Written by: Joann Gold

Reminder: San Francisco’s tough ordinance that restricts asking about and using criminal records in employment and housing decisions starts August 13, 2014

Effective August 13, 2014, the Fair Chance Ordinance (the “FCO”) (see also the FCO FAQs) requires covered employers, contractors, and housing providers to review an individual’s qualifications before inquiring about his/her criminal history and follow strict rules for using the information.

The FCO applies to private employers that are located or doing business in the city and county of San Francisco, and employ 20 or more persons worldwide. This 20-person threshold includes owner(s), management, and supervisory personnel. The FCO covers positions (including contractor and other status) located within San Francisco, regardless of where the employer is located, as long as the position is “in whole, or in substantial part, within the city.” San Francisco’s Office of Labor Standards Enforcement (the “OLSE”) interprets “in substantial part” to mean an average of eight hours of work performed per week in San Francisco.

Along with banning inquiries about a criminal history or pending charges on the job application or during the first live interview, the FCO prohibits asking about six categories of criminal record information altogether, and mandates significant measures for individualized assessment, including considering only “directly-related convictions that have a direct and specific negative bearing on the [applicant’s] ability to perform the duties or responsibilities necessarily related to the position,” the time elapsed since the conviction, evidence of inaccuracy, evidence of rehabilitation and/or other mitigating factors.

An aspect of the ordinance that is especially noteworthy is that employers are prohibited from inquiring about or considering convictions that are more than seven years old, with “the date of conviction being the date of sentencing.” Under California law, there already is a seven-year limitation on such records, but the look-back period starts from the date that a person is released from custody. Also of note is that before taking any adverse action based on a criminal record, the ordinance requires that the employer wait seven days (from the date of the potential adverse action notice) before taking such action. If during the seven-day waiting period the individual gives the employer notice, orally or in writing, of evidence of an inaccuracy, rehabilitation, or any other mitigating factor, the employer must delay the adverse action for a “reasonable” time to reconsider the action.

Employers must also ensure that criminal background inquiries later in the process comply with the notice guidelines published by the OLSE, as well as with the already existing background check disclosure/authorization requirements under California’s ICRAA and the FCRA. Highlighted below are the ordinance’s more significant notice requirements:

  • Covered employers must post, in a conspicuous place at every workplace, including a temporary site, or other location in San Francisco under the employer’s control where applicants or employees visit, a notice of rights provided by the OLSE. The notice must be posted in English, Spanish, Chinese, Tagalog and any other language spoken by 5% or more of the employees in the workplace, job site, or other location. (Translations of the notice in Chinese, Spanish, and Tagalog are available on the OLSE website.)
  • Employers must state in all job solicitations or advertisements that are reasonably likely to reach potential applicants seeking employment in San Francisco that the employer will consider qualified individuals with a criminal history.
  • Employers mustsendthe notice toeachlaborunionorrepresentative withwhomtheemployerhasacollectivebargainingagreementorotheragreementthatisapplicabletoemployeesinSanFrancisco.
  • Prior to any criminal history inquiry, including from procuring or conducting a background check, an employer must provide this notice to an applicant or employee when he/she is given the required FCRA/ICRAA disclosure and authorization form to sign.

FINRA wants to increase awareness of its BrokerCheck and make more information public

FINRA’s online investor tool for researching the professional backgrounds of firms and brokers, the BrokerCheck, is accessible to all members of the public from the front page of its website. In a revised proposal, which includes changes made in response to comments regarding a prior proposal to amend FINRA Rule 2267 (Investor Education and Protection), firms would be required to include a readily apparent reference and hyperlink to the BrokerCheck on each website that is available to retail investors, and in online retail communications with the public that include a professional profile of, or contact information for, an associated person, subject to specified conditions and exceptions.

FINRA is also seeking comments (until September 2, 2014) on a proposal to make publicly available, through FINRA’s website, a repository of Form 211 information. Firms are required to complete this form to demonstrate compliance with the specific information review requirements under SEA Rule 15c2-11 prior to initiating a quotation in a non-exchange-listed security.

Class-action against U.S. Census Bureau alleges race-bias in using criminal background checks

On July 1, 2014, a magistrate judge in the U.S. District Court for the Southern District of New York certified as a class-action an unprecedented lawsuit brought under Title VII of the Civil Rights Act of 1964, that alleges the U.S. Census Bureau’s process of using criminal background checks when selecting temporary workers for the 2010 census unlawfully screened out approximately 250,000 African-Americans. Filed in April 2010, the complaint charges that in hiring nearly a million temporary workers, most of whom went door-to-door seeking information from residents, the Bureau erected unreasonable and largely insurmountable hurdles for applicants with arrest records, regardless of whether the arrests were decades old, were for minor charges, or led to criminal convictions.

Cities of Rochester, NY and Baltimore, MD join fast growing list of ban-the-box jurisdictions

Effective November 18, 2014, the City of Rochester, New York ordinance no. 2014-0155 will prohibit employers from requiring applicants to disclose any criminal conviction information during the application process. The employer may inquire about a criminal conviction only after the initial interview. And if the employer does not conduct an interview, it must inform the applicant whether a criminal background check will be performed, before employment is to begin. Additionally, it must wait until after a conditional job offer has been extended before conducting the criminal check or otherwise inquiring into the applicant’s criminal history. The ordinance applies to any position where the primary place of work is located within Rochester, and to any city employees (except fire or police) or vendors regardless of location. Excluded from the ordinance are criminal record inquiries that are authorized by another applicable law.

Baltimore’s Fair Criminal-Record Screening Practices ordinance, which becomes effective August 13, 2014, similarly bans private employers from inquiring about or conducting criminal checks on applicants until a conditional offer has been extended. The ordinance applies to any employer with 10 or more employees within the city of Baltimore, but excludes entities serving minors or vulnerable adults. Unlike some other ban-the-box laws, the Baltimore ordinance does not require that employers provide additional notices to applicants other than those required under the Fair Credit Reporting Act.

For more information on ban-the-box legislation,see the recently published briefing paper by the National Employment Law Project titled Statewide Ban the Box–Reducing Unfair Barriers to Employment of People with Criminal Records.

FTC settles with 14 companies that falsely claimed participation in Safe Harbor privacy framework

On June 25, 2013, the FTC approved final orders that settle charges against 14 companies for falsely claiming to participate in the international privacy framework known as the U.S.-EU Safe Harbor, which allows U.S. companies to gather customer information in Europe and send it to the United States, beyond the EU’s legal jurisdiction, as long as certain criteria are met. Three of the companies were also charged with similar violations related to the U.S.-Swiss Safe Harbor. Under the settlements, the companies are prohibited from misrepresenting the extent to which they participate in any privacy or data security program sponsored by the government or other self-regulated or standard-setting organization. Consumers who want to know whether a U.S. company is a participant in the U.S-EU or U.S.-Swiss Safe Harbor program can check its certification at http://export.gov/safeharbor.

Coincidentally, the day before the FTC’s settlement approval,, U.S. Attorney General Eric Holder announced that Congress will be asked to enact legislation granting EU citizens the right to bring claims in U.S. courts under U.S. privacy laws if they believe their personal data had been misused. This measure is intended to resolve one of the major points in the negotiations for the Data Protection Umbrella Agreement, a framework with the EU to enhance anti-terrorism efforts by granting U.S. law enforcement authorities access to the personal data of individuals living in Europe.

Right to be forgotten: sweeping changes are coming

According to a June 26, 2014 article in The Wall Street Journal, GOOGL in Your Value Your Change Short position Google, Inc., started removing results from its search engine under Europe’s new “right to be forgotten,” implementing a landmark ruling by the European Union’s top court that gives individuals the right to request removal of Internet search results  for their own names.

Not to be outdone when it comes to privacy legislation, California Senate recently approved SB 1348 requiring online data brokers who sell consumer information to provide an opt-out mechanism and consumer access to the data.  The bill, which now moves to the State Assembly for consideration, gives California consumers the right to review the information maintained by a data broker and request that it be permanently removed, within 10 days. Once removed, the information cannot be reposted or sold to a third-party. Notably, the bill attempts to include consumer reporting agencies in the category of data brokers.

Although there is no actual movement on the federal level, the Federal Trade Commission (the “FTC”) urges that Congress consider enacting legislation to make data broker practices more visible to consumers and allow greater control over the immense amounts of personal information that is collected about them and shared by data brokers. In its study presented in a report issued May 27, 2014, the FTC found that data brokers operate with a fundamental lack of transparency.

Insider trading enforcement actions continue as SEC’s top priority

Illegal insider trading generally occurs when a security is bought or sold in breach of a fiduciary duty or other relationship of trust and confidence while in possession of material, nonpublic information. In recent years, the SEC has filed insider trading cases against hundreds of entities and individuals, including financial professionals, hedge fund managers, corporate insiders, attorneys, and others. In 2014, examples of noteworthy cases include enforcement actions against the following:

Two husbands on March 31, 2014 – In two unrelated cases, the SEC charged two men with insider trading on confidential information they learned from their wives about Silicon Valley-based tech companies. Each agreed to financial sanctions to settle the charges.

Stockbroker and law firm clerk on March 19, 2014 – SEC charged two individuals who were linked through a mutual friend, with insider trading for $5.6 million in illicit profits based on nonpublic information that the clerk obtained by accessing confidential documents in law firm’s computer system.

Wall Street investment banker on February 21, 2014 – SEC charged an investment banker with making nearly $1 million in illicit profits by insider trading in a former girlfriend’s brokerage account to pay child support.

Chicago-based accountant – SEC charged an accountant with insider trading ahead of the release of financial results by the company where he worked. The individual made more than $250k in illicit profits.

Sixth Circuit affirms dismissal of EEOC’s suit regarding employment credit checks

Last month, the 6th Circuit affirmed a lower court order granting summary judgment in favor of educational institution Kaplan  (6th Cir. April. 9, 2014;  No. 13-3408:   EEOC v. Kaplan Higher Education Corp.) where the EEOC charged that Kaplan’s use of credit checks causes it to screen out more African-American applicants than white, creating a disparate impact in violation of Title VII of the Civil Rights Act. In granting summary judgment to Kaplan, the district court stated that “proof of disparate impact is usually statistical proof in the form of expert testimony, and here the EEOC relied solely on statistical data compiled by Kevin Murphy, a PhD in industrial and organizational psychology.” The court excluded Murphy’s testimony on grounds that it was unreliable, as the EEOC presented “no evidence” that Murphy’s methodology satisfied any of the factors that courts typically consider in determining reliability under Federal Rule of Evidence 702; and, as Murphy himself admitted, his sample was not representative of Kaplan’s applicant pool as a whole. The EEOC argued that the district court “erred” when it excluded Murphy’s testimony.

This case was decided on narrow grounds, based on its particular facts and circumstances. Accordingly, employers still should review their screening policies to ensure that credit and (criminal history) checks are consistent with Title VII as interpreted by the EEOC. Additionally, ten states (California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont and Washington) and several municipalities already have legislation that limits the use of credit reports for employment purposes

Reminder that EEOC’s guide on criminal checks extends to contractors and subcontractors

The guidance issued in 2012 by the Equal Employment Opportunity Commission’s (EEOC) on using criminal checks in employment decisions was also incorporated into the directive of Office of Federal Contract Compliance Programs (the “OFCCP”). As provided in the EEOC guidance, the OFCCP discourages the use of blanket hiring exclusions against individuals with criminal records, and recommends that contractors follow the EEOC’s best practices for employers to avoid liability for discrimination. The OFCCP advises that contractors, as a general rule, refrain from inquiring about convictions on job applications, and if such inquires are made, “limit the inquiries to convictions that demonstrate unfitness for the particular position.”