Restrictions on Use of Consumer Reports in Hiring Process Enacted in California

On October 10, 2011, Governor Brown signed into law a bill, AB22, that restricts the use of consumer credit reports in the hiring and promotion process. 

The law prohibits employers, with the exception of certain financial institutions, from obtaining a consumer credit report on the candidate or employee unless the position that the individual is seeking is:

• A position in the California Department of Justice;
• A managerial position, as defined in the statue;
• That of a sworn peace officer or other law enforcement position;
• A position for which the information contained in the report is required by law to be disclosed or obtained;
• A position that involves regular access to certain personal information for any purpose other than the routine solicitation and processing of credit card applications in a retail establishment;
• A position in which the individual is or would be a named signatory on the employer's bank or credit card account, or authorized to transfer money or enter into financial contracts on the employer's behalf;
• A position that involves access to confidential or proprietary information; or
• A position that involves regular access to $10,000 or more of cash.

The law also required employers to provide individuals with a written notice identifying the specific exception in the statute that permits the employer to obtain a report.

Assembly member Mendoza, who sponsored the bill, stated that "a credit report is not a good indicator of a person’s trustworthiness or work ethic.” “Many Californians are still experiencing financial hardships from the economic downturn including layoffs, increasing unemployment rates, and the continuing foreclosure crisis. All of these things make it harder for people to pay their bills,” added Mendoza. The Assembly member's statement echoes the view expressed by the Equal Employment Opportunity Commission (EEOC), which signaled that it believes that employers are denying jobs to applicants with damaged credit histories in cases where creditworthiness does not appear to be directly relevant to the job.

California follows Illinois and Oregon, which enacted in 2010 legislation that limits the use of credit reports for employment purposes. Maryland and Connecticut enacted similar legislation in April and July 2010, respectively. Similar laws are in place in Hawaii and Washington and are being considered in Illinois, Michigan, Missouri, New Jersey, New York, Ohio, Oklahoma, South Carolina, Vermont and Wisconsin. In addition, in December 2010, the EEOC filed an action accusing an employer of discriminating against minority job applicants in the hiring process on the basis of using the applicants’ credit histories.  The EEOC has sought injunctive relief in its lawsuit, as well as lost wages and benefits and offers of employment for people who EEOC alleges were not hired because of the employer's use of job applicants’ credit history.

InfoLawGroup Takeaway

With the wind blowing on state and federal level against use of consumer reports for employment purposes, employers should review their HR policies to ensure that they collect consumer report information only in accordance with state and federal requirements.  Employers also are well-advised to obtain consumer reports only when necessary to evaluate the fitness of a candidate or existing employee for the position the individual is seeking.