Pre-employment Screening - Credit Reports

A growing number of states have followed Washington's lead and passed legislation limiting use of credit reports for employment background screening purposes - to positions for which that information is "substantially job related".  Washington, Hawaii, Oregon, California, Illinois, Maryland & Connecticut have passed such laws and many more are in the process of doing so.

Washington law does not specifically define the term "substantially job related" - leaving it instead to the employer and (unfortunately) the courts to decide.  Other states have done a better job.  Illinois, for example defines "job-relatedness" as follows:

1. State or federal law requires bonding or other security covering an individual holding the position.
2. The duties of the position include custody of or unsupervised access to cash or marketable assets valued at $2,500 or more.
3. The duties of the position include signatory power over business assets of $100 or more per transaction.
4. The position is a managerial position which involves setting the direction or control of the business.
5. The position involves access to personal or confidential information, financial information, trade secrets, or State or national security information.
6. The position meets criteria in administrative rules, if any, that the U.S. Department of Labor or the Illinois Department of Labor has promulgated to establish the circumstances in which a credit history is a bona fide occupational requirement.
7. The employee's or applicant's credit history is otherwise required by or exempt under federal or State law.

The reasoning behind these laws is that use of credit in employment background checks can be unfair given current economic conditions - the fact that many responsible people are unemployed and suffered financial setbacks through little or no fault of their own.  Further, it is argued that use of credit for pre-employment screening has a "disparate impact" on protected individuals and that there is little or no correlation between credit standing and job performance.

So use of credit for pre-employment screening presents a risk to employers - of lawsuits based on consumer reporting law and the "disparate impact" legal theory. 

The first question we (as employers) must ask ourselves, then, is whether the employee will be in a position to inflict financial harm on the firm or its customers (residents).  If the answer is "yes", they will almost certainly fall within one of the above categories (or exceptions) and underwriting credit standing is entirely appropriate.  Otherwise, the risk likely outweighs any benefit and the practice should be avoided - regardless of the state. 

Please visit Moco Incorporated or MyScreeningReport.com for more information about employment screening.

Print posted @ Wednesday, February 15, 2012 12:17 PM