California Modifies Employment Regulations Regarding Criminal History

New regulations effective October 1, 2023, will impact how employers may consider criminal history in employment decisions.[1]

The Fair Chance Act (FCA)[2] prohibits California employers with five or more employees from inquiring into, considering, distributing, or disseminating information related to an applicant's criminal history until after the employer has made a conditional offer of employment. Once a conditional offer has been made, if an employer intends to deny an applicant the employment conditionally offered because of the applicant's conviction history, the FCA requires the employer to make an individualized assessment of whether the applicant's conviction history has a direct and adverse relationship with the specific job duties.

If the employer preliminarily decides that the conviction history disqualifies the applicant, the employer must notify the applicant in writing and provide the applicant an opportunity to respond. If, after consideration of the response, the employer decides to rescind the conditional offer, the employer must notify the applicant in writing of the denial, any procedure the employer has for reconsideration, and the right to contest the decision by filing a complaint with the Civil Rights Department (CRD).

The FCA also prohibits employers from using any conviction history in employment decisions if doing so would constitute disparate treatment of individuals on a basis protected by the Fair Employment and Housing Act.

Modifications to the Regulations

Modifications to Definitions

• Employer – The modified regulations significantly expand the definition of employer from the current "a labor contractor and a client employer" to also include "any direct or joint employer, any entity that evaluates the applicant's conviction history on behalf of an employer, or acts as an agent of an employer, directly or indirectly; any staffing agency; and any entity that selects, obtains, or is provided workers from a pool or availability list."
• Applicant – The modified regulations add two categories of employees in its definition of applicant: 1) existing employees who have applied for or indicated a specific desire to be considered for a different position with their current employer; and 2) existing employees who are subject to a review and consideration of criminal history because of a change in ownership, management, policy or practice.

Modifications Concerning Consideration of Criminal History Prior to Conditional Offer of Employment

• Employers are prohibited from including statements in job advertisements, postings, applications, or other materials that persons with criminal history will not be considered for hire.
• Although exceptions exist (to the prohibition against asking about an applicant's criminal history before a conditional offer has been made) for employers who are required by law to conduct criminal background checks, such exemptions do not apply where the law requires another entity, such as an occupational licensing board, to conduct the check.
• Even if an applicant voluntarily offers information about the applicant's criminal history prior to receiving a conditional offer, the employer must not consider such information.

Potential Rescission of Conditional Offer Based on Conviction History

If an employer intends to rescind the conditional offer, it must follow specific procedures:

• Initial Individualized Assessment
  • The employer shall consider: (1) the nature and gravity of the offense; (2) the time that has passed since the offense; and (3) the nature of the job held or sought.
  • Evidence of rehabilitation or mitigating circumstances voluntarily provided by the applicant must be considered during the initial assessment.
• Notice of Preliminary Decision and Opportunity for Applicant Response
  • Evidence of rehabilitation or mitigating circumstances from the applicant or by a third party at the applicant's request is optional.
  • An employer may not refuse to accept additional evidence voluntarily provided by an applicant at any stage of the hiring process, require an applicant to submit additional evidence, disqualify an applicant for failing to provide any specific type of documents or evidence, require an applicant to disclose the applicant's status as an abuse survivor, or require an applicant to produce medical records and/or disclose the existence of a disability or diagnosis.
• Reassessment – When considering rehabilitation or mitigating circumstances evidence, an employer may consider: the applicant's conduct during incarceration, including participation in work and education or rehabilitative programming, the applicant's employment history since conviction or sentence completion, community service and engagement since the conviction or sentence completion, any other rehabilitation efforts, or any other mitigating factors.

FCA Claims Subject to FEHA Procedures

FEHA procedures apply; applicants and employees may file a complaint for investigation by the CRD and may obtain an immediate right-to-sue notice.

Work Opportunity Tax Credit

An employer seeking the federal Work Opportunity Tax Credit (WOTC) under the Internal Revenue Code is not exempt from the FEHA. Also, having past felony convictions is one of the qualifying bases for individuals for the WOTC. An employer may request that an applicant complete an IRS Form 8850 ("Pre-Screening Notice and Certification Request for the Work Opportunity Credit") before extending a conditional offer of employment but may not inquire as to which particular basis qualifies the applicant for the WOTC. An employer may also not require an applicant to complete the U.S. Department of Labor's Form 9061 ("Individual Characteristics Form, Work Opportunity Tax Credit") until after the employer has made a conditional offer of employment. All information concerning the WOTC application must be retained in confidential files separate from the applicant's or employee's general personnel file.

Takeaways for California Employers

• Determine whether the company falls within the newly expanded definition of "employer" in the modified regulations. As noted above, "employer" now includes the following: 1) joint employers; 2) entities that evaluate applicant's criminal history on an employer's behalf or as the employer's agent; 3) staffing agencies; and 4) entities that procure workers from pools or availability lists.

• Ensure that the company's policies and procedures regarding the consideration of criminal history apply to the two new categories of applicants under the expanded definition. As noted above, covered applicants now include current employees who have applied for a different position within the company and existing employees who are subject to a review due to a change in ownership, management, or policy.
• Ensure proper education and training for all employees whose duties are impacted by the new modifications, including management and human resources employees.
• Revise job advertisements and postings as necessary to eliminate improper references to criminal history.
• Ensure that all of the FCA's procedural requirements are followed in circumstances in which an employer intends to deny an applicant employment because of the applicant's conviction history.
• Ensure that the employer follows the correct procedures regarding WOTC applications and records.

Employers should also keep an eye on Senate Bill 809, introduced by California lawmakers in February 2023, which proposes a sweeping overhaul of the FCA and seeks to enact the most restrictive laws in the nation banning criminal background checks. However, the bill is currently on pause in the Senate Appropriations Committee, has been moved to a two-year cycle, and is not expected to move forward until 2024.

As always, DWT will continue to monitor these issues and provide updates as needed. In the meantime, if you have any questions about your company's compliance with the modified regulations, please contact a member of the DWT employment services group.