As the California Legislature reconvenes this week from its summer recess, it will be poised to advance bills that could, if enacted, impact the workplace.  Among them is AB 22, which would prohibit employers, except certain financial institutions, from obtaining a consumer credit report for employment purposes.  If AB 22 becomes law, employers would be able to obtain such reports only if the information sought is substantially job-related and pertains to a managerial or other sensitive position.

Under AB 22, information would be substantially job-related if the person for whom the report is sought would have access to the employer’s confidential information, money, or assets.  Likewise, the position would be a sensitive one if the information contained in the report is required by law to be disclosed or to be obtained by the employer. 

This is not the first time California has considered passing such legislation.  In late September 2010, then-Gov. Arnold Schwarzenegger vetoed AB 482, which was nearly identical to AB 22.  In his veto message, Gov. Schwarzenegger explained that he had rejected similar legislation in 2008 and 2009.  That veto message also noted that AB 482 would “significantly increase the exposure for potential litigation over the use of credit checks.” 

Gov. Schwarzenegger said he disfavored AB 482 because “California’s employers and businesses have inherent needs to obtain information about applicants for employment and existing law already provides protections for employees from improper use of credit reports.”  Indeed, employers in the Golden State who wish to conduct background checks on prospective or existing employees must comply with the federal Fair Credit Reporting Act (“FCRA”), the California Investigative Consumer Reporting Agencies Act (“ICRAA”), and the California Consumer Credit Reporting Agencies Act (“CCRAA”).  Each of these laws imposes different requirements.

For example, the FCRA applies when an employer engages an outside screening company to prepare a credit-check report concerning an individual for purposes of “hiring, promotion, retention, or reassignment of employees.”  The FCRA requires, among other things, that the employer give notice and obtain written permission from the person whose credit is to be checked.  The employer must also provide that person with a “pre-adverse action notice” and a copy of the background report before taking an adverse action (e.g., declining to hire the person).  Under the FCRA, employers also must provide a second notice after taking an adverse action, which tells the individual how to dispute inaccurate or incomplete information.

California law is broader than the FCRA in a number of ways.  For instance, the ICRAA covers employers who conduct background checks themselves and governs inquiries into a person’s “character, general reputation, personal characteristics, or mode of living” obtained through “any means.”  Meanwhile, under the CCRAA, an employer may obtain a copy of a person’s credit report with that person’s written permission; however, employers may find themselves in trouble in terms of anti-discrimination laws if the report contains information about the person’s protected characteristics (e.g., the person’s age, marital status, race, or religion).

Many California employers retain the services of background screening agencies to conduct such credit or background checks.  Employers should confirm that the agency they select for such tasks is familiar with both federal and California laws and up to date in terms of the status of AB 22.

The California Assembly passed AB 22 in May 2011, and the Senate Appropriations Committee is scheduled to consider the bill this week.  If AB 22 passes out of committee, the full state Senate soon may be asked to send the bill to the governor’s desk.  Should AB 22 advance to that stage, Gov. Jerry Brown will decide whether to veto or enact it.