California Background Check Laws: Fair Chance Act and FCRA Steps

California background check laws impose stricter rules on employers than the federal Fair Credit Reporting Act, and they stack. Three state statutes do most of the work: the Investigative Consumer Reporting Agencies Act (ICRAA) controls how a report is ordered and what it can contain, the Fair Chance Act controls when and how criminal history can factor into a hiring decision, and Labor Code Section 1024.5 limits credit reports to a short list of job types. Each one creates its own penalty track, and an employer who mishandles a single hire can face claims under all of them at once.

Which Employers Are Covered

The Fair Chance Act applies to every public and private employer in California with five or more employees.1California Civil Rights Department. Fair Chance Act FAQ Below that threshold, the criminal history restrictions do not apply, but the ICRAA’s disclosure rules and the FCRA’s adverse action rules still do any time you use a third-party agency to run a check. The threshold is low enough that most businesses operating in California are covered.

Disclosure and Consent Before Ordering a Report

Before ordering a background check through a third-party agency, you have to give the applicant a written disclosure and get their written consent. Both federal and California law require this disclosure to appear in a standalone document that contains nothing else.2Office of the Law Revision Counsel. 15 USC 1681b – Permissible Purposes of Consumer Reports No liability waiver on the same page, no job application language, no extra acknowledgments. Bundling a waiver into the disclosure form has been treated as a willful FCRA violation, which opens the employer to statutory damages for every applicant who received the defective form.

California’s ICRAA layers more on top. The disclosure has to tell the applicant that an investigative consumer report may be obtained, identify the purpose, and explain that the report may cover character, general reputation, personal characteristics, and lifestyle. It has to name the reporting agency with its address and phone number, provide a summary of the applicant’s rights under Civil Code Section 1786.22, and include the agency’s website if it has one along with information about whether the applicant’s data will be sent outside the United States.3California Legislative Information. California Code Civil Code 1786.16 The form must also carry a checkbox the applicant can use to request a copy of the finished report.

What a California Background Report Cannot Contain

California limits what a reporting agency can include in an employment background check well beyond the federal baseline. Under the ICRAA, a report cannot include:

  • Arrests that did not result in a conviction, once the agency learns of the outcome. Pending cases with no judgment entered are the exception.
  • Any arrest, complaint, or conviction record more than seven years old, measured from the date of disposition, release, or parole.
  • Convictions that have been fully pardoned.
  • Unlawful detainer actions where the applicant was the prevailing party or that were resolved by settlement.
  • Bankruptcies older than ten years, measured from the date of the order for relief.
  • Medical debt.

The seven-year cap on criminal history is the sharpest departure from federal law. The FCRA caps non-conviction records at seven years but places no time limit on convictions; California caps both. The narrow exceptions are life insurance underwriting over $250,000 and positions where a government regulatory agency explicitly requires the employer to check records that would otherwise be off-limits.4California Legislative Information. California Code Civil Code 1786.18

When Credit Reports Are Allowed

California generally prohibits employers from using consumer credit reports in hiring decisions. A credit report is only permissible when the position fits one of the categories in Labor Code Section 1024.5:

  • Managerial positions, meaning roles covered by the executive exemption under Wage Order 4 of the Industrial Welfare Commission. A job title with “manager” in it is not enough.
  • Law enforcement and Department of Justice positions.
  • Positions where another law requires a credit check.
  • Roles with regular access to sensitive personal data: bank or credit card account information, Social Security numbers, and dates of birth. Retail workers whose only contact with that data is processing credit card applications are excluded.
  • Named signatories on employer bank accounts, employees authorized to transfer money, and those who enter into financial contracts on the employer’s behalf.
  • Positions with access to trade secrets or proprietary information that has independent economic value from not being publicly known.
  • Roles with regular access to $10,000 or more in cash belonging to the employer, a customer, or a client during the workday.

If the position does not fit one of these, pulling a credit report for employment purposes violates California law.5California Legislative Information. California Code Labor Code 1024.5 The managerial category is where employers most often misstep: the executive exemption requires the employee to primarily manage a recognized department or subdivision, regularly direct the work of two or more others, and have meaningful input into hiring and firing. A shift supervisor usually does not qualify.

The Fair Chance Act Sequence for Criminal History

The Fair Chance Act regulates every stage at which criminal history can enter a hiring decision. Covered employers cannot ask about criminal history on the application or during the interview. The topic is off-limits until after a conditional offer of employment has been made.6California Legislative Information. California Code Government Code 12952 The offer is where the process begins.

Individualized Assessment

If the post-offer background check turns up criminal history, you cannot simply withdraw the offer. You have to conduct an individualized assessment that weighs three factors:

  • The nature and gravity of the offense or conduct.
  • How much time has passed since the offense and completion of the sentence.
  • The nature of the job held or sought.

The question the assessment answers is whether the applicant’s specific history has a direct and adverse relationship with the specific duties of the position. A decade-old shoplifting conviction probably has no meaningful connection to an office administrative role. A boilerplate assessment that does not actually engage with the job duties is where enforcement actions and lawsuits tend to originate.

Preliminary Notice

If the assessment leads you to a preliminary decision to rescind the offer, you have to send the applicant a written notice before that decision becomes final. The notice must include:

  • The specific conviction or convictions behind the preliminary decision.
  • A copy of the conviction history report you relied on, if any.
  • An explanation of the applicant’s right to respond before the decision becomes final, including the deadline.
  • A statement that the response can include evidence challenging the accuracy of the report, evidence of rehabilitation or mitigating circumstances, or both.

The California Civil Rights Department’s sample forms identify work experience, job training, community service, and education completed since the conviction as examples of rehabilitation evidence.7California Civil Rights Department. Fair Chance Act Sample Forms

Response Period and Final Decision

The applicant has at least five business days to respond after receiving the preliminary notice. If the applicant notifies you in writing that they dispute the accuracy of the conviction report and are gathering supporting evidence, you have to give them another five business days on top of the original five.6California Legislative Information. California Code Government Code 12952

Once the response period closes, you have to actually consider whatever the applicant submitted before making a final decision. Ignoring rehabilitation evidence, or issuing a final notice that does not reflect that you weighed it, is a likely statutory violation. A final decision to deny employment must be communicated in a separate written notice that tells the applicant about any procedure for challenging the decision and about their right to file a complaint with the California Civil Rights Department.8California Civil Rights Department. Fair Chance Act

The FCRA Adverse Action Steps That Run Alongside

The federal FCRA adds its own two-step notification process any time you deny employment based on information in a consumer report from a third-party agency. This applies to every type of finding, not just criminal history. When criminal history is the reason, you have to complete the Fair Chance Act process and the FCRA process.

Pre-Adverse Action Notice

Before making a final decision, send the applicant a copy of the consumer report you relied on along with a copy of “A Summary of Your Rights Under the Fair Credit Reporting Act.”9Federal Trade Commission. Using Consumer Reports: What Employers Need to Know The point is to give the applicant a chance to see the report and flag errors before the decision is final. The FCRA does not set an exact waiting period, but a reasonable interval is expected and most employers allow at least five business days.

Final Adverse Action Notice

If you proceed with the denial, the final notice has to include:

  • The name, address, and phone number of the consumer reporting agency that supplied the report.
  • A statement that the agency did not make the decision and cannot explain it.
  • Notice of the applicant’s right to obtain a free copy of the report from the agency within 60 days.
  • Notice of the applicant’s right to dispute the accuracy or completeness of anything in the report.

The notice can be oral, written, or electronic.10Office of the Law Revision Counsel. 15 USC 1681m – Duties of Users Taking Adverse Actions on the Basis of Information Contained in Consumer Reports Written notice is the safer choice because it creates a paper trail.

Penalties for Getting It Wrong

California stacks three liability frameworks on top of the federal one, and the per-applicant numbers climb fast across a hiring population.

ICRAA Violations

An employer who fails to comply with any ICRAA requirement is liable to the applicant for actual damages or $10,000, whichever is greater, plus attorney’s fees and court costs. A court can add punitive damages if the violation was grossly negligent or willful.11California Legislative Information. California Code Civil Code 1786.50 The $10,000 statutory floor per applicant is what makes ICRAA class actions so dangerous. A defective disclosure form sent to a few hundred applicants can produce millions in exposure before anyone proves actual harm.

Labor Code 432.7 Violations

Asking about or using prohibited criminal records, including arrests that did not lead to a conviction, exposes the employer to actual damages or $200, whichever is greater, plus attorney’s fees. An intentional violation raises the recovery to three times actual damages or $500, whichever is greater, and is also a misdemeanor punishable by a fine of up to $500.12California Legislative Information. California Code Labor Code 432.7

FCRA Violations

Willful FCRA violations carry statutory damages of $100 to $1,000 per applicant without any proof of actual harm, plus possible punitive damages and attorney’s fees. The standalone disclosure requirement is the most common trigger for FCRA class actions, and bundling a waiver or acknowledgment into the form is treated as willful. These cases tend to settle for significant amounts because the per-applicant damages multiply quickly.

These frameworks are cumulative. An employer who runs a check with a defective disclosure form, uses a prohibited record to deny employment, and skips the Fair Chance Act process can face claims under the ICRAA, Labor Code 432.7, the Fair Chance Act, and the FCRA at the same time. The applicant does not have to pick.