California Employers Must Get Applicant OK for Background Check (CORRECTED)

Aug. 20, 2018, 5:07 PMUpdated: Aug. 21, 2018, 6:57 PM

California employers, lenders, and landlords must obey the tougher of two privacy laws and inform applicants before investigating their background, the state Supreme Court ruled Aug. 20.

The 7-0 decision affects the thousands of credit, employment, and housing decisions made daily in California under two laws. One of them requires prior notice and authorization before certain types of background investigative reports are ordered. The other covers more consumer-oriented information that doesn’t require advance disclosure or consent.

The justices upheld a lower court ruling that school bus transportation company First Student Inc., part of FirstGroup plc, failed to adequately notify and obtain consent from former Laidlaw International Inc. bus drivers and aides before it conducted background checks on 54,000 workers. The reports were ordered after First Student bought Laidlaw in 2007.

First Student had to comply with the more protective Investigative Consumer Reporting Agencies Act—designed to give consumers a chance to correct information and address identity theft—regardless of the company’s compliance with the less-stringent requirements in the Consumer Credit Reporting Agencies Act, the California Supreme Court said.

“The implications are that these two laws are relatively straightforward and easy to follow. So landlords, employers, banks, anyone seeking to run a background check that falls in one or both of these statutes will continue have to comply with them,” Hunter Pyle of Hunter Pyle Law in Oakland, Calif., representing plaintiff Eileen Connor, told Bloomberg Law.

“Employees will have their privacy rights protected, and the worst types of abuses where entities run background checks on people without telling them will be illegal under California law,” Pyle said Aug. 20.

Neither representatives with First Group nor its counsel with Littler Mendelson PC in San Jose, Calif., were immediately available for comment.

Compliance, Consent Required

In interpreting the two laws, “we agree with the Court of Appeal and find that potential employers can comply with both statutes without undermining the purpose of either,” the Supreme Court said.

Connor’s case involves a report that falls under the scope of both laws and “is simply one that contains information bearing on both a consumer’s credit worthiness and on her character. It seems to us that such a duality does not make legal compliance particularly difficult, much less impossible,” Justice Ming Ching wrote for the court.

The ruling covers a single Laidlaw employee in the bellwether case for more than 1,200 former workers alleging that First Student needed their approval for the background checks. The case now returns to an appeals court and then to the Los Angeles trial court.

“Finally the bus drivers and aides involved can have their cases resolved on the merits,” Catha Worthman, Feinberg Jackson Worthman & Wasow LLP partner and co-counsel for Connor, told Bloomberg Law.

Violations of the Investigative Act carry a $10,000-per-violation penalty, so for the remaining 450 plaintiffs who didn’t accept settlements, that is a “potentially life changing amount” for drivers and aides, Worthman said.

No Confusion

The justices rejected reasoning in a separate 2007 appellate decision in Ortiz v. Lyon Management Group Inc. involving tenants that concluded the Investigative Act was unconstitutionally vague. First Student argued that it relied on Ortiz in its decision to proceed with processing the records. The California Supreme Court, however, agreed with the appeals court in Connor’s case.

Chad Saunders with Hunter Pyle Law and Genevieve Casey with Feinberg Jackson also represented Connor. Ronald Peters and Benjamin Emmert, shareholders with Littler Mendelson PC in San Jose, Calif., represented First Student.

The case is Connor v. First Student Inc., Cal., No. S229428, opinion 8/20/18.

(Story corrects name of plaintiff Eileen Connor, the title of attorney Catha Worthman, and that the remaining 450 plainitffs are those who didn't accept settlement.)

To contact the reporter on this story: Joyce E. Cutler in San Francisco at jcutler@bloomberglaw.com

To contact the editor responsible for this story: Terence Hyland at thyland@bloomberglaw.com

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