January 20th, 2023 | Sterling

4 Compliance Legislative Trends to Watch in 2023

2023 is already here, and HR professionals are working to stay on top of ever-evolving regulatory changes. In a year-end webinar which you can watch on-demand here, Sterling’s compliance experts covered the latest regulatory and legislative updates set to impact hiring and background checks for your workforce, especially with upcoming deadlines for new and pending laws about to take effect. Let’s explore the major trends to watch in 2023. Sterling’s panel included Angela Preston, Associate General Counsel here at Sterling, and Chris Christian, Director of Compliance at Sterling.

Angela Preston shared her feedback on the results:

“As our HR poll results show, the laws are continually changing around hiring and background checks. That’s our topic today, to really take a look back at 2022 and see where the laws have changed. If you’re not looking at your hiring policies, maybe after this webinar you might want to reexamine them.”

Trend #1: Marijuana Laws and Recent Federal Marijuana Pardons

The panel started their year in review with a look at the latest developments in marijuana laws and federal pardons, all with an eye to helping HR professionals keep up-to-date with compliance requirements in these areas.

Angela Preston:

“Marijuana/cannabis remains a controlled substance under federal law. While we have a lot of activity at the state level, states continue to legalize medical use, adult, “recreational use,” and in some cases, to simply decriminalize possession. As a result, we’re seeing all these different compliance developments happening at the state and local level, and they’re impacting the way that employers are considering whether or not to drug test their employees and workforce.”

Angela then briefly outlined some of the laws that that changed in the past year, to highlight the recent legislative shifts. Some of the new laws of note in 2022 included:

  • The big one getting a lot of attention is California Assembly Bill No. 2188, the discrimination and employment use of cannabis law. This is an anti-discrimination statute which will make it unlawful to discriminate based on drugs that reveal the presence of non-psychoactive cannabis metabolites in blood or urine. The complication and the issue with this statute is the call-out that you cannot discriminate unless you can isolate THC. However, drug-testing has not yet caught up with these laws, so the tests available on the market don’t isolate THC. That’s why, if you can’t isolate THC, you could be subject of a discrimination claim, even if you have reason to believe that there was an issue, or even if you have a proper drug policy. I know that at Sterling, many of our partners are working on different testing methods with an effective date of January 1st, 2024.
  • Rhode Island is the other state where there’s a new law this year making adult use or recreational use legal. It does also provide some limited employment protection for employees.
  • Maryland and Missouri have also had ballot initiatives: for example in Maryland, voters passed question four, which was a ballot initiative there that allows for possession of 1.5 oz, so it’s essentially a decriminalization statute.

“Many of these laws which have already passed allow both adult use and recreational use, followed by these anti-discrimination provisions. At Sterling, we’re going to keep our eyes out for more developments as they occur.”

“Here’s a final development at the federal level: President Joe Biden’s presidential pardon in October of this year for those Americans who were convicted under a federal law of simple marijuana possession. This only applies to federal convictions, and is also limited to simple possession, and it also applies if the qualifying offense will remain on the Court record. Consider in advance how your HR company should respond if an employee presents a presidential pardon document.”

Trend #2: “Clean Slate” legislation (including Fair Chance/Ban the Box)

Chris Christian discussed the top insights on the topic of “Clean slate” legislation, including encouraging attendees to check out his recent compliance blog post that dives into clean slate laws.

“‘Clean slate’ refers to legislation as a policy model offering relief for individuals with criminal record history, providing a way for an individual to have their criminal record expunged, sealed, or cleared. A more current trend that we’re seeing centers on a variation of these laws which provides a form of automatic criminal record relief, meaning that people don’t have to go to a court to petition for record relief.

“The main trend for HR managers to watch here is that clean slate legislation is continually increasing into 2023. According to the National Conference of State Legislators from 2019 to 2021, 38 states enacted a total of 179 bills specifically related to topics such as dissemination, discrimination, and consequences of a criminal record. These bills also contain some version of sealing or purging criminal records by a government agency or a court, and this of course can affect the information you receive on a background check. As of 2022 October 2022, there were 28 states allowing for some form of automatic criminal record clearing depending on the type of record offense, so this is a widespread legislative trend we expect to keep growing.

“Additionally, in 2021, the federal government joined in on the clean slate movement legislatively, introducing 2 bills: H.R. 2864 (the Clean Slate Act) and H.R.5651 (the Fresh Start Act). If passed, the Clean Slate Act would require automatic sealing of certain criminal records for individuals with the right to petition the sealing of certain federal arrests and convictions. Likewise if passed, the Fresh Start Act would actually authorize the Department of Justice to award grants for states to implement some kind of automatic expungement law. Both of these laws are still pending, and may or may not be passed, but I expect we’ll see them reintroduced in the next federal legislative cycle.

“Above you can see a very high-level list of examples of recent clean slate legislation that have been enacted. Just to note here, this is not a comprehensive list of all states, just a sampling. All the states listed here have the following common characteristics:

  • They share an element of automation of record clearance vs. the petition-based method.
  • They include automatic clearance for certain eligibility of a record.
  • They include the clearance of arrest-only records.
  • They include certain misdemeanor records to be cleared.
  • They also include at least one felony record for clearing.

I want to point out that some of these laws take time to actually implement, so the effective dates given above may be misleading.”

Angela Preston also contributed:

“While it’s going to take some time for these laws to be rolled out, it’s also important to note here that much of the information you would typically be used to having in your background check report will no longer be accessible for employers. What are the future impacts for employers and HR staff? Right now it’s not very clear. However, it’s more than likely that if you’re doing background checks, you’ll eventually have a candidate who has a criminal history and is subject to one of these laws. That’s why it will benefit you to decide how to deal with that from your policies and procedures in your existing background check program.”

“As always, you should be continually monitoring federal, state, and local legislation around clean slate, ban the box, and fair chance laws, which are constantly evolving and which may impact your program. Consider modifications to your existing policies and practices for inquiring about criminal history, where the law allows the applicant to state that they don’t have one.”

Attendees were then asked a second poll question:

Angela Preston remarked:

“I’m glad to see these results, which show what HR leaders are doing in-house with your internal staff and your in-house legal departments. We’re hosting this webinar today because we know that a lot of HR professionals and compliance directors rely on outside expertise. At Sterling, this is our business and what we offer our clients.”

Trend #3: New and Noteworthy: California Legislation and More

The conversation then shifted into new and noteworthy legislation happening in California and in other states.

Angela Preston shared a quick recap of some of the more noteworthy laws:

  • California Assembly Bill 506, which went into effect in January of this year, requires background checks for volunteers, employees, and administrators of organizations that provide youth services.
  • California Senate Bill 1162 is a law focusing on pay disclosure and pay reporting. This law is getting a lot of attention as part of the whole trend around pay disclosure pay equity law.
  • California Senate Bill 731 is a clean slate bill which requires sealing of felony records or non-sexual, non-sex offender-related, non-violent offenses meet certain criteria. These include specific time frames and where the sentence, the parole, or probation was completed as directed.
  • California AB 1706 which was enacted to put some timelines and some mandates around a prior law that had required courts to seal records for certain types of eligible cannabis convictions.
  • California Senate Bill 1262 is a bill that did not ultimately pass, but it’s part of a more general trend in California of removing identifiers from the court record.

Here are some additional compliance developments, since these legislative developments are occurring in other states too, not just California:

  • Mississippi enacted a pay equity law, and most of the trends that we’re highlighting here today have to do with background checks and employment issues around your hiring and onboarding, so pay equity and pay disclosure laws are the big trend.
  • New York City and Westchester County. In both these areas there’s a pay disclosure requirement. Employers with four or more employees have to publish the minimum and maximum base pay or hourly pay expected for the job position, and it has to be provided to current employees, so this is another trend which will impact your hiring process. For example, if your remote employee is being recruited in New York City, then you need to think about compliance with these laws.
  • Rhode Island, effective January of next year, is a pay range disclosure law, and also mandates a salary history ban. This applies again both to applicants and employees, and you have to provide the pay range prior to discussions around compensation.
  • Washington has a pay range disclosure law for employers with 15 or more employees. You must disclose the wage sale scale and salary range and also provide a general description of benefits.
  • California SB 1262 we’ve already mentioned above, but just to note again, employers will be required to disclose pay scales to current employees and also on job postings. They’ll also have to report additional data to the CA Civil Rights Department, so this bill will create a significant compliance burden on employers.

Trend #4: Legislation on the Use of AI and Automated Employment Tools

Chris delved into AI and automated employment tools, and shared a blog post from earlier this year which dives into this topic a little further.

“Why is AI gaining more attention now? This evolving compliance trend focuses on lawmakers’ concerns of built-in discrimination and bias unintentionally rooted in AI hiring tools. While these tools often improve efficiency in the hiring and onboarding process, they can also (unintentionally) pose a compliance risk of introducing discrimination and bias into these processes, which even in the case of AI use, also involve human decision-making. Bias and discrimination can potentially creep into the hiring process because of the way that the algorithms are built. For this reason, lawmakers are starting to make legislative efforts in the areas of discrimination and bias in an employment context.

“As far as pending legislative developments, I’ll point to the National Artificial Intelligence Initiative Act of 2020 which was carved out of federal legislation. Unfortunately, the challenge with AI at present is that there still appears to be no single agreed-upon definition of exactly what AI is. More guidance is needed from regulators as to what they expect and just exactly what constitutes AI and its use in the hiring process.”

Chris shared a quick review of some of the major federal developments:

  1. In April 2022, the Department of Commerce appointed 27 members to the National AI Advisory Committee, which is a federal government office now overseeing AI. Additionally, the White House in October of 2022 released what it calls its blueprint for an AI Bill of Rights, which can in part be tied to employment decisions which use AI tools, and tying into the possibility of discrimination.
  2. Next, the Federal Trade Commission (FTC). I’d say they’ve been the most active of all the federal agencies. They have issued numerous reports throughout the years, and I would encourage you to look at these to get an idea of how the FTC views the use of AI and automated tools, and the problems that they see potentially with employers using them and automatically making a final decision without some kind of human review.
  3. The EEOC and Department of Justice in May 2022 issued guidance on Americans with Disability Act and the use of AI to assess job applicants and employees. We’ve actually seen some federal legislation come out or proposed around this topic, including HR 6590 and S 3572 Algorithmic Accountability Act of 2022. This would essentially direct the FTC to conduct or require impact assessments of automated systems and augmented critical decision processes or algorithms as another term that’s used for that. Currently, neither one of these have passed. But to paint a picture, the federal government here is very active.

“Bearing in mind that AI is still a very fringe topic, I’m curious to see how these federal compliance mandates will evolve over time. At the state level, we’re seeing increasing activity too, especially in New York City and California:

  • New York City passed local law 1894 A in 2021, which becomes effective on January 1st of 2023. This is a new law that makes it unlawful for an employer or unemployment agency to use automated decision tools to background check a candidate unless that tool has gone through a bias audit. At Sterling we’re keeping a close eye on this law.
  • California also has proposed draft revisions, titled “Employment Regulations Regarding Automated Decision Systems.” This would expand the state’s existing discrimination and employment law, and would also expand liability risks of employers and their vendors who use, sell, or administer employment screening tools that leverage AI. Those rules have not yet been adopted, so we’re monitoring this development as well.
  • Other state activity includes Colorado, Illinois, Vermont, and Washington. They’ve created task forces to study AI, and as a result, I expect to see more bills concerning this topic by the end of 2023.

What are the compliance takeaways here?

“As we all continue to watch the legislation on this topic, just be aware that the definitions of AI can be very broad and vague. If you’re not clear on exactly what might constitute the use of AI, then have your legal counsel help you with those assessments, review your procedures in light of AI and automation, and always consult legal counsel before making any policy changes.”

Keeping Up-to-Date on Compliance

Angela, Chris, and the rest of Sterling’s global compliance team will be closely monitoring these developing compliance trends as we move into 2023. Learn more in our full webinar, available on-demand here, and visit our compliance hub for our latest compliance content, including blog posts, adverse action checklist, additional webinars, Sterling Live episodes, updates, tools, and so much more. You can also sign up for our Compliance Roundup newsletter to get compliance content and information sent directly to you every quarter.

Sterling is not a law firm. This publication is for informational purposes only and nothing contained in it should be construed as legal advice. We expressly disclaim any warranty or responsibility for damages arising out this information. We encourage you to consult with legal counsel regarding your specific needs. We do not undertake any duty to update previously posted materials.