Hunton Employment & Labor Perspectives

On October 10, 2011, California became the seventh state to enact legislation restricting public and private employers alike from using consumer credit reports in making hiring and other personnel decisions.  Assembly Bill No. 22 both adds a new provision to the California Labor Code -- Section 1024.5 -- and amends California’s Consumer Credit Reporting Agencies Act (“CCRAA”).  Effective January 1, 2012, California employers will be prohibited from requesting a consumer credit report for employment purposes unless they meet one of the limited statutory exceptions, and those employers meeting an exception, will be subjected to increased disclosure requirements.  Connecticut, Illinois, Hawaii, Oregon, Maryland and Washington already have similar laws on the books, and many other states, as well as the federal government, are contemplating similar legislation.  This trend creates a potential “credit-centric” minefield for employers that do business in any one or more of these states.  In light of the multiple laws affecting their use, employers who utilize consumer credit reports in making personnel decisions should proceed cautiously.  Employers must evaluate the need for these reports in making personnel decisions, review and modify their policies to ensure compliance with the myriad of regulations in this area, and monitor any new developments to ensure continued compliance. 

California’s New Laws:

Specifically, new Labor Code Section 1024.5(a) provides that employers may only use consumer credit reports for employment purposes if the report is sought for an individual working in, or applying for, one of the following:

• A managerial position;
• A position in the state Department of Justice;
• A sworn peace officer or law enforcement position;
• A position for which the information contained in the report is required by law to be disclosed or obtained;
• A position in which the person regularly accesses certain confidential information including bank or credit card account information, social security numbers, or dates of birth;
• A position in which the person can enter into financial contracts or transfer money on behalf of the employer, or is a named signatory on the employer’s bank or credit account;
• A position that involves access to confidential or proprietary information (as further defined in the statute); or
• A position that involves regular access to cash totaling at least $10,000 of the employer, a customer, or client, during the workday.

Additionally, under the amended Section 1785.20.5 of the CCRAA, employers who meet one of the above-listed statutory exceptions will be required to provide written notice to the person for whom the credit report is requested that (i) informs the person that a report will be used; (ii) identifies the specific reason for obtaining the report, as provided in the statute; (iii) contains a check box allowing the person to receive a copy of the credit report at no charge; and (iv) identifies the source of the report requested. 

What Should Employers Do?

Employers doing business in California that utilize consumer credit reports in making personnel decisions are encouraged to first determine whether their use of consumer reports meets one of the new statutory exceptions.  If so, employers must determine whether their existing disclosure policies meet the requirements of the amended Section 1785.20.5.  If they do not, employers must revise their disclosure and notice policies to comply with the new regulations before January 1, 2012.  Employers must also be aware of the enacted and pending legislation regarding these issues in other states in which they do business.  As always, employers are encouraged to contact their legal counsel with any questions to ensure compliance with the new laws.