By Daniel Taylor, Esq.
When applying for a new job, most applicants expect that an employer will check up on the applicant’s references and job history as part of an employee background check.
But what about an applicant’s credit? If a job seeker has a spotty credit history, past foreclosures, or large amounts of unpaid or past-due debts, should she be worried that a prospective employer may also check her credit score?
The short answer is: in many states, yes; in other states, no; and in any event, there are strict federal rules about how an employee credit check must be done.
There are currently 10 states that limit an employer’s ability to use credit information, according to the National Conference of State Legislatures. Those states are: California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont, and Washington.
Many of these states’ laws allow an employer to check an applicant’s credit report only in certain situations or if specific safeguards are followed. In Washington state, for example, employers may only use a credit report for employment purposes if the credit information is reasonably related to the job or required by law. Under Washington’s law, employers who do wish to obtain a credit report on a prospective employee must either obtain the applicant’s authorization or make a clear and conspicuous disclosure of this practice in writing, such as on a job application.
Employers in states that allow credit checks on job applicants will still be subject to federal rules. Under the Fair Credit Reporting Act, an employer:
- Must certify that the credit report will not be used in violation of federal or state equal employment opportunity laws;
- Must disclose first to the applicant that a credit report may be obtained in a separate document that consists solely of this disclosure;
- Must get the applicant’s written authorization; and
- Must give the applicant a copy of the report.
However, employers who follow these guidelines may still run afoul of federal employment discrimination laws if an employee can show that the use of credit reports has a disparate impact on a class of applicants that is prohibited by employment discrimination laws.