When Employers Run Credit Checks

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The Fair Credit Reporting Act governs employer credit checks, but California provides greater protection for employees.
 

The Fair Credit Reporting Act (FRCA) provides a national standard for employment background checks.  15 USC §§1681, et. seq.  California provides additional rights, but no state may have rules less protective than FRCA.  FRCA only applies when an outside screening company performs the background check.  If the employer conducts the background check, you have no rights under FRCA.

FRCA provides that if an outside screening company performs a background check that (1) it must notify you an investigation will be performed, (2) obtain your permission to conduct the investigation, and (3) obtain specific permission if medical information is requested, and (4) provide additional specific notice if your neighbors, friends, or associates will be interviewed about your character, reputation, personal characteristics, or mode of living.

California law covers employers and third-party screeners.  Cal. Civ. Code 1786.  An employer in California seeking an employee or candidate's credit report is also regulated by the Consumer Credit Reporting Agencies Act (CCRAA).  Cal. Civ. Code 1785.  In California, before an employer will perform a background check, it must provide the subject a notice that:

  • States clearly the nature and scope of the report;
  • States the name, address, and phone number of the screening company;
  • Includes a summary of your rights to see and copy any report about you;
  • Allows you to indicate if you want a copy of your report.

Starting January 1, 2012, the employer will also be required to provide the subject with the Internet website address or telephone number of the screening company.  And the screening company will need to have a privacy policy and you will have a right to obtain a copy of it.

If the employer suspects an employee of wrongdoing or misconduct, the employee is not entitled to notice of a background investigation that the employer conducts in an effort to uncover further evidence of wrongdoing or misconduct.

In California, upon request the employer must provide the employee or candidate with a copy of any public records obtained during the process of conducting the background check.  Because nearly all information compiled in a background check consists of public records, the employee or candidate will be entitled to most of the documents the employer relied on in preparing the report.

Under FRCA a background report may include information about criminal convictions from any time in the past.  Under California law, only convictions that occurred within the past seven years may be included in the report unless another law requires employers to search for older criminal convictions.  Under California law, arrests, indictments and criminal complaints may be shown without a conviction only if a judgment is pending.  If a judgment is not pending and the arrest, indictment or complaint did not result in a conviction, none of this information may be included in the report.

In California the employer may not ask about any arrest or detention that did not result in a conviction, any conviction for which the record was sealed, expunged, or readicated by the court, or any arrest for which pretrial diversion has been completed.  This is, perhaps, one of the few useful uses of the California Penal Code section 1203.4 allowing for expungement of criminal convictions.

No bankruptcy that is more than 10 years old may be included in the report under both FRCA and California law.

Third party background checking companies and employers who violate the Investigative Consumer Reporting Agencies Act (ICRAA) are liable for for actual damages or $10,000, whichever is greater and punitive damages are available where the violation was grossly negligent or willful.  Cal. Civ. Code 1786.50.  Individuals may sue both the employer and the employment screening company.  Cal. Civ. Code 1786.20.

Age Discrimination

Some employers or third party agencies seeking to learn the age of job applicants will ask all job applicants to complete a background screening authorization form that includes the applicant's date of birth.  This activity may be evidence of age discrimination because virtually no employers run background checks on all job applicants because it would be prohibitively expensive and also illogical.  If an employer receives 200 job applications for an opening, it is unlikely to pay for background checks on all 200 applicants.  Generally, an employer with a legitimate interest in a background screening report will request the report very late in the process, usually after a job has already been offered to the applicant.  The employer simply makes the offer contingent on the results of the background report.

Additionally, many background screening companies have special forms and procedures for performing background checks without the applicant's date of birth for the specific purpose of avoiding age discrimination.

Employers can avoid these sorts of claims by reviewing their interview and background screening policies and seeking ways to perform background screening without asking for the applicant's date of birth.

Click here for more information about age discrimination

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