On November 24, 2015, the California Supreme Court granted a petition for review of Connor v. First Student, Inc., 239 Cal. App. 4th 526 (2015), an opinion that reinvigorated a California statute concerning notice and authorization requirements for employee background checks. See Connor v. First Student, 2015 Cal. LEXIS 9694 (Cal. Nov. 24, 2015).Specifically, the California Supreme Court will decide the following issue:
Is the Investigative Consumer Reporting Agencies Act (Civ. Code, § 1786 et seq.) unconstitutionally vague as applied to background checks conducted on a company’s employees, because persons and entities subject to both that Act and the Consumer Credit Reporting Agencies Act (Civ. Code, § 1785.1 et seq.) cannot determine which statute applies?
The outcome of the appeal will have important ramifications for California employers, both in terms of the notice and authorization requirements with which California employers must comply when obtaining background checks on employees and in terms of the liability employers may face for violating those requirements. In this article, we describe the background that led to the California Supreme Court’s review of the Connor decision, and offer advice for California employers pending resolution by the Court.
In 1975, the California Legislature enacted two statutes, both modeled after the federal Fair Credit Reporting Act, to regulate agencies that gather information on consumers and recipients of such information. The first statute, the Consumer Credit Reporting Agencies Act (CCRAA) (Cal. Civ. Code § 1785.1 et seq.), governs reports concerning “a consumer’s creditworthiness,” known as “consumer credit reports.” Cal. Civ. Code § 1785.3. The second statute, the Investigative Consumer Reporting Agencies Act (ICRAA) (Cal. Civ. Code § 1786 et seq.), governs reports concerning “a consumer’s character,” known as “investigative consumer reports.” Cal. Civ. Code § 1786.2. The two statutes impose different obligations on agencies compiling and parties requesting consumer information.1 In particular, the ICRAA imposes stricter duties and more severe penalties for violations than the CCRAA.2
Creditworthiness and character information about a consumer may, of course, overlap. Indeed, “[c] reditworthiness information is a type of character information,” and “certain types of character information,” such as a reputation for “dishonesty, profligacy, carelessness, or absentmindedness,” relate to a person’s “financial soundness” and thus may “constitute creditworthiness information.” Ortiz v. Lyon Management Group, Inc., 157 Cal. App. 4th 604, 615 (2007). Nonetheless, as originally enacted, the coverage of the two statutes did not overlap. This is because the ICRAA provided that it governed only consumer reports containing information obtained “through personal interviews,” while the CCRAA expressly excluded reports containing information gathered through interviews. See Connor, 239 Cal. App. 4th at 537; see also Ortiz, 157 Cal. App. 4th at 616. Thus, if a report included mixed character/credit information obtained through personal interviews, the ICRAA, and not the CCRAA, governed. In contrast, if the report contained mixed character/credit information that was not obtained through personal interviews, the CCRAA, and not the ICRAA, governed.
These statutes existed harmoniously side-by-side for more than 20 years. In 1998, however, the California Legislature amended the ICRAA to remove the “through personal interviews” limitation on its scope, extending the statute’s coverage to all consumer reports containing character information, regardless of how that information was obtained. This change caused the ICRAA’s coverage to overlap with that of the CCRAA. In situations where the requested information implicates both the creditworthiness and the character of the consumer, the ICRAA, as amended, and the CCRAA no longer provide clear guidance as to which statute controls the collection, retention, and disclosure of the information.
As a result, the Court of Appeal of California, Fourth Appellate District held that the amendment to the ICRAA rendered the statute unconstitutionally vague as applied to tenant screening reports containing unlawful detainer (eviction) information. Ortiz, 157 Cal. App. 4th at 619. Based on the statutory scheme—two separate statutes, one governing creditworthiness information and the other governing character information—the Ortiz court found that the Legislature intended consumer reports to be governed by either the CCRAA or the ICRAA, but not both. Id. at 614-15, 617. While the original version of the ICRAA made it “simple” to determine which statute governed reports containing information about a person’s eviction history by reference to whether the information was obtained through personal interviews, after the 1998 amendment to the ICRAA, the only way to determine which statute governed was to determine whether the information concerned creditworthiness or character. Id. at 616. A person’s eviction history, however, concerns both creditworthiness and character. Id. at 617. Therefore, the Ortiz court found that there was no longer any “rational basis to determine” which statute governs reports containing unlawful detainer information. Id. at 619. Thus, the court concluded that the 1998 amendment rendered the ICRAA unconstitutional as applied because the statute “fail[ed] to provide adequate notice to persons who compile or request tenant screening reports that may contain unlawful detainer information.” Id.
A federal district court subsequently expanded the logic underlying Ortiz into the employment context. See Roe v. Lexisnexis Risk Solutions, Inc., 2013 U.S. Dist. LEXIS 88936 (C.D. Cal. Mar. 19, 2013). Roe involved criminal background checks for employment screening reports. Invoking Ortiz and other tenant screening case law, the Roe court stated that “criminal background information fits both into the category of character evidence under the ICRAA and in the category of creditworthiness under the CCRAA.” Id. at *16-17. Because the criminal background information invoked both the creditworthiness and character of the applicant, the Roe court found that there was no rational basis to determine which statute governed the report, stating “ever since a 1998 ICRAA amendment, it is hopelessly uncertain on which side of the fence [criminal history] information falls.” Id. at *17 (quoting Trujillo v. First American Registry, Inc., 68 Cal. App. 4th Dist. (2007)) (alteration in original). Accordingly, the Roe court held that the ICRAA was unconstitutionally vague as applied to criminal background checks for employment screening reports. Id. at *18.
Connor v. First Student, Inc.
In 2015, the Court of Appeal of California, Second Appellate District, came to a strikingly different conclusion regarding the interplay between the ICRAA and the CCRAA, holding, contrary to Ortiz, that “the ICRAA is not unconstitutionally vague as applied” to information that concerns both character and creditworthiness. Connor, 239 Cal. App. 4th at 531.
In Connor, the plaintiff filed a putative class action on behalf of herself and more than 1,200 employees against her employer and the consumer reporting agencies her employer hired to conduct employee background checks, alleging that the defendants failed to comply with the ICRAA’s notice and authorization requirements before obtaining employee background checks that included character information. Relying on Ortiz, the defendants argued that the ICRAA was unconstitutionally vague because the CCRAA also governed the background checks at issue. The trial court granted the defendants summary judgment, stating that it was obligated to follow Ortiz’s reasoning and finding that the ICRAA was unconstitutionally vague as applied to the background checks at issue because the information constituted both creditworthiness and character information.
The Second Appellate District reversed the trial court, heavily criticizing Ortiz and its progeny. Connor flatly rejected Ortiz’s dichotomous view of the ICRAA and the CCRAA, finding that “[t]here is nothing in either the ICRAA or the CCRAA that precludes application of both acts to information that relates to both character and creditworthiness.” Id. at 530-31. First, the Connor court reinterpreted the historical underpinnings of the ICRAA and CCRAA statutory scheme and rejected the Ortiz court’s view of character information as within the sole ambit of the ICRAA. Id. at 537. Connor explained that while under the statutes as originally enacted, a consumer report could not be governed by both the CCRAA and the ICRAA,” that “was not because information could not be classified as both creditworthiness and character information,” but simply because the ICRAA’s scope was limited to reports containing information obtained through personal interviews, which the CCRAA excluded. Id. at 537. The CCRAA, however, “always governed consumer reports that included character information, as long as that information was not obtained through personal interviews.” Id. The Connor court further found that Ortiz’s holding was unsupported by the unambiguous language of the two statutes. Id. at 538.
Although the ICRAA and CCRAA could both apply to the employee background checks at issue in Connor, the court held that the statutes’ overlap in coverage did not render them unconstitutionally vague because there was no “positive repugnancy” between the two statutes. Id. In other words, “[a]n agency that furnishes a report containing both creditworthiness information and character information, and the person who procures or causes that report to be made, can comply with each act without violating the other.” Id. As a result, the court held that the defendants were required to comply with the ICRAA, regardless of whether the CCRAA also governed.
Advice for Employers
The California Supreme Court’s review of Connor will provide much needed clarity concerning the interaction between the ICRAA and the CCRAA and the resulting liability employers may (or may not) face for violations of the stricter ICRAA for background checks involving information that speaks to both the character and creditworthiness of employees or potential employees. Nevertheless, California employers should not wait for the resolution of the appeal to review their background check notification and authorization procedures. As the Connor court found, there is no “positive repugnancy” between the CCRAA and the ICRAA, so employers may comply with the ICRAA without violating the CCRAA. Id. at 538. Thus, pending resolution by the California Supreme Court, California employers may wish to comply with both the CCRAA and the ICRAA when obtaining background checks with mixed creditworthiness/character information.