New California Background Check Laws Impacting Employers Take Effect January 1 2012

With the new year fast approaching, employers in California – and employers doing business in California – need to be aware of two new laws taking effect on January 1, 2012 that will change the way they conduct employment screening background checks in the state: California Assembly Bill 22 (CA AB 22), which relates the use of credit report checks of job applicants and current employees for employment purposes, and California Senate Bill 909 (CA SB 909), which relates to the “offshoring” of the Personally Identifiable Information (PII) of consumers who are the subjects of background checks.

California Assembly Bill 22

In October of 2011, Governor Jerry Brown signed into law California Assembly Bill 22 which prohibits most employers and prospective employers in the state – with the exception of certain financial institutions – from obtaining consumer credit reports for employment purposes.

Introduced by Assembly member Tony Mendoza (D-56th District), AB 22 amends Section 1785.20.5 of the Civil Code and adds Chapter 3.6 (commencing with Section 1024.5) to Part 2 of Division 2 of the Labor Code, relating to employment. AB 22 was Mendoza’s third attempt at legislation to limit or prohibit the use of consumer credit reports by employers for employment purposes. His previous efforts at similar legislation – Assembly Bill 943 in 2009 and Assembly Bill 482 in 2010 – were both vetoed by former Governor Arnold Schwarzenegger.

AB 22 prohibits employers or prospective employers from obtaining a consumer credit reports for employment purposes unless the position of the person for whom the report is sought is one of the following:

  • A managerial position;
  • A position in the state Department of Justice;
  • A sworn peace officer or other law enforcement position;
  • A position for which the information contained in the report is required by law to be disclosed or obtained;
  • A position that involves regular access to specified personal information for any purpose other than the routine solicitation and processing of credit card applications in a retail establishment;
  • A position in which the person is or would be a named signatory on the employer’s bank or credit card account, or authorized to transfer money or enter into financial contracts on the employer’s behalf;
  • A position that involves access to confidential or proprietary information; or
  • A position that involves regular access to $10,000 or more of cash.

In addition, AB 22 also requires the written notice informing the person for whom a consumer credit report is sought for employment purposes to also inform that person of the specific reason for obtaining the report.

With the passage of AB 22, California becomes the seventh and most recent U.S. state to pass a law limiting credit report checks for employment purposes. The seven U.S. states currently with laws restricting credit checks are:

  • California
  • Connecticut
  • Hawaii
  • Illinois
  • Maryland
  • Oregon
  • Washington

To read California Assembly Bill 22 (AB 22), visit: http://leginfo.ca.gov/pub/11-12/bill/asm/ab_0001-0050/ab_22_bill_20110920_enrolled.pdf.

California Senate Bill 909

In September of 2010, former Governor Arnold Schwarzenegger signed into law California Senate Bill 909, which appears to be the first law in the nation that addresses the issue of personal information of consumers collected during background checks for employment purposes being sent “offshore” and outside the United States or its territories beyond the protection of U.S. privacy laws.

Authored by State Senator Rod Wright (D – Inglewood), SB 909 amends the California Investigative Consumer Reporting Agencies Act (ICRA) that regulates background checks in California and requires a new disclosure and additions to a Consumer Reporting Agency’s (CRA) privacy policy to be made to consumers before their Personally Identifiable Information (PII) such as Social Security Numbers (SSN) is sent “offshore” overseas and outside of the United States. Since it does not regulate or prohibit offshoring, SB 909 is not a regulatory bill. The disclosure requirement is only so that consumers have a way to be aware of a background screening agency’s privacy practices, including whether the consumer’s PII will be sent outside the country.

SB 909 adds language to Civil Code 1786.16 that requires that a consumer must be notified as part of a disclosure before the background check of the web address where that consumer “may find information about the investigative consumer reporting agency’s (CRA) privacy practices, including whether the consumer’s personal information will be sent outside the United States or its territories.” If a background screening firm does not have a web site, then the background screening firm must provide the consumer with a phone number where the consumer can obtain the same information. This clause shall become operative on January 1, 2012.

In addition, SB 909 requires an investigative CRA to “conspicuously post” on its primary Internet Web site information describing its privacy practices with respect to its preparation and processing of investigative consumer reports. If CRA does not have an Internet Web site, CRA has to mail a written copy of the privacy statement to consumers upon request. This clause shall become operative on January 1, 2012.

The CRA’s privacy policy must contain “information describing its privacy practices with respect to its preparation and processing of investigative consumer reports.” Specifically, background screening firms in California (and firms that do business in California) must have a statement in their privacy policy entitled “Personal Information Disclosure: United States or Overseas” that indicates whether the personal information will be transferred to third parties outside the United States or its territories.

Term “conspicuously post” is defined in California Business and Professions Code Section 22577 with respect to a privacy policy and shall include posting the privacy policy through any of the following:

  • A Web page on which the actual privacy policy is posted if the Web page is the homepage or first significant page after entering the Web site.
  • An icon that hyperlinks to a Web page on which the actual privacy policy is posted, if the icon is located on the homepage or the first significant page after entering the Web site, and if the icon contains the word “privacy.” The icon shall also use a color that contrasts with the background color of the Web page or is otherwise distinguishable.
  • A text link that hyperlinks to a Web page on which the actual privacy policy is posted, if the text link is located on the homepage or first significant page after entering the Web site, and if the text link does one of the following: (A) Includes the word “privacy.” (B) Is written in capital letters equal to or greater in size than the surrounding text. (C) Is written in larger type than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same size, or set off from the surrounding text of the same size by symbols or other marks that call attention to the language.
  • Any other functional hyperlink that is so displayed that a reasonable person would notice it.

SB 909 also defines “third parties” as including, but not being limited to:

  • A contractor,
  • Foreign affiliate,
  • Wholly owned entity, or
  • An employee of the investigative consumer reporting agency.

In addition, SB 909 requires a “separate section” that includes the name, mailing address, e-mail address, and telephone number of the investigative consumer reporting agency representatives who can assist a consumer with additional information regarding the investigative consumer reporting agency’s privacy practices or policies in the event of a compromise of his or her information.

In the event a consumer is harmed by virtue of a background screening firm negligently preparing or processing data outside of the U.S., SB 909 provides for damages to the consumer in an amount equal to the sum of:

  • Any actual damages sustained by the consumer as a result of the unauthorized access, and
  • The costs of the successful legal action together with reasonable attorney’s fees, as determined by the court.

Since there is currently a civil liability of $10,000 per applicant for non-compliance by an employer or CRA, it is important for both to maintain compliance.

To read California Senate Bill 909 (SB 909), visit: http://www.leginfo.ca.gov/pub/09-10/bill/sen/sb_0901-0950/sb_909_bill_20100929_chaptered.pdf.

Assured Compliance

Since compliance with the laws that govern the background screening process can be confusing at best, Employment Screening Resources (ESR) – a nationwide background check firm accredited by the National Association of Professional Background Screeners (NAPBS) – is continuously seeking new ways to make compliance as easy as possible through fully automated systems and by constantly providing updates on important changes in hiring and employment laws. For more information about ESR Assured ComplianceSM, visit http://www.esrcheck.com/ESR-Assured-Compliance.php.

To learn more about safe hiring issues such as the use of credit reports for employment services or the offshoring of personally identifiable information (PII), please visit Employment Screening Resources (ESR) website at http://www.esrcheck.com/, the ESR News blog at http://www.ESRcheck.com/wordpress/, and the ESR Resource Center at http://www.esrcheck.com/Resources/.

About Employment Screening Resources (ESR):
Founded in 1997 in the San Francisco, CA area,
Employment Screening Resources (ESR) literally wrote the book on background screening with “The Safe Hiring Manual” by ESR Founder and CEO Lester Rosen. ESR streamlines the screening process and reduces administrative overhead though its proprietary technology solutions.  ESR is accredited by The National Association of Professional Background Screeners (NAPBS®), a distinction held by less than two percent of all screening firms. This important recognition was achieved by successfully passing a third party audit demonstrating compliance with the NAPBS Background Screening Agency Accreditation Program. By choosing an accredited screening firm like ESR, employers know they have selected an agency that meets the highest industry standards. For more information about ESR, visit http://www.ESRcheck.com or call toll free 888.999.4474.

About ESR News:
The Employment Screening Resources (ESR) News blog –
ESR News – provides employment screening information for employers, recruiters, and jobseekers on a variety of topics including credit reports, criminal records, data privacy, discrimination, E-Verify, jobs reports, legal updates, negligent hiring, workplace violence, and use of search engines and social network sites for background checks. For more information about ESR News or to send comments or questions, please email ESR News Editor Thomas Ahearn at tahearn@esrcheck.com.