Hunton Employment & Labor Perspectives

In March, we reported on the increasing attention that federal and state legislatures, as well as the EEOC, were paying to employers’ use of employee credit checks in employment decisions. At the time of posting, four states had laws regulating employer use of credit history data and fourteen additional states were considering similar measures. Earlier this month, Connecticut passed Public Act No. 11-223 regulating employer use of credit reports.

Under the new law, employers may not “require an employee or prospective employee to consent to a request for a credit report that contains information about the employee’s or prospective employee’s credit score, credit account balances, payment history, savings or checking account balances or savings or checking account numbers as a condition of employment.” There are, however, four exceptions to that rule.  Employers may require such consent if:

• the employer is a financial institution;
• such a report is required by law;
• the employer reasonably believes that the employee has engaged in specific activity that constitutes a violation of the law related to the employee’s employment; or
• such report is substantially related to the employee’s current or potential job or the employer has a bona fide purpose for requesting or using information in the credit report that is substantially job-related and is disclosed in writing to the employee or applicant.

By restricting an employer’s ability to request consent for a credit report, the new law indirectly restricts employer use of credit reports in employment decisions. In most cases, employers will seek refuge in the last exception. Luckily for employers, “substantially related to the employee’s current or potential job” is defined rather broadly by the Connecticut statute. “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:

• Is a managerial position which involves setting the direction or control of a business, division, unit or an agency of a business;
• Involves access to customers’, employees’ or the employer’s personal or financial information other than information customarily provided in a retail transaction;
• 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;
• Provides an expense account or corporate debit or credit card;
• Provides access to
  confidential or proprietary business information, or
  • (information, including a formula, pattern, compilation, program, device, method, technique, process or trade secret that:
    • 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
    • is the subject of efforts that are reasonable under the circumstances to maintain its secrecy; or
• 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.

Employers should prepare to comply with the new law, which goes into effect on October 1, 2011.