California Hiring Compliance: Pay Transparency, Ban-the-Box & Background Checks

Statute: Labor Code § 432.3 (as amended by SB 1162, effective January 1, 2023)

SB 1162 transformed California into one of the most aggressive pay transparency jurisdictions in the country, building on earlier salary history ban legislation.

### Salary Range Disclosure in Job Postings

Who must comply: All employers with 15 or more employees

Requirement: Every job posting — whether posted directly by the employer, through a third-party recruiter, or on a job board — must include the pay scale (salary or hourly wage range) for the position.

Key details:

• The pay scale must be the salary or hourly wage range the employer reasonably expects to pay for the position — not the entire possible range from minimum wage to CEO compensation
• Applies to all job postings: internal, external, and third-party
• Applies to remote positions that could be performed in California, even if the employer is headquartered elsewhere
• Employers are not required to include bonuses, equity, tips, or other forms of compensation in the posted range — but must include base wage or salary

### Pay Scale Disclosure to Current Employees

Who must comply: All employers, regardless of size

• Employers must provide the pay scale for an employee's current position to any employee who requests it (Labor Code § 432.3(c))
• This obligation applies to all employers, not just those with 15+ employees

### Pay Scale Disclosure to Applicants

Who must comply: All employers, regardless of size

• Employers must provide the pay scale for a position to any applicant who requests it, after the applicant has completed an initial interview (Labor Code § 432.3(c))

### Pay Data Reporting

Who must comply: Private employers with 100 or more employees and at least one California employee

• Must file an annual pay data report with CRD by the second Wednesday of May each year
• Report must include employee counts by race, ethnicity, and sex within each job category, along with mean and median hourly rates for each combination
• Separate reporting required for employees hired through labor contractors (staffing agencies)
• CRD publishes aggregate data and may investigate employers showing significant pay disparities

### Penalties

• $100 per employee per posting for first violations
• $200 per employee per posting for subsequent violations
• CRD may also seek injunctive relief and investigate systemic pay equity issues based on pay data reports
• Private right of action available under Labor Code § 432.3(d)

### Record Retention

Employers must maintain records of job titles and wage rate histories for each employee for the duration of employment plus 3 years (Labor Code § 432.3(b)). These records must be available for CRD inspection.

Statute: Labor Code § 432.3(a)-(b) (effective January 1, 2018)

### Prohibitions

1. Cannot ask about salary history. Employers (or their agents, including recruiters) cannot ask applicants, orally or in writing, about their salary history — including compensation, benefits, and other forms of remuneration.

1. Cannot rely on salary history. Even if an employer independently obtains salary history information, it cannot be used as a factor in determining whether to offer employment or what salary to offer (Labor Code § 432.3(b)).

1. Cannot seek salary history from current or former employers. Employers cannot ask an applicant's current or former employer for salary information.

### Exceptions

• If an applicant voluntarily and without prompting discloses salary history, the employer may consider it — but cannot use it alone to justify a pay disparity (Labor Code § 432.3(a))
• Salary history information already publicly available under federal or state law (e.g., public employee compensation posted on government transparency websites) may be accessed
• Current employees applying for internal positions: the employer already has their compensation information and may use it

### Intersection with Pay Transparency

• Employers must post what they expect to pay (SB 1162)
• Employers cannot ask what the candidate currently earns (AB 168)
• The focus shifts to the value of the role rather than the candidate's prior compensation — which is the intended policy outcome

Statute: Government Code § 12952 (effective January 1, 2018)

California's Fair Chance Act prohibits employers from asking about criminal history until after a conditional offer of employment has been made.

### Who Must Comply

All employers with 5 or more employees (including staffing agencies assessing applicants for client positions).

### What the Law Prohibits Before a Conditional Offer

• Including any question about criminal conviction history on a job application
• Asking about criminal conviction history in an interview before a conditional offer
• Considering criminal history at any point before a conditional offer
• Inquiring about or considering arrests that did not result in convictions (at any point in the process — Labor Code § 432.7)
• Inquiring about referrals to or participation in pretrial or post-trial diversion programs (Labor Code § 432.7)
• Inquiring about sealed, dismissed, or expunged convictions (Labor Code § 432.7)
• Inquiring about marijuana-related convictions more than two years old (Labor Code § 432.8)
• Inquiring about juvenile records (unless specific exceptions apply)

### After a Conditional Offer: The Individualized Assessment

If an employer conducts a criminal background check after extending a conditional offer and discovers a conviction, the employer must perform an individualized assessment before rescinding the offer. The assessment must consider:

1. Nature and gravity of the offense — What was the specific conduct? How serious was it?
2. Time elapsed since the offense — How long ago did it occur? What has the applicant done since?
3. Nature of the job — What are the specific duties and responsibilities? Does the conviction have a direct and adverse relationship to the position?

### Notice and Opportunity to Respond

If, after the individualized assessment, the employer makes a preliminary decision to rescind the offer:

1. Written notice must be provided to the applicant, including:

1. The employer must wait at least 5 business days for a response before making a final decision

1. If the applicant responds, the employer must consider the response and any additional information before reaching a final decision

1. If the final decision is to rescind, the employer must provide written notice of the final decision, including:

### Penalties

Violations are enforced by CRD under FEHA, with the same remedies available for discrimination claims — including compensatory damages, attorney's fees, and injunctive relief.

Statute: Civil Code § 1785.1 et seq. (Investigative Consumer Reporting Agencies Act — ICRAA) and Civil Code § 1786 et seq.

### Key Requirements

1. Written disclosure and authorization. Before obtaining a consumer report or investigative consumer report, the employer must provide the applicant or employee with a standalone written disclosure (not buried in an employment application) and obtain written authorization (Civ. Code § 1786.16).

1. 7-year reporting limit. Consumer reporting agencies generally cannot report:

1. Pre-adverse action notice. Before taking adverse action based on information in a background check, the employer must:

1. Post-adverse action notice. If the employer proceeds with adverse action, it must notify the applicant of:

### Federal FCRA Overlap

California's requirements layer on top of the federal Fair Credit Reporting Act (15 U.S.C. § 1681 et seq.), which imposes its own disclosure, authorization, and adverse action notice requirements. Employers must comply with both.

### Pre-Employment Drug Testing

• Generally permitted in California, but subject to AB 2188 restrictions regarding cannabis
• AB 2188 (effective January 1, 2024): Employers cannot discriminate based on off-duty cannabis use. Pre-employment drug tests that screen for non-psychoactive cannabis metabolites (the type detected by standard urine tests) are prohibited. Employers may use tests that detect psychoactive THC (indicating recent use/impairment).
• Exceptions: Building and construction trades, federal positions requiring clearance, positions requiring federal background checks, and positions where impairment would pose a specific safety risk as determined by a legally valid regulation

### Random and Suspicion-Based Testing

• California law does not broadly authorize random drug testing of employees
• Suspicion-based testing is generally permitted when an employer has reasonable, individualized suspicion that an employee is impaired at work
• Safety-sensitive positions may be subject to random testing under certain circumstances, particularly where mandated by federal regulations (e.g., DOT-regulated positions)
• For unionized workforces, drug testing policies are generally subject to collective bargaining

### Medical Marijuana

• California employers are not required to accommodate on-the-job medical marijuana use (Ross v. RagingWire Telecommunications (2008) 42 Cal.4th 920)
• However, AB 2188's off-duty use protections apply regardless of whether cannabis use is medical or recreational

Statute: Labor Code § 980 (effective January 1, 2013)

### Prohibitions

• Request or require that an employee or applicant disclose a username or password for personal social media accounts
• Request or require access to personal social media content
• Require an employee or applicant to access personal social media in the employer's presence (so the employer can view it)
• Discharge, discipline, threaten, or retaliate against an employee for refusing to comply with any of the above

### What Employers CAN Do

• View publicly available social media content
• Request access to employer-issued devices or accounts
• Investigate allegations of employee misconduct or violations of applicable law
• Require an employee to divulge personal social media reasonably believed to be relevant to an investigation of employee misconduct (but only the specific content relevant to the investigation)

Statutes: Business and Professions Code § 16600 (original statute); SB 699 and AB 1076 (effective January 1, 2024)

### California's Foundational Rule

Business and Professions Code § 16600 has provided since 1941: "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void."

California courts have consistently interpreted this as a near-total ban on non-compete agreements, with only narrow exceptions for the sale of a business (§ 16601), dissolution of a partnership (§ 16602), and dissolution of an LLC (§ 16602.5).

### SB 699 (Effective January 1, 2024) — Out-of-State Enforcement Banned

• Employers cannot attempt to enforce a non-compete agreement against a current or former employee, regardless of where or when the agreement was signed
• Applies even if the agreement was entered into in another state where it was valid at the time
• An employee who is asked to sign or who is subject to enforcement of a void non-compete may bring a civil action for injunctive relief, actual damages, and attorney's fees

### AB 1076 (Effective January 1, 2024) — Notice Requirement

• Employers that had non-compete agreements or non-compete clauses with current or former employees were required to provide individualized written notice by February 14, 2024, informing them that the non-compete clause is void
• The notice must have been sent to the employee's last known address and email address
• Failure to provide notice is a violation of unfair competition law (Bus. & Prof. Code § 17200)

### What This Means in Practice

• Non-compete agreements are void in California — full stop. Even if signed in Texas, governed by Delaware law, or agreed to as a condition of receiving equity.
• Non-solicitation agreements that effectively function as non-competes (e.g., broad customer non-solicitation that prevents the employee from working in their field) are also likely unenforceable (AMN Healthcare v. Aya Healthcare Services (2018) 28 Cal.App.5th 923)
• Confidentiality agreements and trade secret protections remain enforceable and are the appropriate mechanism for protecting proprietary information
• Garden leave provisions (paying an employee to not work during a notice period) exist in a gray area — they may be enforceable to the extent the employee is being compensated, but cannot extend beyond the employment relationship

Statute: Labor Code § 1024.5 (AB 22, effective January 1, 2012)

### General Rule

Employers cannot use consumer credit reports for employment purposes unless the position falls into one of the following categories:

• Managerial positions (as defined in Labor Code § 1024.5(b)(1))
• Positions in the state Department of Justice
• Law enforcement positions
• Positions for which credit information is required by law
• Positions involving regular access to at least $10,000 of cash in a single transaction
• Positions with access to confidential or proprietary information (including trade secrets)
• Positions that involve regular access to sensitive personal information (SSNs, financial accounts, etc.)
• Named insured or signatory on the employer's bank or credit card account
• Positions with authority to enter financial transactions on behalf of the employer
• Positions that involve access to confidential or proprietary information

### Compliance Requirements

• Comply with all ICRAA disclosure and authorization requirements
• Identify the specific exemption that authorizes the credit check
• Follow pre-adverse and post-adverse action notice procedures

### San Francisco

• Fair Chance Ordinance (Police Code Art. 49): Applies to employers with 5+ employees. More restrictive than state law in requiring written notice of rights under the ordinance and specific procedures for considering conviction history.
• Salary History: San Francisco's Parity in Pay Ordinance (Police Code Art. 33J) preceded and mirrors state law, prohibiting salary history inquiries.

### Los Angeles

• Fair Chance Initiative for Hiring (LAMC § 189.00): Applies to employers with 10 or more employees (more restrictive threshold than state law's 5). Requires specific notice procedures and penalties up to $500 per violation per day.
• Retail Fair Workweek Ordinance: Requires certain retail employers to offer additional hours to existing employees before hiring new workers, with specific posting and notice obligations during hiring.

### San Jose

• Opportunity to Work Ordinance: Requires employers with 36 or more employees to offer existing part-time employees additional hours before hiring new employees or subcontractors. Includes posting, notice, and anti-retaliation requirements that affect the hiring process.

### Document Abuse (Immigration and Nationality Act § 274B; Cal. Labor Code § 1019)

• Employers must verify employment authorization (I-9 process) but cannot:

### AB 450 (Labor Code § 1019.2) — ICE Audit Protections

• Employers must provide employees with notice within 72 hours of receiving an I-9 inspection notice from immigration authorities
• Employers cannot allow immigration enforcement agents access to non-public areas of the workplace without a judicial warrant
• Employers cannot re-verify employment eligibility at a time or manner not required by law
• Violations: $2,000-$5,000 for first offense, $5,000-$10,000 for subsequent offenses

1. Audit every active job posting. If you have 15 or more employees, every job posting — on your website, LinkedIn, Indeed, through recruiters, everywhere — must include a salary or hourly wage range. Check that the ranges are what you "reasonably expect to pay," not placeholder ranges so wide they're meaningless. CRD has begun enforcement, and the plaintiff's bar is filing class actions over non-compliant postings.

1. Remove criminal history questions from all applications. Review every version of your employment application (paper, online, third-party ATS) and remove any question asking about criminal convictions, arrests, or related history. The question cannot appear until after a conditional offer. This includes applications used by staffing agencies placing workers at your locations.

1. Update your background check process with AB 2188 compliance. If you conduct pre-employment drug testing, confirm that your testing method screens for psychoactive THC, not non-psychoactive cannabis metabolites. Standard urine tests typically detect metabolites and no longer comply with California law for most positions. Switch to oral fluid, blood, or impairment-based testing.

1. Confirm you sent AB 1076 non-compete notices. If your company ever used non-compete agreements, non-compete clauses in offer letters, or employment agreements with restrictive covenants, you were required to notify all affected current and former employees by February 14, 2024 that those provisions are void. If you missed this deadline, send the notice now to mitigate exposure.

1. Build your Fair Chance Act response workflow. Create a documented process for the individualized assessment required when a background check reveals a conviction. The process should include templates for the preliminary notice, the 5-business-day waiting period, the factors to evaluate (nature/gravity, time elapsed, job relevance), and the final decision notice. Having this process documented before you need it prevents ad hoc decisions that create liability.