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Credit Reports California Law


Credit Reports California Law document sample

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									Littler                       archive
  This article recently appeared in the San Francisco Daily Jour nal, M a y 2 8 , 2 0 0 2 .

   Know Thy Hires: Amendments to State Laws Require
   Employers to Review Their Policies
        by Theodora R. Lee

    The Fair Credit Reporting Act, 15         the phrase “credit report” and is             is obtained from a consumer re-
    U.S.C. Section 1681, et seq., is the      commonly misinterpreted to mean               porting agency. Under certain cir-
    federal law that governs the acqui-       that only credit reports are covered.         cumstances, drug test results may
    sition and use of most background         The act’s provisions, however, are            be considered “consumer reports.”
    information on applicants and em-         much broader and apply to both
    ployees. Although it is lawful for        “consumer reports” and “investi-              “Investigative consumer reports”
    employers to obtain and use back-         gative consumer reports.” As de-              under the Fair Credit Reporting
    ground information on applicants          fined by the Fair Credit Reporting            Act are a subset of consumer re-
    and employees, they must follow           Act, consumer reports are reports             ports in which information on a
    several important procedures when         prepared by a consumer reporting              applicant’s or employee’s character,
    obtaining and using these materials.      agency, like Equifax, that bear on            general reputation, personal char-
    In addition to the requirements un-       an applicant’s or employee’s credit           acteristics or mode of living is ob-
    der the Fair Credit Reporting Act,        worthiness, credit standing, credit           tained through personal interviews
    the California Consumer Credit            capacity, character, general repu-            with the applicant’s or employee’s
    Reporting Agencies Act, Califor-          tation, personal characteristics or           friends, neighbors or business as-
    nia Civil Code Section 1785.1, et         mode of living, when such informa-            sociates.
    seq., and the California Investiga-       tion is used or expected to be used
    tive Consumer Credit Reporting            or collected in whole or in part for          Common examples of investigative
    Agencies Act, California Civil Code       “employment purposes.”                        consumer reports are employment
    Section 1786, et seq., impose many                                                      verifications and interviews with
    more requirements on employers            “Employment purposes” include                 former employers and co-workers
    who conduct, obtain or use back-          hiring, termination, reassignment             when these are performed by a con-
    ground information or investigative       or promotion of any applicant or              sumer reporting agency.
    reports on applicants and employ-         employee.
    ers. Recent amendments to Califor-                                                      State Law
    nia law require all California em-        Almost any communication of in-
    ployers, as well as non-California        formation concerning an applicant             The California Consumer Credit
    employers conducting background           or employee from a consumer re-               Reporting Agencies Act applies to
    checks in California, to review and       porting agency to an employer is              “consumer reports,” which are de-
    revise their related policies and         potentially a “consumer report.”              fined by this statute to essentially
    procedures.                                                                             mean credit reports. See California
                                              Common examples of consumer                   Civil Code Section 1785.
    Federal Law                               reports include Department of Mo-
                                              tor Vehicle records check, criminal           The California Investigative Con-
    The title of the Fair Credit Report-      background checks and credit his-             sumer Credit Reporting Agencies
    ing Act is confusing, as it contains      tory checks when this information             Act defines “investigative consumer

                  L I T T L ER M E N D E L S O N , P C Th e N a t io n a l E m p l o y m e n t & L a b o r L a w Fi rm
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A Littler Archive Newsletter              page 2

report” much more broadly than the Fair            Reporting Agencies Act and the California                 credit reports, under California law), regard-
Credit Reporting Act. California Civil Code        Consumer Credit Reporting Agencies Act,                   less of whether the report influences a deci-
Section 1786.2(c). An investigative consum-        before obtaining an investigative consumer                sion not to hire an individual or a decision to
er report under the California Investigative       or consumer report, the employer must pro-                take any type of negative or adverse employ-
Consumer Credit Reporting Agencies Act is          vide certification to the consumer reporting              ment action against a current employee. An
defined as a consumer report in which in-          agency.                                                   adverse employment action includes failure
formation on a consumer’s character, general                                                                 to hire or promote or a demotion, suspension
reputation, personal characteristics or mode       Most, if not all, consumer reporting agen-                or termination.
of living is obtained through any means.           cies will request that the employer sign their
                                                   certification agreement. Employers should                 The employer must provide the applicant or
This definition specifically excludes “con-        review these agreements carefully to ensure               employee with a copy of the report, either
sumer reports” under the California Con-           minimum compliance with applicable law                    at the time of meeting or interview with the
sumer Credit Reporting Agencies Act (credit        and prevent incorporation of undesirable,                 applicant or employee or within seven days
reports) or other compilations of informa-         additional requirements. The combined re-                 of receiving the report, whichever is earlier.
tion that are limited to information about a       quirements of federal and state law dictate               California Civil Code Sections 1786.16(a)(2),
consumer’s credit record, which are governed       that the certification from the employer must             1786.16(5)(b).
by the California Consumer Credit Reporting        contain the following:
Agencies Act.                                           •The disclosures required for consumer               The California Consumer Credit Reporting
                                                   reports have been made to, and written con-               Agencies Act allows employers the option of
Unlike the Fair Credit Reporting Act, the          sent has been obtained from, the applicant or             requiring applicants or employees to “check
California Investigative Consumer Credit           employee who is the subject of the requested              the box” requesting that the consumer report-
Reporting Agencies Act does not limit the          report.                                                   ing agency provide a copy of the consumer
definition of investigative consumer reports            •The additional procedures required by               report at the same time that agency provides
due to those obtained through personal in-         the Fair Credit Reporting Act (and the Cali-              it to the employer at no charge. California
terviews by third-party agencies.                  fornia Consumer Credit Reporting Agencies                 Civil Code Sections 1785.20.5. This copy,
                                                   Act) in the event of a potential adverse action           if requested, must be provided, regardless
The convergence of the Fair Credit Reporting       will be followed before any adverse action is             of any intended adverse action based on the
Act with these two California statutes creates     taken.                                                    report.
a potentially bewildering maze of overlap-              •The employer will provide copies of
ping and inconsistent obligations and rights.      any investigative consumer reports to the                 Under the Fair Credit Reporting Act, copies of
However, if you follow the four basic steps        applicants or employees investigated as re-               such credit reports and any other consumer
below, compliance with both federal and state      quired by the California Investigative Con-               reports must be provided, regardless of any
requirements should be relatively simple for       sumer Credit Reporting Agencies Act.                      request, where adverse action is contemplat-
employers covered by all three statutes.                •The information from the consumer                   ed. The Fair Credit Reporting Act addition-
                                                   report will not be used in violation of any               ally requires that a summary of Fair Credit
Step One: Disclosure and Written Con-              applicable federal or state equal employment              Reporting Act rights be provided along with
sent                                               opportunity law or regulation;                            copies of any reports and that the employer
                                                        •The additional disclosures required                 waits a reasonable amount of time before tak-
Before requesting a consumer or investigative      concerning requests for investigative con-                ing adverse action.
consumer report from a consumer reporting          sumer reports have been issued as required
agency, an employer must do the following:         by the Fair Credit Reporting Act. (The agency             Step Four: Notice After Adverse Action
     •Provide the employee or applicant a          must receive this certification before it can
clear and conspicuous disclosure that a con-       prepare or furnish the investigative report).             After the employer has provided copies to
sumer report or investigative consumer re-              •The employer will comply with appli-                the applicant or employee of the consumer
port may be requested, and notify employees        cable requirements that additional disclo-                and investigative consumer reports and the
or applicants of the extent to which they will     sures be made on request from individuals on              summary of Fair Credit Reporting Act rights
receive copies of reports. This must be pro-       whom investigative consumer reports have                  and waived and “reasonable” time period it
vided in a “separate document” that does not       been requested.                                           has decided to establish, the employer may
refer to other subjects.                                                                                     take adverse action. After taking such action,
     •Obtain prospective written authoriza-        Step Three: Provide Copies of Reports and                 the employer must provide an adverse action
tion from employees and applicants.                Wait a Reasonable Amount of Time Before                   notice. It is recommended that the employer
                                                   Taking Adverse Action                                     provide the employee notice in written form
Step Two: Certification to the Consumer                                                                      to show compliance with the law. The adverse
Reporting Agency                                   Unlike employers subject only to federal law,             action notice must contain the following:
                                                   a California employer must provide an ap-                      •The name, address and telephone
Under the Fair Credit Reporting Act, the           plicant or employee with a copy of any in-                number of the consumer reporting agency
California Investigative Consumer Credit           vestigative consumer report (which excludes               (including a toll-free telephone number es-

                               L I T T L ER M E N D E L S O N , P C Th e N a t io n a l E m p l o y m e n t & L a b o r L a w Fi rm
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A Littler Archive Newsletter                page 3

tablished by a national agency) that provided        conducting the investigation to fill in the ap-
the report.                                          propriate information and keep a record from
     •A statement that the consumer report-          which information for the applicant may be
ing agency did not make the decision to take         summarized.
the adverse action and is unable to inform the            •Train personnel conducting reference
consumer as to the specific reasons why the          checks to avoid unlawful pre-employment
adverse action was taken.                            inquiries. Questions that would be unlawful
     •A statement of the consumer’s rights           to ask applicants or employees are likewise
to obtain a free copy of the report from the         unlawful to ask references or third parties.
consumer reporting agency making a request                •If the employer obtains a report from a
within 60 days of receiving the adverse ac-          third-party public or private records source,
tion notice. This statement may be somewhat          such as the Department of Motor Vehicles or
confusing, because the applicant or employee         criminal or educational records, the employ-
has obtained a copy of the report from the           er should provide the applicant or employee
employer at this point, under separate legal         with a copy.
provisions. Therefore, it is suggested that this          •At the time of the meeting or interview
statement indicate that the individual is en-        with the applicant or employee or within sev-
titled to obtain an additional free copy of the      en days of obtaining the information, which-
report from the agency.                              ever is earlier, send a standardized letter that
     •A statement of the consumer’s right to         summarizes the information obtained during
dispute with the consumer reporting agency           the investigation or background check. This
the accuracy or completeness of any informa-         summary need not reveal the sources of the
tion in the report.                                  information.

Guidelines for California Employers Con-             Where information related to reference
ducting Their Own Background Checks                  checks or other inquiries may be received
                                                     or developed over time, it is recommended
While, under federal law, an employer per-           that a communication advising applicants or
forming its own background check can avoid           employees that they may request information
compliance, the recently amended Califor-            from the employer’s investigative file at any
nia Investigative Consumer Credit Reporting          time but will receive a summary of the infor-
Agencies Act requires that even employers            mation received within seven days after the
must comply with certain disclosure require-         file is complete. In this manner, the employer
ments that had until now never existed.              can avoid the need for a letter or other com-
                                                     munication every time new information is re-
Specifically, the California Investigative Con-      ceived but before the file is complete.
sumer Credit Reporting Agencies Act now                    •Avoid providing references to prospec-
dictates that, when an employer “collects,           tive California employers beyond confirma-
transmits, transfers or communicates” infor-         tion of dates of employment, last position
mation about job applicants or employees             held and most recent pay information. Given
for employment purposes, such information            that summaries of any references to Califor-
must be provided to the individual at the            nia employers may now be disclosed to appli-
time of the meeting or interview with the ap-        cants and employees in writing, this standard
plicant/employee or within seven days of the         advice should be reiterated and confirmed
date the employer receives the information,          through a published policy and training.
whichever is earlier, California Civil Code                •Protect the confidentiality of compre-
Section 1786.53.                                     hensive reference check and criminal inves-
                                                     tigation files contained in personnel files.
This provision may be interpreted to require         Under California Civil Code Section 1198.5,
that even simple reference check results be          an employee is not entitled to review such re-
provided to job applicants. Unless and until         cords contained in the personnel file.
the act is clarified not to require such a proce-
dure, the following steps are recommended:
     •In conducting an investigation, such
as confirming prior employment and edu-
cational history or contacting references, use
standardized forms, which allow the person

                                 L I T T L ER M E N D E L S O N , P C Th e N a t io n a l E m p l o y m e n t & L a b o r L a w Fi rm
                                                                        w w w. l i t t l e r. c o m

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