Amendments to the NYC Fair Chance Act and New Legal Enforcement Guidance Require City Employers to Substantially Change Their Background Check Protocols

Recent Amendments to the New York City Fair Chance Act (FCA) that took effect on July 29, 2021, significantly expand the scope of the FCA by imposing new restrictions on an employer’s ability to take adverse action against job applicants, current employees and independent contractors based on pending criminal charges, arrests or convictions. In addition, the New York City Commission on Human Rights (the Commission) — the agency responsible for enforcement of the FCA — issued Legal Enforcement Guidance as well as Frequently Asked Questions About New York City’s Employment Protections Based on Criminal History, which require most New York City employers to bifurcate their background screening process to consider virtually all noncriminal information (for example, reference checks and confirmation of educational and employment history) prior to the grant of a conditional offer of employment and to conduct investigations of criminal backgrounds only after a conditional offer of employment has been extended.

Pre-Amendment Requirements of the FCA

The FCA took effect on Oct. 27, 2015, and amended the New York City Human Rights Law (NYCHRL) to prohibit employers from making inquiries or statements (including any written or oral questions or statements and searches of publicly available records or consumer reports made for the purpose of obtaining criminal history) related to the pending arrest or conviction record of an applicant at any time prior to extending a conditional offer of employment (referenced commonly as a “ban the box” law). Before taking any adverse action against the applicant on the basis of criminal history, the law also requires employers to undertake the “Fair Chance Process” as follows:

Provide a written copy of the criminal history inquiry to the applicant.
Determine whether to deny employment, which is permitted only if (i) there is a direct relationship between the criminal offense and the employment sought; or (ii) the contemplated employment would involve an unreasonable risk to property or to the safety or welfare of specific individuals or the general public. In making this determination, the employer must perform an individualized assessment of each of the eight factors set forth under Article 23-A of the New York State Corrections Law. The Commission has prepared a form, which has been updated recently, that employers may use to comply with this requirement. The employer must provide the Article 23-A analysis to the applicant in writing, along with “supporting documents” that formed the basis of and reasons for the adverse action.
After providing the applicant with all the required documentation, allow the individual time (under the pre-amendment law, at least three business days) to respond and, during that time, hold the position open for the applicant.

The law does not apply to any actions taken by an employer pursuant to any federal, state or local law requiring criminal background checks for employment purposes or barring employment based on criminal history. In addition, employers in the financial services industry are exempt from the Fair Chance Process only “to the extent that it conflicts with industry-specific rules and regulations promulgated by a self-regulatory organization (SRO)” such as the Financial Industry Regulatory Authority (FINRA). This exemption only applies to positions regulated by SROs — employment decisions regarding other positions must still comply with the Fair Chance Process. Thus, if an applicant or employee is “statutorily disqualified” from being associated with the financial services firm due to certain criminal conduct, the employer need not undertake the Fair Chance Process. However, if the applicant or employee has criminal history about which the employer has concerns but that is not subject to the legally mandatory bar, the Guidance suggests that the employer must conduct the Fair Chance Process.

New Amendments to the FCA

The new amendments to the FCA significantly expand the scope of its protections for both applicants and existing personnel. The key new provisions include:

Extension to Pending Arrests and Criminal Accusations: Prior to the amendments, the FCA prohibited employers from making pre-offer inquiries regarding pending arrests but did not require employers to undertake the Fair Chance Process when seeking to rescind a conditional offer based on a pending arrest. The new law now requires employers to engage in the Fair Chance Process before taking adverse action based on pending arrests.
Extension to Existing Employees: Prior to the amendments, employers were not required to apply the Fair Chance Process when considering the criminal history of an existing employee. Under the new law, employers must engage in the Fair Chance Process when seeking to take an adverse action against individuals currently working for the employer based on pending arrests, pending criminal accusations and past criminal convictions. The new law specifically permits employers to place existing employees on unpaid leave for a “reasonable” amount of time when conducting a Fair Chance Process assessment regarding an employee’s criminal conviction or pending arrest/criminal accusation during employment.
Extension to Independent Contractors and Freelancers: Because independent contractors and freelancers are considered employees for certain purposes under the NYCHRL, the amended FCA applies not only to employees and applicants but also to independent contractors and freelance workers. Thus, for example, employers that conduct background checks on independent contractors must follow the Fair Chance Process.
New “Relevant Fair Chance Factors”: As referenced above, employers must use the Article 23-A factors when they assess an applicant’s criminal history to determine whether there exists a direct relationship between the alleged wrongdoing that is the subject of the pending arrest or criminal accusation and the employment sought, or the granting of the employment would involve an unreasonable risk to property or the safety or welfare of specific individuals or the general public. But when employers assess convictions that occur during employment or pending arrests or criminal charges for both applicants and employees, the amendments create a new set of factors to consider as part of the individualized assessment, which are similar but not identical to the Article 23-A factors. The new factors to be considered as part of the Fair Chance Process in these circumstances (instead of the Article 23-A factors) are:

New York City’s public policy interest in overcoming stigma toward and unnecessary exclusion of persons with criminal justice involvement in employment
The specific duties and responsibilities necessarily related to the employment held by the person
The bearing, if any, of the criminal offense or alleged offense on the individual’s fitness or ability to perform one or more such duties or responsibilities
Whether the person was 25 years of age or younger at the time of occurrence of the criminal offense or alleged offense
The seriousness of such offense or alleged offense
The legitimate interest of the employer in protecting property and the safety and welfare of specific individuals or the general public
Any additional information produced by the applicant or employee, or produced on their behalf, in regard to their rehabilitation or good conduct, including history of positive performance and conduct on the job or in the community, or any other evidence of good conduct

Expansion of the Types of Criminal History About Which Employers May Never Ask or Base Employment Decisions On: The amendments prohibit “any inquiry in writing or otherwise” or taking any adverse employment action against an applicant or employee based on (i) any non-pending arrest or criminal accusation; (ii) being convicted of a “violation” under New York Penal Law (defined as an offense, other than a traffic infraction, with a potential term of imprisonment of no more than 15 days); (iii) being convicted of a noncriminal offense in another state; (iv) adjournments in contemplation of dismissal; (v) youthful offender adjudications; or (vi) sealed offenses. The Guidance provides a non-exhaustive list of such non-convictions. The Guidance also provides suggested language that employers can use to frame inquiries that may be made after a conditional offer, which avoids soliciting or considering non-conviction information:

Have you ever been convicted of a misdemeanor or felony? Answer “NO” if you received an adjournment in contemplation of dismissal (“ACD”) that has not been revoked and restored to the calendar for further prosecution or if your conviction: (a) was sealed, expunged, or reversed on appeal; (b) was for a violation, infraction, or other petty offense such as “disorderly conduct;” (c) resulted in a youthful offender or juvenile delinquency finding; or (d) if you withdrew your plea after completing a court program and were not convicted of a misdemeanor or felony.

Requirement to Solicit Information on FCA Factors: Under the new amendments, employers must affirmatively solicit from the individual information relating to Article 23-A and relevant Fair Chance factors (described above) that must be considered when assessing the applicant’s criminal history.
Enlargement of Time for Applicants to Respond to Written Analysis: The new law expands the period that an employer must hold the position open (after providing the applicant with the written Fair Chance analysis) from three to five business days for applicants.
Misrepresentations: The amended FCA does not prevent employers from taking adverse action against an applicant or employee who has made “intentional misrepresentations” regarding an arrest or a conviction, provided that such adverse action is not based on a failure to disclose information that a person is not required to divulge. In such cases, however, the employer must provide the individual with a copy of the documents that formed the basis of the determination that an intentional misrepresentation was made and give the applicant a “reasonable” time of no less than five business days to respond.

The Bifurcated Screening Process Required by the Legal Enforcement Guidance

The FCA, as recently amended, now explicitly states that “an offer of employment, promotion or transfer … may only be revoked based on one of the following”:

The results of a criminal background check, conducted in accordance with the provisions of the FCA
The results of a medical exam as permitted by the Americans with Disabilities Act (ADA)
Other information the employer could not have reasonably known before making the conditional offer if the employer can show as an affirmative defense that, based on the information, it would not have made the offer regardless of the results of the criminal background check

The Legal Enforcement Guidance states that these narrow grounds for revocation of a conditional offer require employers that review an applicant’s criminal history to implement a two-stage screening process as follows:

All noncriminal preemployment screenings, such as (but not limited to) verification of the applicant’s employment and educational history, must be completed before a conditional offer of employment is made.
Employers may, after a conditional offer of employment is made, request and review the applicant’s criminal history, which may only be considered in compliance with the individualized assessment and notice requirements of the FCA. (Employers may also conduct a medical examination, consistent with the ADA, after the conditional offer is made. And because driving records may contain both noncriminal and criminal information, the Guidance instructs employers not to review an applicant’s driving record until after a conditional offer has been extended. Noncriminal information in a driving record may be treated as information the employer could not have reasonably known before the conditional offer.)

In the event the employer considers noncriminal information after extending a conditional offer of employment, the Guidance describes the sizable burden an employer must overcome to avoid violating the FCA as follows:

The NYCHRL does not prohibit employers from considering non-criminal information after a conditional offer if the employer can show as an affirmative defense, by a preponderance of the evidence, that (1) the employer could not have reasonably known the information before the conditional offer, and (2) regardless of the results of the criminal background check, the employer would not have made the offer if it had known the information before the offer was extended. Information could reasonably have been known before a conditional offer if the information existed prior to the conditional offer and could have been obtained by an employer exercising reasonable due diligence.

As set forth in the Guidance, the Commission expects employers to work with their consumer reporting agencies to obtain separate noncriminal and criminal background check reports. However, employers whose vendors are unable to produce two separate reports, “or who otherwise face a substantial impediment to conducting two separate background checks,” must “establish a system to internally segregate” the criminal history information from the noncriminal history information to ensure that the decision-maker cannot access the criminal history until after the conditional job offer has been made. Importantly, where criminal information is received prior to a job offer, the burden will be on the employer to prove that the criminal history was inaccessible to decision-makers until after the conditional offer was made.

Moreover, to avoid discouraging applicants with criminal history from applying for a role, the FAQs provide that, generally, an employer may not state in a job application or an advertisement, or at any time prior to a conditional offer of employment being made, that a “background check” is required because that term “is frequently understood to indicate a hiring limitation based on a person’s criminal history.” In addition, the Guidance provides that, when obtaining authorization to procure background information, as required by the Fair Credit Reporting Act (FCRA), employers must not indicate that a “background check” is required or will occur. Rather, the Commission recommends that employers use the terms set forth in the FCRA — “consumer report” and/or “investigative consumer report” — when obtaining authorization to perform these screenings prior to making a conditional offer.

Next Steps for Employers

Employers considering the criminal history of applicants and/or employees should be aware that the amendments significantly expand the protections afforded to employees, applicants and independent contractors/freelancers.

Employers should carefully review the Legal Enforcement Guidance and FAQs immediately, as the new requirements took effect on July 29, 2021. Employers also must coordinate with their background check vendors to ensure that preemployment screenings are bifurcated to comply with the FCA’s requirements set forth above.

Employers should also review and update, as necessary, any policy manuals, background check disclosure and/or authorization forms, and the language of their advertisements and job postings to ensure that they comply with FCA requirements.

Finally, management and human resources personnel should be educated on the FCA’s principles and requirements and the changes to the employer’s internal protocols.

For questions or concerns regarding this alert, please contact a member of Kramer Levin’s Employment Law Department.