Hunton Employment & Labor Law Perspectives : Employment Lawyers & Attorneys : Hunton & Williams Law Firm : Labor Law Legislative Updates

GIS claims that the seven year limitation violates the First Amendment of the United States Constitution.  Among other things, GIS argues that information regarding arrest records is protected commercial speech.  Specifically, GIS claims that the Act’s prohibition on most adverse information more than seven years old is a “content- and speaker-based restriction on speech,” noting that the law does not prohibit employers from considering such information but prohibits reporting agencies from providing such information.  The U.S. Government has taken a contrary position, but has declined to elaborate on its position.  A spokesperson from the Department of Justice states that the U.S. Government intervened to protect the constitutionality of the Act’s seven year limitation.

Although King brought suit against the consumer reporting agency, employers may wish to monitor the outcome of this case. Employers should determine whether the consumer reporting agencies they use perform searches that are in compliance with the Act. Employers should understand that the Act does not just cover credit or criminal background checks, but also covers driving records and any other report obtained from a consumer reporting agency. Because of an influx of workplace violence lawsuits and negligent hiring lawsuits, employers have a growing incentive to perform background checks on job applicants. When doing so, employers should be aware of the provisions of the Fair Credit Reporting Act.

At the federal level, Congress is considering its own limit on employment-related credit checks. In January 2011, the “Equal Employment For All Act” (H.R. 321) was introduced in the House. The bill seeks to amend the Fair Credit Reporting Act to “prohibit the use of consumer credit checks against prospective and current employees for the purposes of making adverse employment decisions.” 

Proponents of the bills argue that job applicants with poor credit are being unfairly excluded from the job market. They assert that it’s a Catch-22--the unemployed can’t get a job with poor credit and can’t improve their credit without a job.

And the EEOC is not sitting on the sidelines. This past December, the EEOC filed suit against Kaplan Higher Education alleging that the company’s practice of conducting pre-employment credit checks has a disparate impact on racial minorities. According to the lawsuit, Kaplan’s use of credit history data in the hiring process is “not job-related and consistent with business necessity.” The lawsuit comes only months after the EEOC held a public meeting to discuss the use of credit history data in employment decisions.   

A similar lawsuit was filed in November 2010 by a private plaintiff challenging the University of Miami’s use of pre-employment credit checks. Similar to the EEOC’s lawsuit, the plaintiff alleges that the University’s use of credit checks has a disparate impact on minorities.  

Given the increased scrutiny of pre-employment credit checks, employers should consider reviewing their pre-employment credit check practices. To minimize potential liability, employers should limit credit checks to positions where there is a “business necessity” and the applicant’s credit history is relevant to the position.

The Act does not prohibit an employer from checking the credit history of an employee if “a satisfactory credit history is an established bona fide occupational requirement of a particular position.” That condition is met only if at least one of the following circumstances is present:

• State or federal law requires bonding covering the employee
• The employee has unsupervised access to more than $2,500
• The employee has signatory power over business assets greater than $100 or more per transaction
• The employee is a manager who sets the direction or control of the business
• The employee has access to personal, confidential, financial, trade secrets or state or national security information

The Act also does not prohibit employers from conducting a thorough background check that does not include information on credit history, provided the investigation otherwise complies with the Fair Credit Reporting Act. The Employee Credit Privacy Act contains a private right of action for any person injured by a violation of the Act.

In signing the Employee Credit Privacy Act, Governor Quinn stated that “This law will stop employers from denying a job or promotion based on information that is not an indicator of a person’s character or ability to do his job well.” Illinois joins Hawaii, Louisiana, Oregon and Washington in the list of states that prohibit or restrict the use of credit histories in employment decisions.  In addition, effective November 4, 2010, Massachusetts will no longer allow employers to ask potential interview candidates to indicate on a preliminary written job application whether they have a criminal record.

The Employee Credit Privacy Act will come into effect January 1, 2011.