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Credit History & Employment Background Checks – Best Practice #6

June 3, 2013 7:14 pm

Earlier this year the Equal Employment Opportunity Commission (EEOC) updated their Enforcement Guidance (Guidelines) regarding use of criminal records for employment screening purposes.  In a nutshell, the Guidelines state that use of criminal records in making employment decisions in some  instances violates the prohibition against employment discrimination under Title VII of the Civil Rights Act of 1964.  We explored the Guidelines in some detail in “Pre-employment Screening – New EEOC Guidelines“.

The updated Guidelines are based largely on the “disparate impact” legal theory – which says that a so-called facially neutral business practice which has a disproportionate impact on protected groups can form the basis of a discrimination claim – regardless of the intent or consistency with which the practice is applied. 

The EEOC has thus far focused on use of criminal records for employment background check purposes. 

State legislatures, on the other hand, have begun focusing on (limiting) use of credit history for employment screening purposes.  This trend which started in Washington State, has spread to a total of 10 states (as of this writing) including:

  • California
  • Colorado – effective July 2013
  • Connecticut
  • Hawaii
  • Illinois
  • Maryland
  • Nevada – effective October 2013
  • Oregon
  • Vermont
  • Washington

Similar legislation has been (or is being) considered in many other states.  Generally speaking, the applicable statutes prohibit use of credit information for employment screening purposes except when it (the credit) is “substantially job related”.  Connecticut Senate Bill 361 (Public Act 11-223), signed into law in 2011 does perhaps the best job of defining “substantially job related”.

Under Connecticut law, “Substantially related to the employee’s current or potential job” means the information contained in the credit report is related to the position for which the employee or prospective employee who is the subject of the report is being evaluated because the position:

  1. Is a managerial position which involves setting the direction or control of a business, division, unit or an agency of a business;
  2. Involves access to customers’, employees’ or the employer’s personal or financial information other than information customarily provided in a retail transaction;
  3. Involves a fiduciary responsibility to the employer, including, but not limited to, the authority to issue payments, collect debts, transfer money or enter into contracts;
  4. Provides an expense account or corporate debit or credit card;
  5. Provides access to (i) confidential or proprietary business information, or (ii) information, including a formula, pattern, compilation, program, device, method, technique, process or trade secret that: (I) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from the disclosure or use of the information; and (II) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy; or
  6. Involves access to the employer’s nonfinancial assets valued at two thousand five dollars or more, including, but not limited to, museum and library collections and to prescription drugs and other pharmaceuticals.

Whether or not state law prohibits use of credit information for employment screening purposes in this way, employers are well advised to apply the Connecticut test (or similar) since:

  • It can be argued that the above exceptions meet the business necessity test – the only defense against disparate impact discrimination claims;
  • There is little or no credible data associating job performance otherwise with credit standing; and
  • Denying employment to an otherwise well qualified applicant who does not fall within the above exceptions is likely dumb!

Best practice #6
Limit use of credit history for employment screening purposes to the above exceptions, and only after a conditional offer.  You will make better decisions and reduce the risk of a disparate impact discrimination claim. 

Visit or Moco Incorporated for more information on tenant and employee best practices.

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