California Takes On Criminal Background Checks, Noncompetes

Employment Law

In California regulatory news, the Civil Rights Council, an arm of the Civil Rights Department, approved changes to how employers legally conduct criminal background checks, and Gov. Gavin Newsom signed into law a bill reaffirming and expanding the state’s ban on noncompete agreements.

The California Office of Administrative Law signed off on the modifications made by the Civil Rights Council.

Pursuant to the state’s Fair Chance Act (FCA), among other requirements, employers with five or more employees are prohibited (with only narrow exceptions) from inquiring into, considering, distributing or disseminating information related to the criminal history of an applicant until after the employer has made a conditional offer of employment to the applicant.

The finalized revisions to the Fair Employment and Housing Act (FEHA) regulations include definitions (of terms such as “applicant” and “employer”) and explain that if an employer decides to deny an applicant the position after conditionally offering it, based solely or in part on the applicant’s conviction history, the employer must first conduct an individualized assessment.

To conduct the assessment, employers must consider the nature and gravity of the offense or conduct, the time that has passed since the offense and/or completion of the sentence, and the nature of the position.

Employers must notify the applicant in writing if the decision is made to deny the applicant.

Included in the notice: a copy of the conviction history report the employer relied upon and the disqualifying conviction that is the basis for the preliminary decision, as well as information about the applicant’s right to respond to the notice before the preliminary decision becomes final and an explanation of the type of evidence an applicant can submit to challenge the conviction history or evidence of rehabilitation or mitigation, along with the deadline for a response from the applicant.

An applicant may elect to provide evidence of rehabilitation or mitigating circumstances, according to the regulations. Employers are prohibited from refusing to accept additional evidence voluntarily provided by an applicant, requiring an applicant to submit any additional evidence or a specific type of documentary evidence, disqualifying an applicant for failing to provide a specific type of evidence, requiring an applicant to produce medical records and/or disclose the existence of a disability or medical condition, or requiring an applicant to disclose their status as a survivor of domestic or dating abuse, sexual assault, stalking or comparable statuses.

What factors may an employer consider when making a final decision regarding whether to rescind a conditional offer of employment?

The regulations provided examples: If the conviction resulted in incarceration, the employer may consider the applicant’s conduct during incarceration, including work and educational or rehabilitative programming. Employers may also look over the applicant’s employment history since the conviction or completion of the sentence, as well as community service and engagement (such as volunteer work for a community organization, participation in a support or recovery group or engagement with a religious organization) and any other mitigating factors.

The updated regulations will take effect on October 1, 2023.

While California has long prohibited noncompete agreements, Gov. Newsom doubled down on the ban and extended it beyond state lines when he signed Senate Bill (SB) 699 on September 1.

Section 16600 of California’s Business and Professions Code is the state’s noncompete ban, which states, “[E]very contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”

The new law adds provision 16600.5, which reads, “Any contract that is void under this chapter is unenforceable regardless of where and when the contract was signed.”

Further, it prohibits employers or former employers from attempting to enforce a contract that is void pursuant to Section 16600, regardless of whether the contract was signed and the employment was maintained outside of California.

Employees have the right to bring a private action under the updated law, with the ability to seek injunctive relief, the recovery of actual damages or both, along with attorney’s fees and costs if the employee prevails.

The law takes effect on January 1, 2024.

To read the new regulations, click here.

To read SB 699, click here.

Why it matters: Employers in California should familiarize themselves with the updated guidance with regard to criminal background checks or face potential litigation for violations of the new regulations. California’s stance on noncompetes reflects a national trend as one of four states that prohibit employee noncompete agreements, along with Minnesota, North Dakota and Oklahoma, although it is the first state to attempt to ban such agreements outside its borders. Federal authorities have also taken an anti-noncompete stance, with National Labor Relations Board General Counsel Jennifer Abruzzo releasing a memorandum in May taking the position that such noncompete provisions generally violate the National Labor Relations Act and the Federal Trade Commission proposing a ban on noncompetes earlier this year.



pursuant to New York DR 2-101(f)

© 2024 Manatt, Phelps & Phillips, LLP.

All rights reserved