In the age of Google and Facebook people are accustomed to having instant access to vast amounts of information. Employers are increasingly relying on this ever-expanding pool of information in performing background checks on prospective employees. Is it possible, however, for an employer's access to detailed background information to present legal problems? A recent decision involving an employer's use of a credit reporting agency to conduct background checks answers that question with a resounding yes.

The California Investigative Consumer Reporting Agencies Act, Cal. Civ. Code §§ 1786, et seq. (the “ICRAA”), places limits on an employer's use of a consumer reporting agency to conduct background checks on current or prospective employees. Among other things, the ICRAA provides that an employer cannot use a consumer reporting agency to conduct a background check unless the employer has:  (1) a permissible purpose for doing so;  (2) provides written notice to the employee that the background check will be conducted, and (3) that identifies the scope of the investigation and the name and address of the agency that will conduct the investigation, and, (4) the employee authorizes the conduct of the investigation in writing. Cal. Civ. Code § 1786.16.

This case arose after First Student, Inc. acquired Laidlaw Education Services. After acquiring Laidlaw, First Student used a consumer reporting agency to conduct background checks on its employees, including criminal records, employment history, driving records, and whether an employee was a registered sex offender. First Student initiated the investigations without first notifying the employees and also without obtaining the employees' written authorization to conduct such investigations. The plaintiff, a bus driver, filed a class action lawsuit against First Student alleging that these actions violated the ICRAA.

In its defense, First Student argued that the ICRAA was unconstitutionally vague because its provisions overlapped with the California Consumer Credit Reporting Agencies Act, Cal. Civ. Code §§ 1785.1, et seq. (the “CCRAA”). The CCRAA regulates, among other things, the collection and transmission of background information relating to consumer credit reports. First Student's argument had its origins in the manner in which the two statutes developed. While both the ICRAA and CCRAA governed reports that contain information concerning an individual's character and fitness, the CCRAA was historically understood to apply only to information obtained in consumer credit reports, while the ICRAA applied only to reports containing information that was obtained through personal interviews of the individual. First Student argued that the ICRAA was unconstitutional because its provisions overlapped with those of the CCRAA to such an extent that it could not determine which statute governed an employer's use of a consumer reporting agency to conduct background checks of its employees.

While First Student's argument was successful at the trial court, the Court of Appeal, and the Supreme Court of the State of California, rejected this argument. The Supreme Court held that employers can comply with both statutes, and, therefore, that the ICRAA is not unconstitutionally vague. The Supreme Court noted that if an employer only sought information that would be found in an ordinary credit check, then the provisions of the CCRAA would apply. It is only when an employer seeks information beyond that contained in a consumer credit report, like First Student did, when the stricter provisions of the ICRAA apply.

Employers have many substantial reasons for obtaining background checks on prospective employees. This decision does not do away with this right, but does make clear that employers must ensure that their conduct of background investigations of prospective employees complies with all applicable privacy and reporting laws. Navigating these issues is difficult, especially when the laws appear to be inconsistent. Obtaining competent legal advice is critical before a dispute arises so that potential pitfalls can be identified and avoided.