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Spotlight on Employer Action Required Under the California Wage Theft Prevention Act and New Restrictions on Employers’ Use of Consumer Credit Reports in California

December 15, 2011

Effective January 1, 2012, California employers are required to: (A) provide wage and hour notices to certain non-exempt employees; and (B) modify their procedures regarding the use of consumer credit reports for employment purposes. 

A.  Required Wage and Hour Notices 
(California Wage Theft Prevention Act of 2011) (AB 469)

Notice Requirements

Effective January 1, 2012, private California employers will be required to provide most non-exempt employees, at the time of hiring, with a written notice containing the following information: 

 1.  the employee’s rate or rates of pay and basis thereof, whether paid by the hour, shift, day, week, salary, piece, commission, or otherwise, including any rates for overtime, as applicable;

2.  allowances, if any, claimed as part of the minimum wage, including meal or lodging allowances;

3.  the regular payday designated by the employer (in accordance with California law);

4.  the name of the employer, including any “doing business as” names used by the employer;

5.  the physical address of the employer's main office or principal place of business, and a mailing address, if different;

6.  the telephone number of the employer;

7.  the name, address, and telephone number of the employer's workers' compensation insurance carrier; and

8.  any other information the Labor Commissioner deems material and necessary.

Notice must be provided in the language the employer normally uses to communicate employment-related information to the employee

Employers must also notify employees in writing of any changes to the information set forth in the required notice within seven calendar days after the time of the changes, unless: (1) the changes are reflected on a timely wage statement furnished to the employee (in accordance with California law); or (2) notice of all changes is provided in another writing required by law within seven days of the changes. 

Notice is not required for: (1) employees classified as exempt from overtime under California law; (2) an employee directly employed by the state or any political subdivision thereof, including any city, county, city and county, or special district; or (3) an employee who is covered by a valid collective bargaining agreement if the agreement expressly provides for the wages, hours of work, and working conditions of the employee, and if the agreement provides premium wage rates for all overtime hours worked and a regular hourly rate of pay for those employees of not less than 30 percent more than the state minimum wage. 

This new law also expands the civil and criminal remedies for various violations of the California Labor Code.

Next Steps

Employers should begin identifying now the types of positions that will be affected by these new notice requirements.  Employers should also discuss and put in place procedures for providing the required notices and any subsequent notice of changes to the information in the notices.  The California Labor Commissioner is in the process of developing a model template that employers may use to comply with these new notice requirements, as well as guidance for employers regarding compliance with this new law. 

Please do not hesitate to contact any of our attorneys if you would like assistance complying with these new requirements. 

B.  Restrictions on California Employers'
Use of Credit Reports for Employment Purposes
(AB 22)

New Restrictions:  Effective January 1, 2012, California employers are prohibited from using a credit report for employment purposes unless: 

(I) the employer is a financial institution subject to the Gramm Leach Bliley Act privacy protections (15 U.S.C. §§6801-6809) (and state and federal statutes or regulations implementing these sections if the person or business is subject to compliance oversight by a state or federal regulatory agency with respect to those laws); or

(II) the position of the person for whom the report is sought is one of the following positions:

1.  a "managerial position" (i.e., an employee covered by the California executive wage and hour exemption).

2.  a position in the state Department of Justice.

3.  a sworn peace officer or other law enforcement position.

4.  a position for which the information contained in the report is required by law to be disclosed or obtained.

5.  a position that involves regular access, for any purpose other than the routine solicitation and processing of credit card applications in a retail establishment, to all of the following types of information of any one person:

(a)  Bank or credit card account information.

(b)  Social security number.

(c)  Date of birth.

6.  a position in which the person is, or would be, any of the following:

(a)  A named signatory on the bank or credit card account of the employer.

(b)  Authorized to transfer money on behalf of the employer.

(c)  Authorized to enter into financial contracts on behalf of the employer.

7.  a position that involves access to confidential or proprietary information, including a formula, pattern, compilation, program, device, method, technique, process or trade secret that (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who may obtain economic value from the disclosure or use of the information, and (ii) is the subject of an effort that is reasonable under the circumstances to maintain secrecy of the information.

8.  a position that involves regular access to cash totaling ten thousand dollars ($10,000) or more of the employer, a customer, or client, during the workday.

This law does not restrict an employer's ability to use other "non-credit related" background checks (e.g., a criminal background check.)

Notice Requirements

The law imposes new notice requirements for California employers.  If the employer is permitted under the new California law to use a credit report for a particular individual, the employer must first notify the individual in writing (prior to requesting the report) of the specific reason that the employer is allowed to use the report (e.g., the individual is applying for a managerial position).  Technically, this new disclosure requirement may not apply if the employer is an exempt financial institution.  However, it is recommended that if an employer is using this financial institution exemption, the employer provide advance notice to the individual of this permissible use for the report. 

Employers must also continue to comply with current federal and state fair credit reporting act notice requirements – e.g., providing proper advance authorization and disclosure of the report and providing the proper notices when adverse action will be taken based on the report.

Next Steps:

In light of this law, a California employer will need to evaluate whether: (a) it is an exempt financial institution; or (b) the groups of California applicants and employees for whom it wishes to run/use credit reports meet any of the exemptions in the new law.

For California individuals for whom the employer can continue to run credit reports as of January 1, 2012, the employer must use an updated authorization and disclosure form (for the report) that notifies the individuals of the specific reason the credit report may be permissibly used (e.g., the individual is applying for a managerial position).  Effective January 1, 2012, employers must cease running credit reports for individuals who do not meet any of the exemptions set forth in this new law. 

Also, effective January 1, 2012, California employers who use third-party criminal background checks (and other investigative consumer reports under California law) are also required under a separate law (2010 Cal SB 909) to disclose the website for the third-party reporting agency performing the report ? where the individual may find information about the agency’s privacy practices, including whether the individual’s personal information will be sent outside of the U.S. or its territories.  If the reporting agency has no website, the notice must contain a phone number that the individual may call to find out more about the agency’s privacy practices.

Please do not hesitate to contact any of our attorneys if you would like assistance complying with these new requirements.