 2024, with limited exceptions, California employers will have to accommodate workers who engage in the off-duty use of marijuana, regardless of whether the use is for medical purposes.

AB 1288 is not a wholesale ban on employers restricting employees’ marijuana use or testing for it. Rather, the new law focuses on protecting against discrimination based on the use of cannabis outside of work hours and the workplace.

The new law does not ban drug testing – nor even completely ban testing for marijuana use. AB 1288 expressly allows an employer to rely on “scientifically valid pre-employment drug screening conducted through methods that do not screen for nonpsychoactive cannabis metabolites.” Such testing should only identify any current impairment or active THC levels. AB 1288 allows an employer to consider a positive result on such testing and to act on it.

AB 1288 further does not permit an employee “to possess, to be impaired by, or to use, cannabis on the job.” Nor does it affect “the rights and obligations of an employer to maintain a drug- and alcohol-free workplace,” as specified in Health and Safety Code section 11362.45, “or any other rights or obligations of an employer specified by federal law or regulation.” 

In addition, AB 1288 does not apply to an employee “in the building and construction trades,” a term that the legislation did not define. AB 1288 does not apply to positions requiring a federal government background check or security clearance. It also “does not preempt state or federal laws requiring applicants or employees to be tested for controlled substances, including laws and regulations requiring applicants or employees to be tested, or the manner in which they are tested, as a condition of employment, receiving federal funding or federal licensing-related benefits, or entering into a federal contract.”

Employers may still conduct drug testing after AB 1288 becomes effective. California law generally allows drug testing of applicants without suspicion but requires reasonable suspicion to test current employees. If AB 1288 applies, employers who conduct drug testing must use tests that detect current impairment or active THC levels rather than nonpsychoactive cannabis metabolites.

Employers should consider updating or creating a written drug testing policy that clearly states the employer (1) does not discriminate based on an individual’s off-the-clock cannabis use away from the workplace and (2) does not test for nonpsychoactive cannabis metabolites.

California’s seven-year rule and the date of parole

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When it comes to criminal records, the federal Fair Credit Reporting Act (FCRA) does not place any time limit on reporting criminal convictions. No matter how long ago the conviction occurred, it is reportable under the FCRA. Most states follow this rule, but several states, including California, do not.

California limits reporting criminal records involving the conviction of a crime from the “date of disposition, release, or parole” that predate the report by more than seven years. In cases where the subject was paroled after serving time in prison, it is essential to correctly determine the “date of parole” for purposes of applying the seven-year rule. Is the “date of parole” when the subject is released from prison and starts parole or the date that parole ends? A recent opinion by the California Court of Appeal resolved that question.

The California state court case is pending in the Orange County Superior Court dealing with the issue of whether a consumer reporting agency (CRA) is prohibited from disclosing a criminal conviction to a prospective employer if it has been more than seven years since the date of parole. In 2011, the plaintiff was convicted, released from prison, and placed on parole. In 2020, Amazon offered the plaintiff a job in Sacramento. The defendant, a CRA for Amazon, provided a background report to Amazon revealing the plaintiff’s criminal conviction. Amazon then withdrew its job offer. Because the plaintiff’s 2011 conviction predated the 2020 report by more than seven years, he filed a complaint alleging the CRA violated California’s seven-year rule.

The CRA challenged the plaintiff’s complaint by asserting that his parole ended in 2014, which predated the 2020 report by less than seven years, arguing that under California law, “the term ‘parole’ refers to the end of the parole period,” and it could not be liable to the plaintiff for violating the seven-year rule. However, the Superior Court disagreed with the CRA’s position and stated that under California law, the “date of parole” refers to the start date of parole, not the end date. The CRA appealed the court’s decision but to no avail. The Court of Appeal affirmed the Superior Court’s decision that the “date of parole” refers to the start date. The plaintiff can continue pursuing his complaint against the CRA.

New York Civil Cases and the RJI

State courts often have some quirky procedures, and the New York Supreme Court is no exception. Civil records from the New York Supreme Court typically include a reference to an “RJI” and whether it has been filed. What does “RJI” mean?

Definition: RJI is an abbreviation for “Request for Judicial Intervention.” It’s a form that is filed by either a plaintiff or defendant sometime after the summons and complaint is served on the defendant in a civil case.

Filing Effect: When an RJI is filed, the civil case is assigned to a judge.

What does this mean? When a plaintiff files a complaint in the New York Supreme Court to start a civil case, the court’s only action is to assign the case an index number. The court will not take any other action regarding the case – such as deciding a motion or order to show cause or hold a conference or trial – until either the plaintiff or defendant files an RJI. When the RJI is filed, the case is assigned randomly to a judge who will decide everything in the case until it is over.

How long will a case stay in the pre-RJI status? Because New York law does not specify a time limit for pre-RJI status, a civil case could be pending for years without any activity showing on the publicly available docket other than the filing and service of the summons and complaint.

That is the quirk in the New York Supreme Court civil case procedures – the possibility of a lengthy period of no case activity during the pre-RJI status.

To ensure that a civil case is timely prosecuted, many state courts assign a judge to a civil case when the summons and complaint are filed.

Minnesota Petty Misdemeanors and How to Report Them

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Although nearly all state laws include criminal offense levels divided into two types – felonies and misdemeanors – there are many states with offense levels peculiar to their state law. One such peculiarity is Minnesota’s petty misdemeanor offense level.

In Minnesota, a petty misdemeanor is the lowest level of offense. Many but not all Minnesota traffic violations are petty misdemeanors. The unique aspect of a petty misdemeanor is that it is not considered a crime. (See for yourself here: Minn. Stat. § 609.02, subd. 4a or the accompanying attachment.) A petty misdemeanor does not carry a jail sentence but can result in a fine of up to $300.

How to consider sex offender registry records in California (Updated)

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For California employers concerned about hiring sex offenders, there are a few important points to keep in mind.

An employer has a duty to keep the workplace free of sexual harassment and other forms of discrimination under state law. Under the California Fair Employment and Housing Act (FEHA), an employer can face significant liability if it knowingly employs a sex offender and fails to take actions to protect its other employees from unlawful behavior by that person.

To avoid this problem, employers would like to know if they are hiring a registered sex offender. But how can they find out?

Since 2005, the state has operated a Megan’s Law website with a database to obtain access to the state’s list of more than 100,000 registered sex offenders. Created to help state residents better protect their families by being able to search for an individual registrant or by geographic location, the site (https://www.meganslaw.ca.gov/Default.aspx) contains the sex offender’s name, aliases, age, gender, race, address, physical description and, in some cases, a photograph.

While the site would appear to be a boon for employers, state law expressly forbids use of the state’s sex offender registry information for employment purposes. California Penal Code section 209.46(l)(2)(E) prohibits the use of information disclosed on the website for purposes relating to health insurance, insurance, loans, credit, education, housing, and employment, among other uses.

Statutory exceptions provide for use “to protect a person at risk,” a term not defined by the Penal Code, as well as for employers required by law or authorized to request criminal history from the California Department of Justice. Examples of businesses that meet this standard may include child care centers, financial institutions, and governmental agencies.

An employer who runs afoul of the Penal Code’s prohibition can face actual and exemplary damages, attorneys’ fees, and a civil fine. Legislative history explains that the website attempts to protect the public while not inflicting additional punishment on registrants.

For employers trying to walk the fine line of protecting other employees and third parties, such as customers, from potential sex offender registrant employees while not violating the Penal Code, two alternate avenues exist to try to find out information about a sex offender: conviction records and employee/applicant self-disclosure.

Following applicable state and federal law, employers can conduct a criminal background check on applicants and employees and learn of a sex offense conviction. (However, convictions past the seven-year cut-off date in California may not appear on a background check report while the individual may still appear in the sex offender registry). An applicant or employee may also self-disclose a conviction.

Providing another wrinkle for California employers, the state’s Fair Chance Act took effect on January 1, 2018, mandating that employers with five or more employees must wait until after a conditional offer of employment has been made to ask any questions about criminal history. This includes inquiries about convictions, running a background check, or other efforts to find out about an applicant’s criminal past. 

If the employer decides not to hire the applicant, it must conduct an individualized assessment of the conviction at issue to evaluate whether it has a “direct and adverse relationship with the specific duties of the job that justify denying the applicant the position.” Other legal requirements, based on both state and federal law, must also be satisfied if an employer takes an adverse action on the basis of the background check (see our prior blog post (https://www.scherzer.com/reminder-to-california-employers-about-requirements-when-taking-adverse-action-based-on-a-criminal-record/) for more details).

What if an employer learns that an employee is a registered sex offender from another employee’s perusal of the Megan’s Law website? This situation could trigger liability under section 290.46 and employers should be careful to take action only after evaluating any potential risk the sex offender employee may pose to coworkers or customers, considering all the facts and circumstances.

Reporting Criminal Convictions, the FCRA, and State Laws

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Under the Fair Credit Reporting Act (FCRA), criminal convictions can appear in a background report regardless of when they occurred. It does not matter how old the conviction is. However, some states have passed their own legislation similar to the FCRA that does place restrictions on reporting criminal convictions.

Which states restrict reporting on convictions?

California, Colorado, Hawaii, Kansas, Maryland, Massachusetts, Montana, New Mexico, New York, New Hampshire, Texas, and Washington all have laws that limit the scope of reporting criminal convictions to seven years. In Hawaii, the seven-year limit is for felonies only; the reporting of misdemeanors is limited to five years. The District of Columbia limits the reporting of criminal convictions to 10 years.

All states not listed above follow the FCRA rule that criminal convictions can appear in a background report regardless of when they occurred.

The Salary Exception States

Seven of the states listed above allow an exception to their rule of limiting reporting criminal convictions to seven years. The exception is based on the salary the candidate is expected to make. If the salary exceeds a certain threshold, the seven-year limitation does not apply, and criminal convictions can appear in the candidate’s background report regardless of when they occurred.

Salary Exception StatesCandidate’s Potential Salary Threshold
Colorado$75,000
Kansas$20,000
Maryland$20,000
New Hampshire$20,000
New York$25,000
Texas$75,000
Washington$20,000

New York Drunk Driving Laws: DWI v. DWAI v. DUI

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Almost everyone has heard the terms DWI and DUI, and many think that both are interchangeable. New York law uses a third term – DWAI. None of these terms are interchangeable, and New York law does not use the term DUI or driving under the influence.

In New York, there are two main “drunk driving offenses” – DWI and DWAI. DWI stands for “driving while intoxicated,” while DWAI stands for “driving while ability impaired.” A DWI means that the driver is legally intoxicated, with a blood alcohol content of at least 0.08 percent. A DWAI involving alcohol means the driver’s blood alcohol content is between 0.05 and 0.07 percent.

Although the penalties for a New York DWI and DWAI are nearly the same, there is a big difference between them regarding the offense level. A DWI conviction is a criminal offense, while a DWAI conviction is a violation – which in New York is a non-criminal offense.

The practical effect of this distinction is that a DWAI conviction will appear on a New York driving record (usually stated as “driving while impaired”), but the court conviction will not appear on a New York Statewide CHRS report because these reports do not include non-criminal offenses such as violations.