The Scherzer Deal Report: Oct 9-16, 2019


Here is this week’s Deal Report for private equity and venture capital activity for US-based PE and VC firms and portfolio companies, brought to you by Scherzer International.


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PE and VC Firms Fundraising Location Amount Description
BoxGroup New York, NY $165M Flagship vehicle ($82.5M) and an opportunities fund ($82.5M)
Craft Ventures San Francisco, CA $500M Second fund led by David Sacks
Day One Ventures San Francisco, CA $20M Third fund
Jackson Square Ventures San Francisco, CA $193M Third VC fund
KPS Capital Partners New York, NY $7B Fifth flagship buyout fund,($6B) and debut middle-market buyout fund ($1B)
M13 Los Angeles, CA $175M Second fund


Private Equity Investors Company Amount Description
Lovell Minnick Partners Billhighway Undisclosed Troy, MI-based provider of software and payment solutions to membership-based organizations
Whitney, Bradley & Brownn BRTRC Federal Solutions Undisclosed Vienna, VA-based provider of support services to U.S. military and intelligence agencies
The Carlyle Group Cepsa Undisclosed Spanish oil company
GHK Capital Partners Dura-Supreme Undisclosed Howard Lake, MN-based maker of semi-custom and custom cabinetry
Five Elms Capital FMX Undisclosed Columbus, OH-based provider of facilities and maintenance management software
The Carlyle Group HireVue Undisclosed Salt Lake City, UT-based provider of talent assessment and video interviewing software
KKR Hyperoptic Undisclosed British residential gigabit broadband provider
Blue Wolf Capital Partners Kirlin Design Build Undisclosed Rockville, MD-based engineering and construction company focused on large government and private-sector projects
Cornell Capital Lorom Undisclosed Taipei-based specialized cable manufacturing and assembly company
HGGC Monotype Imaging $825M Woburn, MA-based font licensor
Ampersand Capital Partners New England Peptid Undisclosed Gardner, MA-based provider of custom peptides and antibodies to the life sciences market
Lincolnshire Management Powerhouse Undisclosed Crowley, TX-based construction and facilities maintenance company
Baymark Partners Presidium Network Services Undisclosed Lakeland, FL-based IT services provider
Thoma Bravo Sophos Group Undisclosed British cybersecurity company
Cornell Capital Spectrum Automotive Undisclosed Fairfield, NJ-based agent, marketer and administrator of auto finance and insurance products
Revelstoke Capital Partners The Care Team Undisclosed Farmington Hills, MI-based provider of home health and hospice services
Rockbridge Growth Equity White Glove Undisclosed Birmingham, MI-based seminar marketing and planning company
Marlin Equity Partners Whitlock Undisclosed Richmond, VA-based provider of audiovisual and video collaboration solutions


Venture Capital Investors Company Amount Description
Accelled, Salesforce Ventures Algolia $110M San Francisco, CA-based search-as-a-service startup
Bond, General Catalyst, Bessemer Venture Partners, Blackbird, Sequoia China Canva $85M Australian design software company
Prelude Ventures, Innovation Endeavors, Moore Strategic Ventures, Next47 Citrine $20M Redwood City, CA-based materials data and AI platform
Tiger Global, Sequoia India CleverTap $35M Mountain View, CA-based mobile marketing and customer analytics platform
Novo Holdings, Venrock, DROIA Oncology Ventures, Osage University Partners, Lightstone Ventures, Celgene Cyteir Therapeutics $40.2M Lexington, MA-based cancer therapy startup
Union Grove Venture Partners, Ajax Strategies, Crosslink Capital, March Capital Partners Descartes Labs $20M Santa Fe, NM-based satellite imagery analytics startup
Edison Partners, Allos Ventures, Cultivation Capital Emplify $15M Indianapolis, IN-based employee engagement improvement startup
The Chernin Group Exploding Kittens $30M Los Angeles, CA-based maker of card games
e.ventures, Evolv Ventures, Poseidon Flowhub $23M Denver, CO-based provider of cannabis retail management software
Accel Galileo Financial $77M Salt Lake City, UT-based provider of backend software for fintech companies
Foundry Group, Lerer Hippeau, Kickstart Ventures, Gingerbread Capital Havenly $32M Denver, CO-based interior design platform
H.I.G Growth, Upfront Ventures, Accel, Morgan Stanley Invoca $56M Santa Barbara, CA-based provider of call tracking and conversational analytics software
Tiger Global Lattice $25M San Francisco, CA-based employee management platform
Walmart, Hut 8 Ventures, Lennar Level Home $71M Redwood City, CA-based smart-lock developer
White Star Capital, FirstMark Capital, Amplo, Alpha Edison Partners, Arkitekt Ventures, Galaxy Digital Parsley Health $26M New York, NY-based personalized holistic health services startup
Sapphire Ventures, General Atlantic, Tiger Global, Battery Ventures, Meritech Capital, FirstMark, Geodesic Capital, Cross Creek Pendo $100M Raleigh, NC-based customer analytics platform
HP Enterprise, Lightspeed Venture Partners Pensando $145M San Jose, CA-based developer of new edge services models of enterprise and cloud computing
Contour Venture Partners, Core Capital Partners Radius Networks $15M Washington, DC-based provider of physical customer traffic analytics
IAC, Slow Ventures, AXA Venture Partners, Open Ocean Thimble $22M New York, NY-based provider of short-term insurance to small businesses and freelancers
DBL Partners Wheels $50M Los Angeles, CA-based dockless e-bike rental company

October 18th, 2019|Scherzer Deal Report|

Ninth Circuit Defines “Standalone, Clear and Conspicuous” Disclosure for Obtaining Employment-Purpose Background Checks

On January 29, 2019, the U.S. Court of Appeals for the Ninth Circuit in Gilberg v. California Check Cashing Stores, LLC instructed employers about the importance of complying with background check disclosure requirements found in the Fair Credit Reporting Act (FCRA).

Pursuant to the federal statute, employers who want to obtain a consumer report (commonly referred to as a background check report) on a job candidate must provide to the candidate a “clear and conspicuous disclosure” about the report in a document that consists “solely of the disclosure.” 15 U.S.C. § 1681b(b)(2)(A).

But when Desiree Gilberg applied for a job with CheckSmart Financial, she received something different. First Gilberg completed a three-page form containing an employment application, a math screening and an employment history verification. She then signed a separate form entitled, “Disclosure Regarding Background Investigation.”

The one-page form included the required FCRA disclosure as well as mandated state disclosures for California, Maine, Minnesota, New York, Oklahoma, Oregon and Washington.

Gilberg worked for CheckSmart for five months before voluntarily leaving the job. She then filed a putative class action against the company, alleging that it failed to make proper disclosures as set forth in both the FCRA and California’s Investigative Consumer Reporting Agencies Act (ICRAA).

A district court sided with the employer and dismissed the case. The judge agreed with CheckSmart that its disclosure form complied with both statutes. Gilberg appealed to the Ninth Circuit. She argued that the standalone requirement didn’t permit the combination of state and federal disclosures as CheckSmart had tried.

Considering the issue, the Ninth Circuit recalled a 2017 decision in Syed v. M-I, LLC. In that case, which also involved the standalone requirement, the federal appellate panel held that a prospective employer violated the FCRA when it included a liability waiver in the same document as the mandated disclosure. The statute means what it says, the court emphasized: the required disclosure must be in a document that “consist[s] ‘solely’ of the disclosure.”

In an effort to distinguish its disclosure from that in the Syed case, CheckSmart told the court that the additional information in its form actually furthered the FCRA’s purpose.

“We disagree,” the court wrote. “Syed’s holding and statutory analysis were not limited to liability waivers; Syed considered the standalone requirement with regard to any surplusage. Syed grounded its analysis of the liability waiver in its statutory analysis of the word ‘solely,’ noting that FCRA should not be read to have implied exceptions, especially when the exception – in that case, a liability waiver – was contrary to FCRA’s purpose. Syed also cautioned ‘against finding additional, implied exceptions’ simply because Congress had created one exception. Consistent with Syed, we decline CheckSmart’s invitation to create an implied exception here.”

Plain meaning trumps purpose, the Ninth Circuit said, rejecting the employer’s contention that its disclosure form was consistent with the intent of the FCRA. Since the surplus language included disclosures required by various state laws that were inapplicable to Gilberg, the court was unable to understand how the CheckSmart form comported with the purpose of the federal statute.

“Because the presence of this extraneous information is as likely to confuse as it is to inform, it does not further FCRA’s purpose,” the court declared.

“Syed holds that the standalone requirement forecloses implicit exceptions,” the panel wrote. “The statute’s one express exception does not apply here, and CheckSmart’s disclosure contains extraneous and irrelevant information beyond what FCRA itself requires. The disclosure, therefore, violates FCRA’s standalone document requirement. Even if congressional purpose were relevant, much of the surplusage in CheckSmart’s disclosure form does not effectuate the purposes of the FCRA.”

In addition to ruling that the district court erred in concluding that the employer’s disclosure form satisfied the FCRA’s standalone document requirement, the Ninth Circuit also held that CheckSmart’s disclosure form was not “clear and conspicuous” under either FCRA or ICRAA.

The court grudgingly found the form to be “conspicuous” (despite characterizing the font as “inadvisably” small and cramped) but held it was not “clear.” The disclosure contained language a reasonable person would not understand, the court said, and its content would confuse a reader with the combination of federal and state disclosures.

As “CheckSmart’s disclosure form was not both clear and conspicuous, the district erred in granting CheckSmart’s motion for summary judgment with regard to the FCRA and ICRAA ‘clear and conspicuous’ requirements,” the panel wrote. The Ninth Circuit reversed dismissal of Gilberg’s complaint and remanded the case to the California district court. (As of this writing, there is a petition for rehearing and rehearing en banc pending before the 9th Circuit.)

For employers, the Ninth Circuit opinion could not be more clear: ensure that the FCRA disclosure form provided to job candidates contains no extraneous or surplus language. The decision also provides an important reminder about keeping disclosures forms clear and conspicuous in order to comply with both federal and state laws.

Pursuant to the federal statute, employers who want to obtain a consumer report (commonly referred to as a background check report) on a job candidate must provide to the candidate a “clear and conspicuous disclosure” about the report in a document that consists “solely of the disclosure.” 15 U.S.C. § 1681b(b)(2)(A).

But when Desiree Gilberg applied for a job with CheckSmart Financial, she received something different. First Gilberg completed a three-page form containing an employment application, a math screening and an employment history verification. She then signed a separate form entitled, “Disclosure Regarding Background Investigation.”

The one-page form included the required FCRA disclosure as well as mandated state disclosures for California, Maine, Minnesota, New York, Oklahoma, Oregon and Washington.

Gilberg worked for CheckSmart for five months before voluntarily leaving the job. She then filed a putative class action against the company, alleging that it failed to make proper disclosures as set forth in both the FCRA and California’s Investigative Consumer Reporting Agencies Act (ICRAA).

A district court sided with the employer and dismissed the case. The judge agreed with CheckSmart that its disclosure form complied with both statutes. Gilberg appealed to the Ninth Circuit. She argued that the standalone requirement didn’t permit the combination of state and federal disclosures as CheckSmart had tried.

Considering the issue, the Ninth Circuit recalled a 2017 decision in Syed v. M-I, LLC. In that case, which also involved the standalone requirement, the federal appellate panel held that a prospective employer violated the FCRA when it included a liability waiver in the same document as the mandated disclosure. The statute means what it says, the court emphasized: the required disclosure must be in a document that “consist[s] ‘solely’ of the disclosure.”

In an effort to distinguish its disclosure from that in the Syed case, CheckSmart told the court that the additional information in its form actually furthered the FCRA’s purpose.

“We disagree,” the court wrote. “Syed’s holding and statutory analysis were not limited to liability waivers; Syed considered the standalone requirement with regard to any surplusage. Syed grounded its analysis of the liability waiver in its statutory analysis of the word ‘solely,’ noting that FCRA should not be read to have implied exceptions, especially when the exception – in that case, a liability waiver – was contrary to FCRA’s purpose. Syed also cautioned ‘against finding additional, implied exceptions’ simply because Congress had created one exception. Consistent with Syed, we decline CheckSmart’s invitation to create an implied exception here.”

Plain meaning trumps purpose, the Ninth Circuit said, rejecting the employer’s contention that its disclosure form was consistent with the intent of the FCRA. Since the surplus language included disclosures required by various state laws that were inapplicable to Gilberg, the court was unable to understand how the CheckSmart form comported with the purpose of the federal statute.

“Because the presence of this extraneous information is as likely to confuse as it is to inform, it does not further FCRA’s purpose,” the court declared.

“Syed holds that the standalone requirement forecloses implicit exceptions,” the panel wrote. “The statute’s one express exception does not apply here, and CheckSmart’s disclosure contains extraneous and irrelevant information beyond what FCRA itself requires. The disclosure therefore violates FCRA’s standalone document requirement. Even if congressional purpose were relevant, much of the surplusage in CheckSmart’s disclosure form does not effectuate the purposes of the FCRA.”

In addition to ruling that the district court erred in concluding that the employer’s disclosure form satisfied the FCRA’s standalone document requirement, the Ninth Circuit also held that CheckSmart’s disclosure form was not “clear and conspicuous” under either FCRA or ICRAA.

The court grudgingly found the form to be “conspicuous” (despite characterizing the font as “inadvisably” small and cramped) but held it was not “clear.” The disclosure contained language a reasonable person would not understand, the court said, and its content would confuse a reader with the combination of federal and state disclosures.

As “CheckSmart’s disclosure form was not both clear and conspicuous, the district erred in granting CheckSmart’s motion for summary judgment with regard to the FCRA and ICRAA ‘clear and conspicuous’ requirements,” the panel wrote. The Ninth Circuit reversed dismissal of Gilberg’s complaint and remanded the case to the California district court. (As of this writing, there is a petition for rehearing and rehearing en banc pending before the 9th Circuit.)

For employers, the Ninth Circuit opinion could not be more clear: ensure that the FCRA disclosure form provided to job candidates contains no extraneous or surplus language. The decision also provides an important reminder about keeping disclosures forms clear and conspicuous in order to comply with both federal and state laws.

March 2nd, 2019|Employment Decisions, Judgment|

Independent contractors and the FCRA

Must employers provide the protections required by the Fair Credit Reporting Act (FCRA) to prospective independent contractors? 

Not according to a new decision from an Iowa court (see Smith v. Mutual of Omaha Insurance Company, No. 4:17-cv-00443 (S.D. Iowa Oct. 4, 2018)) which grappled with the question in the context of a lawsuit filed by an individual against an insurance company where he applied to contract as a salesperson but was rejected because of a falsely reported felony in his background check. The plaintiff accused the insurance company of violating the FCRA by failing to provide him with the statutorily required prior notice that the background check resulted in his not being hired.    

The insurance company asked the court to dismiss the lawsuit, claiming that the FCRA only requires such notice when an applicant seeks to be hired as an employee, and not as an independent contractor. Since the plaintiff applied for an independent contractor position, he was not entitled to the protections of the statute, the insurance company argued. 

The plaintiff countered that he was applying to be an employee of the insurance company and that it was too early to dismiss the case, as further discovery was needed. In the alternative, he argued that the FCRA should still govern his relationship even as an independent contractor.

In ruling on the FCRA issue, Judge John Jarvey began with the language of the law. The FCRA is a broad statute, Judge Jarvey said, and some of its most stringent protections apply when a background check is being obtained “for employment purposes.” 

The definitions section of the FCRA, at 15 U.S.C. § 1681a(h), states that “[t]he term ‘employment purposes’ when used in connection with a consumer report means a report used for the purpose of evaluating a consumer for employment, promotion, reassignment or retention as an employee.” This text “makes clear that the pre-adverse action notice requirement only applies when a consumer report is used for employment purposes,” Judge Jarvey wrote. “The meaning of ‘employment purposes’ is specifically defined in the statute, and it is defined as being ‘used for the purpose of evaluating a consumer for employment, promotion, reassignment or retention as an employee.’”  District courts in Ohio and Wisconsin have reached the same conclusion, Judge Jarvey noted, citing the decisions for support. 

Notably, the Federal Trade Commission (FTC) in its 2011 staff report entitled “40 Years of Experience with the Fair Credit Reporting Act” provided a seemingly contrasting interpretation. The FTC stated that “the term ‘employment purposes’ is interpreted liberally to effectuate the broad remedial purpose of the FCRA and may apply to situations where an entity uses individuals who are not technically employees to perform duties. Thus, it includes a trucking company that obtains consumer reports on individual drivers who own and operate their own equipment; a title insurance company that obtains consumer reports on individuals with whom it frequently enters into contracts to sell its insurance, examine title, and close real property transactions; or a nonprofit organization staffed in whole or in part by volunteers.” 

The FTC’s view can be reconciled with that of Judge Jarvey’s by taking the approach that the applicability of FCRA’s requirements depends on the facts and circumstances of the particular relationship, rather than the formal designation of someone as an independent contractor. 

Given the still remaining disputed issue of whether or not the plaintiff would have been an employee or an independent contractor for the insurance company, the court ordered limited discovery on the issue and declined to dismiss the suit. 

January 2nd, 2019|Employment Decisions, FCRA, Judgment|

New Draft Guidelines Attempt to Clarify Territorial Scope of the GDPR

Since the adoption of the General Data Protection Regulation (GDPR) by the European Union (EU) in May 2018, businesses established outside of the EU have grappled with the question of whether the GDPR’s strict rules apply to them. Many commentators have noted that the GDPR provisions and recitals do not have an easy answer. The European Data Protection Board (EDPB) recently attempted to provide some clarification by publishing draft guidelines that include a commentary on the territorial scope of the GDPR. The EDPB’s guidelines also address the related issue of whether a non-EU company subject to the GDPR must have an EU-based representative.

GDPR’s Targeting Criteria

Arguably the most significant change to the regulatory landscape affecting an individual’s data privacy is the territorial scope of the GDPR’s Article 3 (2). Generally described as the GDPR’s “targeting criteria,” your business must be GDPR compliant if it engages in processing activities of an EU individual’s data (data subject) related to (1) offering goods or services to data subjects, or (2) monitoring data subjects’ behavior. Although the EDPB’s guidelines state that the targeting criteria is applied on a case-by-case basis, the guidelines provide several examples showing how the targeting criteria can be applied that clarify some basic points, such as:

  1. The data subject’s nationality or citizenship is irrelevant. The GDPR protects data subjects geographically located within the EU, without regard to the data subject’s nationality or citizenship. Conversely, data subjects outside of the EU, including EU citizens, are not protected by the GDPR.
  2. Geographic allocation and timing are critical. For purposes of applying the GDPR, thedata subject’s geographic location is assessed atthe moment when your activity occurs; e.g., when your goods or services are offered, or your monitoring of the datasubject’s behavior begins.
  3. Charging for services is irrelevant. The GDPR protects data subjects regardless of whether your services are free.
  4. Cookies are considered monitoring. TheGDPR protects data subjects that your business profiles or undertakes someanalysis by using cookies or similar technologies.

GDPR Compliance and an EU-based Representative

A significant point clarified by the EDPB’s guidelines is that a non-EU company subject to the GDPR must appoint an EU-based representative, even though the not have a physical location within the EU. A company’s Data Protection Officer, who can be an existing employee of the company under the GDPR, cannot fulfill the requirements for an EU-based representative. The purpose of the requirement is to ensure that a qualified individual or entity is located within the EU to whom regulatory authorities can address compliance issues. The guidelines also make clear that the EU-based representative can even be held liable for any non-compliance, including being fined or otherwise sanctioned.

Consultation Period

The territorial scope and appointment of an EU-based representative poses two of the most critical issues that a non-EU based company faces regarding GDPR compliance. The EDPB’s draft guidelines address several other GDPR issues in addition to these, and a full version of the guidelines can be found here. The EDPB is taking public comments on the draft guidelines until January 18, 2019. Comments should be sent to the EDPB at EDPB@edpb.europa.eu.

December 12th, 2018|Educational Series, International, Legislation, Social Media|

How to consider sex offender registry records in California

For California employers concerned about hiring sex offenders, there are a few important points to keep in mind.

 

An employer has a duty to keep the workplace free of sexual harassment and other forms of discrimination under state law. Under the California Fair Employment and Housing Act (FEHA), an employer can face significant liability if it knowingly employs a sex offender and fails to take actions to protect its other employees from unlawful behavior by that person.

 

To avoid this problem, employers would like to know if they are hiring a registered sex offender. But how can they find out?

 

Since 2005, the state has operated a Megan’s Law website with a database to obtain access to the state’s list of more than 100,000 registered sex offenders. Created to help state residents better protect their families by being able to search for an individual registrant or by geographic location, the site (https://www.meganslaw.ca.gov/Default.aspx) contains the sex offender’s name, aliases, age, gender, race, address, physical description and, in some cases, a photograph.

 

While the site would appear to be a boon for employers, state law expressly forbids use of the state’s sex offender registry information for employment purposes. California Penal Code section 209.46(l)(2)(E) prohibits the use of information disclosed on the website for purposes relating to health insurance, insurance, loans, credit, education, housing and employment, among other uses.

 

Statutory exceptions provide for use “to protect a person at risk,” a term not defined by the Penal Code, as well as for employers required by law or authorized to request criminal history from the California Department of Justice. Examples of businesses that meet this standard may include child care centers, financial institutions and governmental agencies.

 

An employer who runs afoul of the Penal Code’s prohibition can face actual and exemplary damages, attorneys’ fees and a civil fine. Legislative history explains that the website attempts to protect the public while not inflicting additional punishment on registrants.

 

For employers trying to walk the fine line of protecting other employees and third parties, such as customers, from potential sex offender registrant employees while not violating the Penal Code, two alternate avenues exist to try to find out information about a sex offender: conviction records and employee/applicant self-disclosure.

 

Following applicable state and federal law, employers can conduct a criminal background check on applicants and employees and learn of a sex offense conviction. (However, convictions past the seven-year cut-off date in California may not appear on a background check report while the individual may still appear in the sex offender registry). An applicant or employee may also self-disclose a conviction.

 

Providing another wrinkle for California employers, the state’s Fair Chance Act took effect on January 1, 2018, mandating that employers with five or more employees must wait until after a conditional offer of employment has been made to ask any questions about criminal history. This includes inquiries about convictions, running a background check or other efforts to find out about an applicant’s criminal past.

 

If the employer decides not to hire the applicant, it must conduct an individualized assessment of the conviction at issue to evaluate whether it has a “direct and adverse relationship with the specific duties of the job that justify denying the applicant the position.” Other legal requirements, based on both state and federal law, must also be satisfied if an employer takes an adverse action on the basis of the background check (see our prior blog post (https://www.scherzer.com/reminder-to-california-employers-about-requirements-when-taking-adverse-action-based-on-a-criminal-record/) for more details).

 

What if an employer learns that an employee is a registered sex offender from another employee’s perusal of the Megan’s Law website? This situation could trigger liability under section 290.46 and employers should be careful to take action only after evaluating any potential risk the sex offender employee may pose to coworkers or customers, considering all the facts and circumstances.

October 30th, 2018|Employment Decisions, Legislation|

California’s overlapping background check laws

For many years, employers have struggled with California’s overlapping statutes governing the use of background checks. Now, the state’s highest court has weighed in, ruling that compliance with the requirements of both laws is mandatory, even where the laws overlap.

A little history is necessary to understand the situation. In 1970, Congress passed the Fair Credit Reporting Act (FCRA). The law defined the term “consumer report” to include an individual’s “credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living.” The FCRA distinguished between consumer reports that contained information obtained by personal interviews and consumer reports gathered by other means.

The California legislature responded with two state analogues in 1975: the Investigative Consumer Reporting Agencies Act (ICRAA) and the Consumer Credit Reporting Agencies Act (CCRAA). Modeled on the FCRA, the statutes had similar purposes and were intended to serve complementary goals.

As originally enacted, the ICRAA applied to consumer reports that included character information obtained only through personal interviews. It defined an “investigative consumer report” as one “in which information on a consumer’s character, general reputation, personal characteristics, or mode of living is obtained through any means.” The statute requires that the person procuring the report provide the consumer a “clear and conspicuous disclosure in writing” and that the consumer in turn provide a written authorization for the report’s procurement.

Lawmakers took a slightly different approach with CCRAA, which defined a “consumer credit report” as “any written, oral or other communication of any information by a consumer reporting agency bearing on a consumer’s credit worthiness, credit standing, or credit capacity, which is used or is expected to be used … for … employment purposes.” The definition excluded “any report containing information solely on a consumer’s character, general reputation, personal characteristics, or mode of living which is obtained through personal interviews with neighbors, friends, or associates of the consumer reported on, or others with whom he is acquainted or who may have knowledge concerning any such items of information.”

In 1998, the California legislature amended ICRAA to eliminate the personal interview limitation and expand the statute’s scope to include character information obtained under CCRAA or “obtained through any means.”

Since then, CCRAA continues to govern consumer reports that include character information obtained from a source other than personal interviews, as long as those reports contain information “bearing on a consumer’s credit worthiness, credit standing, or credit capacity.”

What does all this mean for employers? And how did the California Supreme Court get involved?

The two statutes came to the attention of the court when a group of current and former school bus drivers filed suit against their employers, First Student and First Transit, as well as the investigative consumer reporting agency (ICRA) that conducted background checks on the drivers. Eileen Connor led the class action.

After First Student acquired the company where Connor worked as a driver, it requested that the ICRA run background checks to confirm that Connor and the other workers were properly qualified to perform their job duties. The background reports elicited information about the employees’ criminal records, sex offender registries, address history, driving records and employment history.

Prior to conducting the background checks, First Student sent Connor a “Safety Packet” booklet. The booklet included an “Investigative Consumer Report Disclosure and Release” that provided authorization for the ICRA to prepare a consumer report or investigative consumer report. The notice included a checkbox that generally described Connor’s rights under ICRAA, informed her that she could check the box if she wanted to receive a copy of the report and released First Student from all claims and damages arising out of or relating to its background investigation if the box was checked.

Connor filed suit, arguing that the notice failed to satisfy ICRAA’s specific requirements and that First Student neglected to obtain her written authorization to conduct the background check, as required by ICRAA.

First Student asked the court to dismiss the suit, arguing that ICRAA is unconstitutionally vague as applied to the lawsuit because it overlaps with CCRAA and that the notice satisfied CCRAA.

The California Supreme Court found that while the statutes overlap to some degree, achieving compliance with both did not render ICRAA unconstitutional. The two statutes were not intended to be exclusive of each other, the court said, and potential employers can comply with both statutes without undermining the purpose of either.

“If an employer seeks a consumer’s credit records exclusively, then the employer need only comply with CCRAA,” the court explained. “An employer seeking other information that is obtained by any means must comply with ICRAA. In the event that any other information revealed in an ICRAA background check contains a subject’s credit information and the two statutes thus overlap, a regulated party is expected to know and follow the requirements of both statutes, even if that requires greater formality in obtaining a consumer’s credit records.”

First Student complained that because the ICRAA and CCRAA cover the same subject matter, it was unclear which statute applied in the context of employment background checks. But the court disagreed. Connor’s report, for example, fell within the scope of both statutes and “such a duality does not make legal compliance particularly difficult, must less impossible,” the court said.

“Any partial overlap between the statutes does not render one superfluous or unconstitutionally vague,” the court wrote. “They can coexist because both acts are sufficiently clear and each act regulates information that the other does not.”

The California Supreme Court opinion was a loss for First Student and the ICRA, as the court found the defendants had no excuse for not complying with both statutes. For employers more generally, the decision sends an important message: compliance with the requirements of both ICRAA and CCRAA is mandatory, even where the two statutes overlap.

October 1st, 2018|Employment Decisions, Legislation|

Amendment to San Francisco’s Fair Chance Ordinance goes into effect October 1, 2018

In April 2018, the San Francisco Board of Supervisors passed an amendment to the Fair Chance Ordinance (FCO), which takes effect on October 1, 2018. The full text of the amendment can be found here.

The FCO notice/poster has also been updated and can be accessed here. Employers must provide this notice to applicants and employees prior to conducting a criminal background check, and post it in English, Spanish, Chinese, and any other language is spoken by at least 5% of the employees at the workplace or job site.

September 28th, 2018|Employment Decisions|

New FCRA Summary of Rights

Effective September 21, 2018, section 605A(i) of the Fair Credit Reporting Act (FCRA), added by the Economic Growth, Regulatory Relief, and Consumer Protection Act requires that a new notice (which explains consumer rights about placing fraud alerts and credit freezes with nationwide consumer reporting agencies (NCRAs)) be included whenever a consumer is required to receive a summary of rights under FCRA’s section 609. Although the new notice requirement is aimed at NCRAs and potentially consumer reporting agencies, the Consumer Financial Protection Bureau published a revised “FCRA Summary of Rights” form on September 13, 2018 (which includes the new notice and updates certain contact information) and the conservative approach for employers is to use the new form also.

The new version of the “FCRA Summary of Rights” form can be accessed HERE.

September 18th, 2018|Employment Decisions|

When employment meets antitrust

Can employers be criminally liable for antitrust violations? According to the Department of Justice (DOJ), the answer is yes.

Violations of antitrust law in the employment context have made headlines in recent years, as the government has cracked down on “no-poach” and “salary-fixing” agreements between companies. Taking the issue increasingly seriously, the DOJ issued guidance promising to bring criminal charges against employers for such illegal conduct.

First, some background. From an antitrust perspective, greater competition among employers not only helps employees – who can negotiate for higher wages or better benefits between companies – but also benefits consumers more generally. Therefore, Section One of the Sherman Act prohibits employers from expressly or implicitly agreeing not to compete with one another, even for seemingly innocuous and beneficial reasons (like saving money).

Demonstrating the government’s interest in employment antitrust violations, the DOJ filed suit in 2010 against Adobe Systems, Apple, eBay, Google, Intel, Intuit, Lucasfilm, and Pixar, accusing the companies of promising not to recruit each other’s employees. While the cases resulted in consent judgments for the companies involved, the deals didn’t come cheap. Intuit, Lucas Films, and Pixar paid a total of $20 million to settle, while Adobe, Apple, Google, and Intel agreed to a $324 million settlement.

In 2016, the DOJ and the Federal Trade Commission (FTC) – the two federal agencies that share the responsibility to enforce the antitrust laws – released guidance to help employers avoid potential violations of federal law. The overriding message from the agencies: an agreement among competing employers to limit or fix the terms of employment for potential hires may violate the antitrust laws if the agreement constrains individual firm decision making with regard to wages, salaries or benefits, the terms of employment or even job opportunities.

The DOJ also vowed to proceed criminally against naked wage-fixing or no-poach agreements going forward.

“These types of agreements eliminate competition in the same irredeemable way as agreements to fix product prices or allocate consumers, which have traditionally been criminally investigated and prosecuted as hardcore cartel conduct,” the DOJ explained. If an investigation uncovers wage-fixing or no-poaching agreements, the agency “may, in the exercise of prosecutorial discretion, bring criminal, felony charges against the culpable participants in the agreement, including both individuals and companies.”

To avoid facing jail time for an employment crime, businesses need to educate human resources professionals and employees responsible for hiring about the dangers of no-poach and salary-fixing agreements and establish a compliance program to avoid any errors.

Top on the “not to do” list: entering into agreements regarding the terms of employment with companies that compete to hire employees. This prohibition applies to all agreements, whether written or unwritten, spoken or unspoken. Even informal agreements – for example, where individuals at two competing companies agree that employees at a given position should not be paid above a certain amount or a particular range, or the individuals promise each other not to hire or solicit each other’s workers – are illegal.

It is important to remember that the prohibition on salary-fixing extends beyond simply what a worker is paid and includes other benefits as well, from transit subsidies to meals. If one HR professional wants to stop offering increasingly expensive gym memberships to employees and reaches out to other companies to ask that they stop offering gym memberships as well, that would likely violate antitrust law if the companies reached an agreement.

So-called “gentleman’s agreements” with other companies are equally illegal, even if they are unwritten and informal; nor does the use of a third party intermediary insulate an employer from liability under antitrust law, such as a situation where a group of nonprofits hire a consultant who communicates a “pay scale” to all the organizations to establish a wage cap.

Employers should also take care to avoid sharing sensitive information with competitors, which could serve as evidence of an implicit illegal agreement.

Even the mere suggestion of an illegal agreement may constitute an antitrust violation, despite the fact that an agreement is not reached. The FTC filed an enforcement action against an online retailer that emailed a proposal to a competitor that both companies offer their products at the same price. The competitor passed on the invitation and notified the FTC. Even though no agreement was reached, the “invitation to collude” was sufficient for the company to face legal action.

With salary-fixing and no-poach agreements on the government’s radar – and the threat of criminal charges and penalties looming – employers should make an effort to develop antitrust training and compliance programs before a problem arises.

August 25th, 2018|Employment Decisions, Lawsuit|

Reminder to California employers about requirements when taking adverse action based on a criminal record

With the enactment of an updated ban-the-box statute (the Fair Chance Act) on January 1, 2018, employers in California may need a refresher on how to take adverse action based on the criminal record of an applicant.

For those businesses located in Los Angeles, the requirements take on an additional level of complication due to slight differences in the city’s ordinance.

Pursuant to California law, employers with five or more employees must wait until after a conditional offer of employment has been made to ask any questions about a criminal history. This means inquiries about convictions, running a background check or other efforts to find out about an applicant’s criminal past.

As an aside, several types of criminal records are not allowed to be used by employers in the hiring process (including juvenile records, diversions and deferrals, non-felony marijuana convictions that are more than two years old and arrests that did not lead to a conviction).If the employer decides not to hire the applicant, it must conduct an individualized assessment of the conviction at issue to evaluate whether it has a “direct and adverse relationship with the specific duties of the job that justify denying the applicant the position.”

The applicant needs to be notified of the potential for adverse action based on the conviction. Such notice must identify the conviction at issue and include a copy of any background check report; the employer must also provide a deadline for the applicant to submit additional information with regard to the conviction (such as rehabilitation efforts or other mitigating circumstances).

Federal law also kicks in. For those employers that intend to rely in whole or in part on a background check report to take adverse action such as rescinding a conditional job offer, the Fair Credit Reporting Act (FCRA) mandates that applicants be given a pre-adverse action notice, a copy of the report and a notice of rights.

Once the applicant has provided any information and the employer makes a final decision, a second notice is required. This time, the notice should inform the applicant of the final adverse action, explain any procedure in place for the applicant to challenge the decision or request reconsideration and describe the applicant’s right to file a complaint with the state’s Department of Fair Employment and Housing (DFEH). If the FCRA has been triggered by the use of a background check report, the employer must also provide the applicant with an adverse action notice that contains FCRA-required text.

While this process may seem onerous, employers that hire workers in Los Angeles face additional requirements under the city’s Fair Chance Initiative for Hiring Ordinance (FCIHO). The law, which took effect on January 22, 2017, applies to employers with 10 or more workers (defined to include individuals who perform at least two hours of work on average in Los Angeles and are covered by the state’s minimum wage law).

The FCIHO has a narrower definition of a “conditional offer of employment” than that under state law – here, an offer of employment to an applicant “is conditioned only on an assessment of the applicant’s criminal history, if any, and the duties and responsibilities of the employment position.”

Regardless of the source of criminal history, if an employer elects not to hire an applicant, a written assessment that “effectively links the specific aspects of the applicant’s criminal history with risks inherent in the duties of the employment position sought by the applicant” must be performed.

This assessment needs to be provided to the applicant as part of the “fair chance process,” along with any other documentation or information used by the employer as well as a pre-adverse action notice. Again, if a background check report was used, the FCRA requirements apply. The applicant also receives an opportunity to share information the employer should consider before making a final decision, such as evidence of rehabilitation.

After at least five business days, the employer may make a final decision. If the applicant provided additional documentation or information, the employer is obligated to consider it and conduct a written reassessment. If the employer decides to take adverse action against the applicant anyway, the employer must notify the applicant and provide a copy of the reassessment along with the adverse action notice.

June 21st, 2018|Employment Decisions, Legislation|