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Legal Pitfalls in the Hiring Process

February 1, 2019


California has some of the strictest employment laws in the country, which often have severe consequences for violations. Many businesses overlook these issues until it’s too late and find themselves facing costly litigation. As business owners expand and hire, they should be familiar with the many laws that apply before an employee is even hired, including stringent restrictions on background checks and what can be asked of an applicant. For a summary of other compliance issues with labor practices after an employee is hired, see Is Your Business Compliant With California Employment and Labor Laws?


Discrimination & Harassment


An employment discrimination claim can arise under state and/or federal law before an employee is hired due to issues in advertising and describing a job vacancy, conducting an interview, making an offer, rejecting an applicant, and setting compensation. Employers may not refuse to hire or otherwise discriminate against any person concerning compensation or terms of employment based on their membership in a protected class. Employers also cannot harass employees or applicants based on a perceived protected characteristic or association with someone else with an actual or perceived protected characteristic.


In California, protected classes and characteristics are more expansive than federal protections, and include an employee or applicant’s race, color, age (40 years or older), ancestry, marital status, military and veteran status, medical condition, mental disability, physical disability, religious creed (including religious dress and grooming practices), national origin, sex (including gender expression or gender identity, pregnancy, and childbirth), sexual orientation, and genetic information. The City of San Francisco also prohibits discrimination or harassment on the basis of an individual’s AIDS or HIV status, height, and weight.


Under state discrimination laws, California employers also cannot ask applications to provide a photograph of themselves.


To minimize risk, employers should avoid asking questions that will reveal details falling under any of the protected categories, and be sure to base all hiring decisions exclusively on objective criteria and the functions of each position. By the same reasoning, employers should be careful using social media screenings, because it may reveal information that would be unlawful to rely on in hiring decisions. The California Department of Fair Employment and Housing (DFEH) provides Pre-Employment Inquiry Guidelines, summarizing what inquiries are permissible.


While this may not seem like an area of concern for small businesses or early-stage startups, the risks increase as companies grow and gain public recognition. For example, several tech companies like Twitter, Facebook, and Tinder have all been sued for sex discrimination.


Salary History Inquiry 


California employers are strictly prohibited from seeking information about an applicant’s salary history or relying on that information in determining whether to hire an applicant or at what salary. However, employers are allowed to ask applicants about their salary expectations. 


Background Checks


Employers often conduct various background checks as screening methods for job applicants, however they can expose employers to substantial risks if strict procedures are not followed. Employers in California must comply with the Fair Credit Reporting Act (FCRA), as well as California laws imposing more stringent disclosure, consent, and use requirements for consumer reports, including the Consumer Credit Reporting Agencies Act (CCRAA) and Investigative Consumer Reporting Agencies Act (ICRAA). The FCRA applies only to background checks conducted through a third-party company (a “consumer reporting agency”), but California laws also apply to employer searches as well.


Under the FCRA, employers that hire a consumer reporting agency to conduct a consumer report (including criminal background checks and credit reports) must adhere to strict procedures for compliance. Under the FCRA, employers first must obtain written permission from applicants prior to conducting the background check. If the employer makes a preliminary decision not to hire an applicant based on the background check, it must send the applicant a “pre-adverse action notice” that includes a copy of the report and a “summary of rights.” Then, if an employer makes the final decision not to hire the applicant, it can inform the applicant via an “adverse action notice,” which must provide the contact information for the consumer reporting agency, a statement that such agency did not make the decision to take the unfavorable action and can't give specific reasons for it, and a notice of the applicant's right to dispute the accuracy of any information from the report within a reasonable amount of time.


Criminal Background Checks: 


In addition to the FCRA requirements, several state and local laws impose significantly more stringent requirements to legally request criminal background information. California’s statewide ban-the-box law prohibits employers with five or more employees from inquiring about an applicant’s criminal history until after a conditional job offer has been made. After a conditional offer is made, the employer must provide written notice that it intends to conduct a background check, and obtain the applicant’s written authorization. Several other local ban-the-box ordinances have been enacted in cities and counties across California, including the City and County of San Francisco, City of Los Angeles, Berkeley, Carson, Compton, Pasadena, and Santa Clara County, which may impose even greater restrictions.


Even when an employer is permitted to conduct a criminal background check, the ICRAA still prohibits California employers from requesting or using information about an employee or applicant’s:

  • Arrests or detentions that did not result in conviction (with narrow exceptions).

  • Referrals to, or participation in, any pretrial or post-trial diversion program.

  • Convictions that are more than seven years old.

  • Convictions that have been judicially dismissed, ordered sealed, expunged, or statutorily eradicated.

  • Arrests, detentions, processing, diversions, supervision, adjudications, or court dispositions in a juvenile court.

  • Non-felony convictions for possession of marijuana that are older than two years.

In analyzing results generated from the background check, employers must conduct an “individualized assessment” to objectively determine if the applicant’s specific offense is relevant to the responsibilities of the job opening. Findings may only be considered in hiring decisions if job-related and consistent with business necessity.


If an employer decides not to hire someone based on the results of the background check, a pre-adverse action notice must be sent to the applicant, which identifies the offense at issue, informs the applicant of his right to respond prior to a final decision, and includes a copy of the report along with the FCRA summary of rights. Employers must allow applicants and employees a reasonable opportunity to present evidence that criminal background information is factually inaccurate before the employer takes adverse action against the individual. If an employer makes the final decision not to hire the applicant based on the background check, it must provide the applicant with an adverse action notice, which should notify the applicant of their right to file a complaint with the DFEH and satisfy FCRA requirements.


The DFEH provides sample forms for employers to use for each of the required steps here.


Credit reports:


The same federal FCRA rules also apply to credit reports obtained from consumer reporting agencies. However, the CCRAA prohibits California employers from obtaining a credit report about an employee or job applicant unless certain exceptions apply. A credit report can only be obtained if the individual holds or is being considered for certain jobs, such as a position which allows regular access to over $10,000 in cash, a position which allows access to employer's bank account, a position which grants authorization to transfer money on employer's behalf, a position allowing access to customers' sensitive information, or a law enforcement position.


If an exception allows an employer to request a credit report, it must provide advance written notice that a report will be used, which must reference the specific exception allowing it, disclose the source of the report, and provide a box to check to request a free copy of the report. If an applicant is denied a position in part due to information from a credit report, an employer must advise the applicant of this denial and provide the applicant with the name and address of the agency that made the report. 


Investigative Consumer Reports: 


When an employer in California wants to obtain information about an employee’s or applicant's character, general reputation, personal characteristics, or lifestyle (an “investigative consumer report”), additional obligations apply.

The same federal FCRA procedure applies for investigative consumer reports obtained from a consumer reporting agency, however it also requires an employer to give written notice that: it intends to obtain an investigative consumer report and the individual has the right to request additional disclosures as well as a summary of the scope and substance of the report.


Under California’s ICRAA, investigative consumer reporting agencies are prohibited from providing employers reports on: bankruptcies older than 10 years; tax liens, judgments, or lawsuits older than seven years; unlawful detainer actions where the applicant prevailed or a settlement was reached; records older than 7 years containing formation about arrests, indictments, criminal information, criminal complains, or criminal convictions; accounts placed for collection more than seven years ago; or any other adverse information older than seven years. However, these restrictions do not apply when an employer seeks information because it suspects the individual of misconduct. 


Offer Letters


Under California law, offer letters and employment agreements generally don't need to be in writing, except for employees whose compensation includes commission. Although not required, it is wise to consult with a California business attorney to properly formalize your employment arrangement, both to maintain clear expectations and to protect your company from future disputes.


Once you decide to hire a job applicant, a whole different set of laws must be adhered to during the employment relationship. With such great consequences for violations of employment laws, it’s important to hire a California business attorney from the outset to help you navigate through the hiring process by drafting or reviewing employer policies, job postings, job application forms, and employment agreements as you expand your business.


If you need help navigating California's complex laws as they relate the hiring process, please contact our business lawyer Blaire Wood

For questions or comments about this post, please email us directly at: info@VerhagenBennett.com


© 2018 Verhagen Bennett LLP — This article is for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.



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