Q3 2024 Compliance Updates: Key Employment Laws Impacting Background Checks

The compliance landscape continues to evolve, with the third quarter of 2024 bringing significant legislative changes that impact employers conducting background screening. Several updates highlight the growing focus on criminal history reform, pay transparency, and marijuana legalization, while emerging regulations on artificial intelligence (AI) in hiring practices and privacy protections are also gaining traction. Employers need to stay informed and adapt their compliance strategies to meet these new requirements while also preparing for potential legislative changes expected in 2025.

Criminal History Reform

Unincorporated Los Angeles County Ordinance

One of the most complex ban-the-box laws passed this year affects employers in unincorporated areas of Los Angeles County. This ordinance became effective in September and applies to all types of paid work, including contractors and freelancers. Employers are prohibited from asking about an applicant's criminal history until after a conditional job offer has been made. Additionally, employers cannot discuss the applicant's criminal history until the applicant has received a copy of the criminal background report the employer uses to make their decision.

The ordinance requires multiple layers of individualized assessment and notification. Employers must conduct an initial assessment of the applicant's criminal history to determine whether it directly impacts their ability to perform job duties. If the employer intends to take adverse action based on the findings, they must provide a pre-adverse action notice and allow the applicant time to respond. A second individualized assessment must be conducted if the applicant provides additional information.

Compliance with this ordinance is highly detailed, requiring employers to modify their pre-adverse and adverse action processes. Employers in this region must be vigilant about notification and individualized assessment requirements to avoid penalties.

Prince George's County Employment Fairness Act

Prince George's County, Maryland, updated its ban-the-box ordinance in 2024 with the passage of the Employment Fairness Act. This new law expands coverage to employers with ten or more employees, down from the previous threshold of 25 employees, significantly broadening its scope.

The Employment Fairness Act also introduces new limitations on the types of criminal history information that can be considered. For example, employers can no longer inquire about nonviolent felony convictions if the sentence was completed more than five years ago, and misdemeanor convictions cannot be considered if the sentence was completed more than 30 months ago. Arrest records that did not result in a conviction are also generally off-limits, with exceptions for certain probationary cases.

These changes require employers to update their adjudication practices and ensure they are not considering criminal information that is prohibited or out of scope.

Maryland SB 41 and HB 622

Effective October 1, 2024, Maryland's SB 41 and HB 622 introduced key restrictions on what information can be reported in background checks. SB 41 raises the salary threshold for reporting older adverse information, such as bankruptcies or criminal records, from $25,000 to $75,000. This means that for roles earning under $75,000 annually, only recent adverse information (from the past seven years) can be included in reports. For higher-paying positions, older adverse information may still be reported.

HB 622 further limits what can be reported, prohibiting background check vendors from including information about false accusations, acquittals, or exonerated cases. Expunged or sealed records are also excluded from background checks.

Employers operating in Maryland should review these changes carefully and adjust their background screening practices to ensure compliance.

FDIC Section 19 Updates

Financial institutions will benefit from expanded opportunities for hiring individuals with criminal histories due to updates to FDIC Section 19. These updates, effective in Q4 2024, create new exclusions for older offenses, expunged or sealed records, and de minimis infractions.

Offenses that occurred more than seven years ago or during an individual's youth (under 21) will no longer be subject to FDIC Section 19 restrictions, provided they do not involve federal crimes of dishonesty. Employers must still perform a "reasonable, documented inquiry" into an applicant's criminal history, but these updates streamline the hiring process and create more second-chance hiring opportunities for individuals with minor or outdated offenses.

Employers must update their background screening policies and adjudication practices to reflect these changes and ensure compliance with the updated FDIC Section 19 regulations.

Pay Equity and Transparency

Pay Transparency Laws

Pay transparency laws continue gaining traction, with new measures passed in Maryland, Illinois, and Minnesota, requiring employers to disclose salary ranges and benefits in job postings. Maryland's new law, effective October 1, 2024, mandates posting minimum and maximum salary ranges in internal and external postings. Meanwhile, Illinois and Minnesota require similar disclosures for both new and internal positions, with compliance deadlines in 2024 and early 2025, respectively.

Federal and New York City Pay Data Reporting

As we look ahead to 2025, pay data reporting is poised to make a comeback. New York City's proposed pay data reporting requirement could impose some of the most stringent rules in the country, requiring employers with 25 or more employees to submit detailed demographic and salary data annually. This legislation could be among the most far-reaching, surpassing existing reporting obligations in California and Illinois.

Additionally, federal pay data reporting requirements, which were halted during the previous administration, could be revived in 2025. The EEOC's proposed rule, expected in early 2025, may reintroduce pay data reporting alongside demographic data. Employers should begin reviewing their pay practices now to prepare for compliance.

Marijuana Legalization and Drug Testing

State-Specific Updates

With the legalization of recreational marijuana continuing to spread across the US, employers face the challenge of aligning their drug testing and workplace policies with state laws. Minnesota and Ohio are two notable states making updates in 2024 and 2025.

Starting January 1, 2025, Minnesota will allow oral fluid testing as an alternative to traditional drug testing methods, offering employers more flexibility. This change will impact employers who conduct drug and alcohol testing for job applicants and current employees, as applicants can request oral fluid testing at no cost. Applicants are entitled to a follow-up test within 48 hours if a test result is inconclusive or positive. Employers in Minnesota should ensure they update their testing policies to reflect this new option.

Ohio began recreational marijuana sales on August 6, 2024, adding to the growing list of states where cannabis is legal for adult use. However, employers in Ohio retain the right to enforce their existing drug testing policies. While employers do not need to accommodate off-duty marijuana use, it's important to clearly communicate policies that prohibit the use of marijuana during work hours or impairment on the job. Employers should review and update their drug and alcohol policies to ensure compliance with state laws.

DEA Proposed Marijuana Rescheduling

The US Drug Enforcement Administration (DEA) is considering reclassifying marijuana from a Schedule I to a Schedule III drug. While this change would acknowledge marijuana's medical uses, it would still be subject to federal regulation. The rescheduling could impact employers, particularly in safety-sensitive industries, by requiring adjustments to drug testing policies and accommodation practices.

A public hearing on the DEA's proposed rescheduling is scheduled for December 2, 2024, and employers may want to participate in this discussion to understand the implications of the change. Employers in states with medical marijuana programs or broader legalization measures should monitor developments to assess how the rescheduling may affect workplace drug policies.

Privacy, Technology, and AI in Employment

Data Privacy Exemptions for Background Screening

Comprehensive data privacy laws became effective in Montana, Oregon, and Texas in 2024. Employers conducting background checks should note that all states with comprehensive data privacy laws exempt background checks conducted in compliance with the Fair Credit Reporting Act (FCRA). However, other employment-related data may still be subject to privacy laws, particularly in states like California.

AI Regulation in Hiring

The regulation of AI in employment decisions continues to expand. In 2024, Illinois passed HB 3773, which prohibits the use of AI in employment decisions that result in discriminatory outcomes, even if unintentional. This law requires employers to avoid using algorithms based on ZIP code data, which could indirectly lead to biased results.

Meanwhile, Colorado is set to enforce the nation's first comprehensive AI regulation in 2026, targeting high-risk AI systems used in employment, education, and financial services. Employers using AI in hiring must implement robust risk management processes and regularly audit their AI systems to ensure they do not perpetuate bias or discrimination.

Looking Ahead to 2025

As we move into 2025, employers can expect further legislative developments in several areas:

• Clean slate laws continue to gain momentum, allowing individuals to seal or expunge certain criminal records after remaining crime-free for a specified period. More states are expected to introduce or expand such laws, further limiting the availability of criminal history data for employers.

• New pay transparency and data reporting requirements are expected to expand in 2025, with stricter rules expected for reporting wage and demographic data.

• AI regulations will continue to evolve, with Colorado, Illinois, and California leading the charge. Employers should stay informed about new laws and prepare to conduct bias audits and assessments to comply with AI transparency and anti-discrimination measures.

Parting Thoughts

The third quarter of 2024 has brought significant changes for employers, with more on the horizon in 2025. Employers must stay informed and adapt their background screening processes, pay practices, and drug testing policies to align with the ever-changing legal landscape. Reviewing current policies and seeking legal guidance where necessary will ensure compliance and reduce potential risks as these new measures take effect.

Release Date: October16, 2024