Q3 Background Check Compliance and Regulation Update

For those whose hiring workflows or selection processes depend in part on a background check, compliance and regulation are a critical concern. Violating the local, state, or federal law about fairness in hiring can lead to many negative impacts for a business, ranging from bad publicity and damage to a brand’s reputation to hefty monetary fines or lengthy lawsuits. Staying current on the latest developments in your area is an integral part of maintaining your capabilities for safe, effective hiring. Many trends continue to unfold nationwide, while new legislation is enacted every year.

What’s new in the third quarter of 2023, and looking forward to the next year? In this roundup of changes from across the country, we’ll examine the broad strokes of the major developments employers should know today. Overall, we see a trend towards more wide-reaching laws in record sealing and expungement areas. This creates more burdens for employers but may ultimately expand opportunities for workers. Let’s zero in on recent “Clean Slate” developments to begin.

Clean Slate Laws Continue to Evolve

After years of focus on “banning the box,” some states have focused on expanding opportunities for sealing or fully expunging criminal records. In such situations, employers will never see that such records once existed in an individual’s past, and the person can truthfully say they do not have a criminal record. One of the most significant changes that occurred this year was the beginning of the enforcement of California’s updated Clean Slate law. The law came into effect July 1, 2023.

Under the new update, many felony convictions may now automatically go under seal. The state will now automatically seal a large number of non-violent felony offenses after four years from the date of release. Violent offenders can still engage with the petitioning process to ask to have their records sealed. Sex offenders, however, aren’t eligible.

New York also plans to update its clean slate laws soon. The legislature approved a law that expanded the previous sealing process. Under the law, eligible cases may go under seal after a set period following release or sentencing. The state will automatically seal misdemeanors after three years and eligible felonies after eight years. Sex offenders and serious, violent felonies don’t qualify. The governor of New York has not yet requested the bill from legislature for signature, but signs point to its likely enactment in the near future. If signed, the law would go into effect one year afterward.

An Update on Ban the Box Legislation

Overall, progress towards further expansion of “ban the box” laws has slowed considerably in comparison to recent years. However, it is still wise to review the laws relevant to all of the jurisdictions in which you hire. Your business has a responsibility to proactively comply with these regulations, which may apply to you even when your headquarters resides elsewhere.

Once again, California provides the largest source of news in this area as further amendments to the state’s Fair Chance law took effect on October 1, 2023. These significant changes require a substantial re-evaluation of internal policy to ensure compliance, as employers may now face expanded liability compared to previous years. What’s new?

First, the state’s law expanded the definition of an “employer” to those making hiring or screening decisions on behalf of a business, including temp and staffing agencies. Second, the definition of the term “applicant” is now broader. An “applicant” is not just a job-seeker or an existing employee looking for a promotion, but currently, any individual undergoing a background check because of a change in company policy or ownership. 

Next, only jobs that face a legal mandate to use background checks can run them before making a conditional offer. For all others, a conditional offer is still necessary; further, the process of evaluating criminal records has changed. The individualized assessment was expanded with a new but non-exhaustive list of criteria to assess in your consideration. These are considerations that must take place as you evaluate the nature of the offense, the time elapsed, and the nature of the relationship between job role and criminal record.

California now requires employers to take actions beyond those mandated by the federal Fair Credit Reporting Act. Applicants must receive their pre-adverse action notice in writing with a copy of the background report and an identification of the specific conviction you find problematic. You must give the applicant at least five days to respond while explaining what types of clarifying information they can provide to you to demonstrate rehabilitation or explain exceptional circumstances.

However, you cannot specify you only will accept certain types of information. You cannot reject an applicant only because of the type of clarification they provide. You must give applicants a chance to make their case before issuing a final adverse action notice. In doing so, you must explain your decision while also sharing information about the individual’s right to challenge your decision in a complaint to the California Civil Rights Department. For California employers, reviewing your hiring program in view of these new requirements is essential: the law ultimately holds employers accountable for violations.

The Expansion of Pay Equity and Transparency Laws

About 24 states and cities now have salary history bans in place, prohibiting employers from asking candidates to disclose prior compensation levels as part of setting their current compensation offer. However, the trend towards pushing more salary bans has slowed and replaced instead with an expansion of pay transparency laws. These laws require companies to publish pay ranges for a position, usually with minimum and maximum wages.

Starting in 2024, Hawaii will require employers of 50 or more people to disclose pay scales in this way. Following that, Illinois will require employers of 15 or more people to disclose pay ranges alongside benefits. In New York, a new law went into effect in September of 2023 that requires those who employ four or more people to disclose the minimums and maximums. Legislators in Massachusetts also currently have a pay transparency bill in the works that would apply to companies with 25 or more employees.

The Texas “Death Star” Bill is on Hold

A much-watched piece of legislation in Texas is on hold after a judicial ruling in September. The so-called “Death Star” bill, properly named the Regulatory Consistency Act, was a local rule pre-emption effort. In other words, the state planned to prohibit municipalities from enacting laws that go beyond state requirements. Such a law would effectively invalidate local “ban the box” regulations in cities such as Austin. However, a district court judge ruled the law was not consistent with the state constitution. As appeals remain ongoing, employers subject to local hiring restrictions in Texas should continue to abide by those rules.

Developing Rules About AI in Hiring

Artificial intelligence continues to be a contentious topic in the hiring space. In fact, as the state governments and federal agencies continue to develop potential regulations, the Equal Employment Opportunity Commission issued specific guidance for employers to consider. The EEOC says employers using any such tools must monitor them carefully to avoid a “disparate impact” on a protected group. 

Even if you use a third party to make these decisions, you remain liable for any discrimination they cause. The same liability exists when you do not make an effort to correct discriminatory algorithms. Per the EEOC, you should follow the “four-fifths rule,” that is, there shouldn’t be more than a 20% variation in selection between protected groups.

At the state level, New York remains at the forefront of AI regulation, with a new ordinance in effect since July 2023. NY employers may only use AI tools for screening or selection if the tool goes through a comprehensive bias audit on an annual basis with the results published on your website. Applicants must receive notice within ten days of your usage of such tools. 

More legislation in this area is likely in the future.

The Current State of Cannabis-Related Rules and Compliance

Q3 did not bring many changes to marijuana laws across the nation, but companies must still take care to evaluate their approach to drug testing today. In 22 of the 39 states that have medical marijuana, employers must make reasonable accommodations for an individual’s use outside of the workplace. Locales such as Philadelphia prohibit all testing for medical marijuana. Similarly, in states with legal recreational use, four prohibit taking adverse action based on a positive THC drug test. This patchwork of legislation makes it clear that employers must take a proactive role in evaluating their approach to testing.

Beginning in mid-July of 2023, Washington, D.C. was one of the few areas to enact new rules. Per the law, businesses cannot fire or refuse to hire an individual because they use recreational or medical marijuana. A positive drug test for marijuana is not a disqualifying factor if the candidate was not impaired on the job.

Prepare for New I-9 Forms

Every so often, new I-9 forms for verifying employment eligibility come into force. When that happens, businesses must stop using the old version and transition to the new one. Beginning November 1, 2023, a new I-9 form will be mandatory for employers. This contains major formatting changes and some new additions.

The new I-9 now features a checkbox for employers enrolled in E-Verify. If you conduct a remote inspection of I-9 documents via a live video session, you will now need to check this box on the form. New rules for verifying an I-9 for remote workers have also come into full force, ending the pandemic exemptions.

Staying Up to Date on Future Changes

Compliance is never a “one-and-done” type of effort. Instead, it requires vigilance and a willingness to evaluate your policies and their effectiveness continuously. Avoiding a costly pitfall and potential damage to your organization’s reputation is well worth the effort required to stay abreast of the latest changes. Q3 of this year brought much for companies to consider, from the evolution of Clean Slate laws to the arrival of the brand new version of the I-9.

Now is the time to inspect your approach to background check compliance and the legislation that may change your responsibilities. At backgroundchecks.com, we provide a range of resources to support your efforts while also remaining on top of all the latest changes. Explore our Learning Center or contact us for more help today.

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Michael Klazema

About Michael Klazema The author

Michael Klazema is the lead author and editor for Dallas-based backgroundchecks.com with a focus on human resource and employment screening developments

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