California Background Check Laws: Fair Chance Act and FCRA Compliance

California background check laws impose stricter rules on employers than federal law does, drawing from three main statutes that operate together with the federal Fair Credit Reporting Act: the Investigative Consumer Reporting Agencies Act (ICRAA), which controls how reports are ordered and what they can contain; the Fair Chance Act, which governs when and how criminal history can influence hiring; and Labor Code Section 1024.5, which restricts credit reports for employment. Violations carry per-applicant statutory damages under each statute, and the frameworks stack, so a single flawed hiring process can produce 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 Fair Chance Act’s criminal-history restrictions do not apply, but the ICRAA’s disclosure rules and the FCRA’s adverse action requirements still do any time a third-party agency runs the check. The five-employee floor is low enough that most California businesses fall within it.

Disclosure and Written Consent

Before ordering a background check through a third-party agency, you must give the applicant a written disclosure and get written consent. Both federal law and California law require the disclosure to appear in a standalone document containing nothing else.2Office of the Law Revision Counsel. 15 USC 1681b – Permissible Purposes of Consumer Reports No liability waiver, no job-application language, no extra content on the same page. The Ninth Circuit has treated bundling a waiver into the disclosure form as a willful FCRA violation, which is what opens the door to statutory damages for every affected applicant.

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

Information a Report Cannot Contain

California limits what a reporting agency can include in an employment background check more aggressively than the FCRA does. Under the ICRAA, a report cannot contain:

  • Arrests that did not result in a conviction, once the agency learns of that outcome. Pending cases where no judgment has been entered are the only exception.
  • Any record of an arrest, complaint, or conviction 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 where the case settled.
  • Bankruptcies more than ten years old, measured from the date of the order for relief.
  • Medical debt.

The seven-year cap on criminal history is the biggest departure from federal law. The FCRA limits reporting of non-conviction records to 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 You Can Pull a Credit Report

California generally prohibits employers from using consumer credit reports in hiring. A credit report is only permissible when the position falls into one of these categories:

  • Managerial positions, defined as roles covered by the executive exemption under Wage Order 4 of the Industrial Welfare Commission. Having “manager” in the title is not enough; the executive exemption has its own substantive test around managing a department, directing two or more employees, and having real input into hiring and firing.
  • Law enforcement and Department of Justice positions.
  • Positions where a credit check is required by law.
  • Roles with regular access to bank or credit card account information, Social Security numbers, and dates of birth for any individual. Retail workers whose only contact with such data is processing credit card applications are excluded.
  • Named signatories on employer bank accounts, employees authorized to transfer money, and those who enter 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 a position does not fit one of these categories, pulling a credit report for employment purposes violates California law.5California Legislative Information. California Code Labor Code 1024.5 The managerial-position category is the one most often misread. A retail shift supervisor is not automatically covered.

Handling Criminal History Under the Fair Chance Act

The Fair Chance Act controls every stage of how criminal history can enter the hiring process. Employers with five or more employees cannot ask about criminal history on the application or during interviews. The topic is off-limits until after a conditional offer of employment.6California Legislative Information. California Code Government Code 12952 The conditional offer is where the process starts, not where it ends.

Individualized Assessment

If the post-offer background check reveals criminal history, you cannot simply withdraw the offer. You must first perform an individualized assessment that weighs three factors:

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

The point is to decide whether the specific history has a direct and adverse relationship with the specific duties of the position. A decade-old shoplifting conviction has little bearing on an office administrative role, and treating the assessment as a formality is where most enforcement actions and lawsuits begin. A boilerplate write-up that never engages with the job’s actual duties will not survive a challenge.

Preliminary Notice of Denial

If, after the assessment, you preliminarily decide to withdraw the offer, you must send the applicant a written notice before that decision is final. It must include:

  • The specific conviction or convictions driving 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, and the deadline.
  • A statement that the response can include evidence challenging the accuracy of the report, evidence of rehabilitation or mitigating circumstances, or both.

Rehabilitation evidence can include things like work experience, job training, community service, and education completed since the conviction.7California Civil Rights Department. Fair Chance Act Sample Forms

Response Window and Reassessment

The applicant has at least five business days to respond after receiving the preliminary notice. If they notify you in writing that they dispute the accuracy of the conviction report and are working to gather supporting evidence, you must give an additional five business days on top of the original five.6California Legislative Information. California Code Government Code 12952

Once the response window closes, you must actually consider anything 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 go out in a separate written notice that tells the applicant about any procedure to challenge 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 Process Runs in Parallel

Separately from the Fair Chance Act, any time you deny employment based on information in a consumer report from a third-party agency, the FCRA requires its own two-step process. This applies to all background-check findings, not only criminal history. If criminal history is the reason, you have to complete both processes.

Pre-Adverse Action Notice

Before the final decision, you must give the applicant a copy of the report you relied on and a copy of the document titled “A Summary of Your Rights Under the Fair Credit Reporting Act.”9Federal Trade Commission. Using Consumer Reports: What Employers Need to Know The purpose is to give the applicant a chance to spot errors before the denial is finalized. The FCRA does not specify a waiting period; most employers allow at least five business days.

Final Adverse Action Notice

If you go through with the denial, the final notice must 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 why you took the action.
  • 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.

Federal law permits this notice to be delivered orally, in writing, or electronically.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.

What Noncompliance Costs

The penalties are steep, and they come from multiple statutes that stack on top of each other.

ICRAA

Failing to comply with any ICRAA requirement makes the employer 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 minimum per applicant is why ICRAA class actions are so dangerous: a defective disclosure form sent to a few hundred applicants can generate millions in exposure before anyone proves actual harm.

Labor Code 432.7

Asking about or using prohibited criminal records, such as 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 triples that: actual damages times three or $500, whichever is greater, and the intentional violation is also a misdemeanor with a fine of up to $500.12California Legislative Information. California Code Labor Code 432.7

FCRA

Federal law adds its own layer. Willful FCRA violations carry statutory damages of $100 to $1,000 per applicant without any need to prove actual harm, plus possible punitive damages and attorney’s fees. The standalone disclosure requirement is the most common trigger. Bundling a waiver or acknowledgment into the disclosure is treated as a willful violation, and these cases tend to settle for significant amounts because the per-applicant damages multiply quickly across a hiring population.

Because these frameworks are cumulative, an employer who runs a check with a defective disclosure, 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 in the same lawsuit. The applicant does not have to choose.