Many California employers conduct consumer credit checks as part of the applicant screening process. The federal Fair Credit Reporting Act and the California Consumer Reporting Agencies Act regulate that process by, among other things, requiring employers to notify job applicants in writing that the employer intends to conduct a consumer credit check, requiring employers to obtain from applicants written authorization to conduct the consumer credit check, and to provide applicants with a copy of any consumer credit reports obtained before taking any adverse action based on the contents of such a report.
On October 9, 2011, Governor Brown signed Assembly Bill 22, which will further restrict employers’ use of consumer credit checks for employment purposes beginning on January 1, 2012. The new law will amend section 1785.20.5 of the California Civil Code and add section 1024.5 to the California Labor Code.
Beginning January 1, 2012, unless the employer is a specified financial institution, an employer or prospective employer may not use a consumer credit report for any employment purpose unless the job position of the position for whom the report is sought is one of the following:
1. A “managerial position.” The new law defines that term as “an employee covered by the executive exemption set forth in Wage Order 4 of the Industrial Welfare Commission.” On its face, this permitted use appears to apply only to persons covered by Industrial Welfare Commission Wage Order 4-2001, which applies to “persons employed in professional, technical, clerical, mechanical, and similar occupations.” There are currently 17 IWC Wage Orders that, depending on the Wage Order, apply either to a specified industry or to specified occupations.
2. A position in the California Department of Justice.
3. A sworn peace officer or other law enforcement position.
4. “A position for which the information contained in the report is required by law to be disclosed or obtained.”
5. “A position that involves regular access, for any purpose other than the routine solicitation and processing of credit card applications in a retail establishment, to all of the following types of information of any one person: (A) Bank or credit card account information, (B) Social security number, (C) Date of birth.”
6. “A position in which the person is, or would be, any of the following: (A) A named signatory on the bank or credit card account of the employer. (B) Authorized to transfer money on behalf of the employer. (C) Authorized to enter into financial contracts on behalf of the employer.”
7. “A position that involves access to confidential or proprietary information. . . .”
8. “A position that involves regular access to cash totaling ten thousand dollars . . . during the workday.”
Beginning January 1, 2012, in order to use a consumer credit report for one of the seven permitted uses, the employer must also comply with the new disclosure requirements of the new law. Most notably, as part of the disclosure and authorization process, before requesting a consumer credit report for employment purposes, the employer must provide to the employee or job applicant written notice that a report will be used and identify specifically which of the seven permitted uses is the basis for obtaining the consumer credit report, must inform the employee or job applicant of the source of the report, and must include in the written notice a box the employee or job applicant can check to receive a copy of the report to be obtained.
Further, if employment is denied in whole or in part on account of information contained in a consumer credit report, the employer must so notify the person subject to the adverse decision and provide the name and the address of the consumer credit reporting agency that supplied the report.
Pro-employer groups have often resisted this type of legislation, taking the position that the information available in a credit report can prove valuable in assessing whether a prospective employee would be a good hire. The plaintiff bar and pro-employee groups, on the other hand, have often argued that the information in credit reports is invades rights to privacy, and in a challenging economy individuals may have credit blemishes unrelated to bad habits.
Regardless of the merits, AB 22 has been passed and will become effective January 1, 2012. Other than specified financial institutions, employers will not be permitted to obtain consumer credit checks for employment purposes unless the employer can specifically identify one of the seven permitted uses, and employers subject to AB 22 (i.e., most employers) must comply with the various written notice requirements. In light of the existing complexities associated with employers’ use of consumer credit reports and the new requirements of AB 22, employers should consider consulting with competent employment counsel before obtaining consumer credit reports for employment purposes.
