Credit Checks & Employment Discrimination—State Legislatures and the EEOC Take Action

Faced with the current uncertain economic climate and concerns regarding the plight of the unemployed, several state legislatures have recently passed or introduced bills restricting employers and prospective employers from using credit checks in hiring and personnel decisions. For example, on October 12, 2011, California Governor Jerry Brown signed AB 22 into law, creating California Labor Code section 1024.5, which prohibits California employers from using a consumer credit report for employment purposes except in limited circumstances. In passing this law, California joined six other states (Connecticut, Hawaii, Illinois, Maryland, Oregon, and Washington) in recently enacting laws restricting the use of credit checks in employment decisions. And the trend is expected to continue. As of February 13, 2012, 36 bills in 19 states and the District of Columbia have been introduced or are pending concerning the use of credit information in employment decisions.  Click here for a list of the bills.

The EEOC has also demonstrated an interest in the use of credit checks by employers in employment decisions in recent years. On September 30, 2009, the EEOC filed a complaint against Freeman Companies, a nationwide convention, exhibition and corporate events marketing company, alleging that its use of credit history as a hiring criterion has an unlawful disparate impact on black job applicants. In a similar complaint, filed on December 21, 2010 against Kaplan Higher Education Corporation, the EEOC alleged that Kaplan’s use of credit history information as a selection criterion in hiring and discharge has a significant and unlawful disparate impact on black job applicants and current employees. The Freeman and Kaplan cases are both still pending. In addition to filing these cases, in 2010, the EEOC held a public meeting regarding the use of credit histories as employee selection criteria, further demonstrating the Commission’s interest in this topic. The EEOC has a full transcript of the October 20, 2010 public meeting regarding employer use of credit history as a screening tool.

Considering the recent legislative activity as well as the EEOC’s interest concerning the use of credit checks, employers would be well-advised to examine their policies regarding the use of credit checks in employment decisions to ensure that they comply with state and federal law.