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CRIMINAL BACKGROUND CHECKS IN CALIFORNIA

With increasing concern about identity theft and other crimes in the workplace, many employers are considering the implementation of a criminal background check policy. The Federal Trade Commission (FTC) reports that, in 2004, 9.3 million Americans (one in every 25 adults) were victims of identity theft. Perhaps more alarming to employers, as much as 50% of identity theft occurs in the workplace. [1] Since 2004, identity theft has been the fastest growing crime in the United States, and the FTC estimates that the majority of Americans will have been victims of identity theft by 2011.[2] Identity theft, like many other crimes, can be facilitated by access to confidential information in the workplace. Employers need to recognize their role in ensuring that persons with access to such confidential information do not have a history of engaging in criminal behavior.

Although there are few reported cases involving employer liability for identity theft committed by employees on the job, it is easy to predict an onslaught of these cases in the near future. California law imposes a duty of care on employers in hiring and supervising its employees: “An employer may be liable to a third person for the employer’s negligence in hiring or retaining an employee who is incompetent or unfit.” Federico v. Sup. Ct. (Jenry G.) (1997) 59 Cal.App.4th 1207. An employer’s liability for negligent hiring arises whenever a risk of harm is “reasonably foreseeable”; i.e., “when the employer knows, or should know, facts which would warn a reasonable person that the employee presents an undue risk of harm to third persons in light of the particular work to be performed.” Federico, supra, 59 Cal.App.4th at 1214 (emphasis added). This logic can, and likely will, be applied to identity crimes and other offenses that are emerging in the modern workplace.

In fact, over the years courts have held employers liable for the illegal acts of their employees in a variety of contexts. See Doe I v. City of Murrieta (2003) 102 Cal.App.4th 899 (police officer sexually abused a juvenile offender); Rahmel v. Lehndorff (1904) 142 Cal. 681 (waiter assaulted a patron in the restaurant); Underwriters Ins. Co. v. Purdie (1983) 145 Cal. App. 3d 57 (liquor store employee shot a delivery person); Evan F. v. Hughson United Methodist Church (1992) 8 Cal. App. 4th 828 (pastor sexually molested a youth parishioner); Najera v. Southern Pac. Co. (1961) 191 Cal. App. 2d 634 (employee assaulted a foreman at work); Monty v. Orlandi (1959) 169 Cal. App. 2d 620 (bartender struck a patron at the bar). The common thread in each of these cases is that the employer’s negligence in failing to conduct appropriate pre-employment screening was, in part, the basis of liability.

One way for employers to fulfill the duty of care they owe to their employees and patrons is to conduct criminal background checks. If an employer chooses to pursue this course, however, the employer must be careful to comply with the laws that govern criminal background checks. All employee background reports, including criminal background checks, raise issues under the Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681 et seq., the California Consumer Credit Reporting Agencies Act (CCRAA), Cal. Civ. Code §§1785.1-1785.36, and the California Investigative Consumer Reporting Agencies Act (ICRAA), Cal. Civ. Code §1786. If the employer does the criminal background check itself, the FCRA doesn’t apply, but the CCRAA and the ICRAA may still be applicable. See Cal. Civil Code §1785.

The FCRA sets the national standard for employment background checks. Even in states like California that have laws governing background checks, employers have to follow the FCRA. State laws may confer additional rights to workers, but they cannot take away from the basic rights of the FCRA. In addition to covering credit checks, the FCRA governs all employment background checks, including criminal background checks, used to hire, promote, retain or reassign an employee.

The FCRA applies only when an employment background check is prepared by an outside screening company. It is not possible to address here all aspects of the FCRA. Essentially, when a third party performs a background check, the FCRA requires that (1) the employer notify the employee that an investigation may be performed, (2) the employee receive an opportunity to consent to the background check, and (3) the employee receive notification if information in the report is used to make an “adverse” employment decision.

Additionally, the FCRA requires that the employer provide a “pre-adverse action notice,” together with a copy of the background report before any adverse action is taken. The notice must advise the complainant of his or her rights to dispute inaccurate and/or incomplete information. If the employer takes adverse employment action without first providing this notice and giving the employee a right to respond, it will commit a violation of the FCRA.

California law is substantially similar to federal law. The most important distinguishing feature is that state law also covers employers who conduct background checks themselves, something the FCRA specifically excludes.

Under California law, an employment background check is called an investigative consumer report (ICR). If the employer uses an outside investigator to prepare the ICR, the outside investigator is called an Investigative Consumer Reporting Agency (ICRA). Before any ICRA conducts an investigation and prepares an ICR, the employee must receive a written notice that:

• States the purpose of the report.

• Gives the name, address, and telephone number of the investigator.

• Includes a summary of the employee’s rights to see and copy the report.

• Includes a box to check if the employee wants a copy of the report.

If the employee elects to see a copy of the report, it must be sent within three business days of the date the employer receives it. The report may come from the employer or from the investigator.

If the employer conducts a background check itself, without using an outside investigator, some notice requirements still exist, and each notice must include a box to check if the employee would like a copy of public records obtained in the investigation. California law does not require an employer who conducts a background check in-house to give detailed notice as is required when an outside agency is retained. At a minimum, however, the employer must give prior notice and provide the employee a right to receive a copy of any and all public records compiled in the report. See Cal. Civ. Code § 1786.16(2).

There is an important exception in California: employers are not required to get permission from an employee to conduct a criminal background check if the employer suspects the employee of wrongdoing or misconduct.

Under California law, criminal convictions can be reported up to seven years prior to the date of the report. See Cal. Civil Code §1786.18. With some important exceptions, employers can use the information contained in the criminal background report to make informed hiring decisions. Employers should note, however, that the California Labor Code prohibits employers from any taking any adverse action based on an arrest or detention that did not result in a conviction. Similarly, an employer cannot ask questions about a conviction for which the record has been ordered sealed, expunged or eradicated by the court, or an arrest for which pretrial diversion has been completed. See Cal. Labor Code §432.7. The Labor Code also prohibits employers from asking applicants about convictions that are more than two years old for possession of marijuana (other than concentrated cannabis), possession of paraphernalia for using marijuana, and presence in a location where marijuana is being used. See Cal. Labor Code §432.8.

Employers must keep in mind that any compilation of criminal background information, whether conducted in-house or by an outside investigator, may implicate the FCRA, the CCRA, and the ICRAA. A private right to sue exists under each of these statutes, see, e.g., 15 U.S.C. §§1681n, 1681o (FCRA), Cal. Civ. Code §§1786.20, 1786.1786.50, and penalties for violations can be substantial. For example, the ICRAA permits the employee to file suit for actual damages or $10,000, which ever is greater, as well as punitive damages in appropriate cases. Attorneys’ fees and costs may also be recoverable.

Practical Tips

There are good reasons for all California employers to consider the use of criminal background checks in their hiring practices. Because the laws in this area are complex, employers are advised to consult with an employment law attorney or experienced human resources professional to weigh the risks and benefits of adopting a policy regarding criminal background checks.

Once the employer decides to conduct criminal background checks, it should consider out-sourcing the background check process to a company that specializes in this area. Most companies can contact business associates to get a list of referrals. If not, a quick internet search will identify several companies from which the employer can choose a qualified service provider based on cost, turn-around time and security measures.