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California Employers That Elect To Conduct Background Checks On Employees And/Or Applicants Are Subject To Onerous New Requirements

March 21, 2002

California's Investigative Consumer Reporting Agencies Act, Cal. Civ. Code § 1786 (the "Act") was recently amended in ways that will prove far more onerous to California employers than the old law. These amendments ("AB 655"), which became effective on January 1, 2002, place significant additional burdens on employers and impose severe penalties for noncompliance.

In the past, California law required that employers using consumer credit reporting agencies to obtain background checks (i) notify the subject of the background check, and (ii) give that individual the opportunity, upon request, to obtain a copy of the report when an adverse action was taken based on that report.

The new amendments to the Act require that any employer requesting an Investigative Consumer Report ("Report") for employment purposes from an Investigative Consumer Reporting Agency ("Reporting Agency") automatically provide the subject of the Report with the following:

(1) written notice that a Report has been requested (within three days of making the request);

(2) the name and address of the Reporting Agency that will issue the Report;

(3) the nature and scope of the Report requested;

(4) a summary of the provisions of Cal. Civ. Code § 1786.22 (which has not been amended and which sets out the employee's rights); and

(5) a copy of the completed Report (by the time of the meeting or interview between the employee or applicant and the employer, or within seven days from the date on which the employer receives the Report, whichever is earlier).

These requirements must be met whether the subject of the investigation is an applicant or a current employee. The sole exception to the above requirements arises where an employer seeks a Report based on a suspicion of wrongdoing by the subject of the investigation (described in the amended statute as a "good faith belief that the employee is engaged in any criminal activity likely to result in a loss to the employer)."

The amendments also require employers that obtain "information" regarding an employee's or applicant's character, general reputation, personal characteristics or mode of living by means of an in-house investigation (e.g., through the use of internet resources by members of the employer's Human Resources Department) to provide this information to the employee or applicant. Again, the information must be provided automatically, either at the time of the meeting or interview between the employee or applicant and the employer, or within seven days from the date on which the employer receives the Report, whichever is earlier.

The penalty for noncompliance with these new requirements is $10,000 per employee or applicant (or the amount of actual damages, if greater). In addition, employers are subject to costs, attorney's fees and -- if found grossly negligent or willfully in violation of the statute -- punitive damages.

The California legislature passed AB 655 with the stated objective of providing employees and applicants with increased opportunities to ascertain whether somebody else has assumed their identity. While identity theft is a serious problem, a growing chorus of employers and their attorneys have been complaining to the legislature of this new law's expansive and unintended consequences. For example, no one anticipated the statute impact on employers investigating complaints of sexual harassment or threats of workplace violence. At a time when workplace safety is a paramount concern and courts repeatedly emphasize the importance of remedial action to address harassment, AB 655 ties the hands of employers seeking to address these issues. Because of these concerns, the California legislature is already considering amendments to the statute. In the meantime, California employers face severe penalties if the requirements of AB 655 are not followed.