What You Need To Know About Using Employment Background Checks Versus Protecting Employee Privacy Rights
Commentary provided to clients of Corporate Strategies Inc
Law Offices of Stone | Rosenblatt | Cha

Whether checking out a prospective new hire or considering someone for a significant transfer or promotion, background checks can be the tool to help employers make better decisions.  They can help prevent negligent hiring lawsuits, confirm resume and educational achievements and protect company assets (cash, equipment, etc.)  But just because such information may be useful to you as an employer doesn’t mean you’re entitled to it, or that if you have it, you got it legally.  In fact, if not done properly, acts designed to avoid liability can in fact create liability.  Even if an employer uses an outside company to perform the background check, the employer needs to know what information can and cannot be obtained and used for employment purposes.

This article speaks to searches run by California companies in California.  Two California statutes speak to this topic:  the California Consumer Credit Reporting Agencies Act; and the California Investigative Consumer Reporting Agencies Act.

Employers can request either a “consumer report” (sometimes also called a “credit report” in the employment context of this article) or an “investigative consumer report.”  A “credit report” is written, oral or other communication of any information by a consumer credit reporting agency bearing on an individual’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living; which is used or expected to be used in evaluating an application for employment, promotion, reassignment or retention. 

Examples of credit reports include criminal background checks, workers’ compensation history, motor vehicle reports, driving records, reference checks, verifications of education, license or past employment experience and credit history reports.  An “investigative consumer report” is a consumer report, or portion thereof, in which information on a consumer’s character, general reputation, personal characteristics, or mode of living is obtained through personal interviews with neighbors, friends or associates of the consumer reported on or with others with whom he/she is acquainted or who may have knowledge concerning any such items of information.  Examples include reference checks and other types of personal interviews.

Typically, the position you’re filling dictates which report is most appropriate.  For example, an employer may request a credit report on an applicant/employee for a finance or accounting position.  The employer may desire an investigative consumer report for a position concerning a job which requires the oversight of children or the elderly. 

Irrespective of which type of report an employer seeks, there are generally four steps an employer should follow to lawfully obtain the types of reports we’re discussing:  (1) provide sufficient notice to the applicant/employee; (2) obtain written authorization from the applicant/employee (if you subsequently desire another report, get another authorization); (3) certify to the outside company that the report will be used for lawful purposes; and (4) give the applicant/employee the opportunity to obtain a free copy of the report.

Specifically, the notice must be in a separate document (e.g., not merely a part of the job application form), be clear and conspicuous, state the permissible purpose of the report (e.g., in connection with the consumer’s application for employment) and state that an investigative report may be obtained (if that is your intention).  In the case of an investigative consumer report, in addition to the above items, it must also state that the investigative report may include information about the applicant’s character, general reputation, personal characteristics and mode of living; identify the investigative reporting agency by name, address and telephone number; provide a summary of the consumer’s rights under the Act; and contain a box for the applicant to check to elect to receive a copy of the report.

If an employee requests a copy of the report, the employer need only provide a copy of the public records obtained.  Non-public information that does not have to be disclosed includes reference checks and education credential verification.  If an employer is taking adverse action based on contents of a report, the employer must provide the employee/applicant with a copy of the report before the action is taken.

In California, not withstanding the foregoing, an employer does not need to obtain any authorization where misconduct is suspected.  However, this tactic should be taken with caution.

Some no-no’s:  An employer may not seek the arrest record of a potential employee from any source.)  There is an exception in the health care industry: people with access to patients may be asked about sex related arrests.)

An employer cannot ask about a marijuana conviction that is more than two (2) years old.

Under the Americans with Disabilities Act, employers cannot use medical information or the fact that an applicant filed a worker’s compensation claim to discriminate against applicants.  Though in California, an employer may use this information if an injury might interfere with one’s ability to perform the particular job duties of a position.  In order for employers to access the information, (1) the employer must have extended an offer of employment and (2) the employer must register with the Worker’s compensation Appeals Board.  The employer may not rescind an offer of employment because of a worker’s compensation claim.  However, if the employee/applicant did not reveal previous employers against whom they have filed claims, it could be grounds for denial of employment or termination based on the falsification of employment application.

Penalties:  Failure to comply with California’s consumer privacy laws could result in significant penalties including the greater of the actual damages or $10,000, attorney’s fees and costs; and punitive damages if the court determines that the violation was grossly negligent or willful.  Class actions are permitted.  An employee/applicant’s right to sue for invasion of privacy and defamation are not affected.

Better Screening Practices:  Generally, truthful information about job performance or employment qualifications between former and prospective employers is privileged.  However, there is a risk that inappropriate information may lead to defamation claim.  Most employers limit information to job title and employment dates.  An important inquiry that is expressly authorized by law is whether the employer would rehire a current or former employee.  A simple “no” might speak more volumes than any information obtained through a background check.

For more information, please contact

Ira Rosenblatt, Principal,
STONE | ROSENBLATT | CHA
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