Limitations on credit checks for employment purposes

We are often requested by companies to conduct pre-employment background investigations.  These investigations typically fall within the confines of the Fair Credit Reporting Act and California’s Investigative Consumer Reporting Agencies Act. We conduct such investigations within the legislated parameters and with prior written notice to the person being investigated.  The person also needs to authorize the obtaining of the report and can request a copy of the report.  If the employer takes adverse action based on the report such as not hiring the individual, the employer is required to so advise the person and also provide the person with a copy of the report under the Fair Credit Reporting Act.

We are occasionally contacted by employers and prospective employers to obtain a consumer credit report[1]on a person.  California’s Credit Reporting Agencies Act was recently amended to limit an employer’s ability to obtain such a credit report.  These changes took effect on January 1, 2012. 

The definition of consumer credit report was amended and, while the definition still relies, in large part, on the definition provided in California Civil Code §1785.3, an additional exception was carved out.  No longer included in the definition of a consumer credit report are reports that “(A) verifies income or employment and (B) does not include credit-related information, such as credit history, credit score, or credit record.” (Emphasis added.)  Thus, if the employer obtains a background consisting of a criminal record check and verification of prior employment, it would not fit the definition of a consumer credit report.  However, such a report would likely still fall under the constraints of the Fair Credit Reporting Act and the California Investigative Consumer Reporting Agencies Act.

As of January 1, 2012 employers and prospective employers, with the exception of certain financial institutions, can no longer request a consumer credit report for employment purposes unless the position of the person for whom the report is requested falls within certain exceptions.  Additionally, the notice that is initially provided to the subject of the report must now also include identification of the specific exception the employer is relying on as the basis for its request of the consumer credit report.  For our purposes, the exceptions that might be utilized by our clients are:

1)  A managerial position.

            . . .

4)  A position for which the information contained in the report is required by law to be disclosed or obtained.

5)  A position that involves regular access, for any purpose other than the routine solicitation and processing of credit card applications in a retail establishment, to all of the following types of information of any one person:

                        (A) Bank or credit card account information.

                        (B) Social Security number.

                        (C) Date of birth.

            6)  A position in which the person is, or would be, any of the following:

                        (A) A named signatory on the bank or credit card account of the employer.

                        (B) Authorized to transfer money on behalf of the employer.

                        (C) Authorized to enter into financial contracts on behalf of the employer.

7)  A position that involves access to confidential or proprietary information as defined in the section.

8)  A position that involves regular access to cash totaling ten thousand dollars ($10,000) or more of the employer, a customer, or client, during the workday.

California Labor Code §1024.5

In considering whether a consumer credit report can be obtained under the first exception, an employer or prospective employer should not view the term “managerial position” lightly.  Titling a position as “office manager” or even “manager” is not sufficient to fall within the exception.  The legislation has defined “managerial position” to mean an employee who would be considered to be under the executive exemption of Title 8 of the California Code of Regulations §11040(A)(1) which states:

(1) Executive Exemption. A person employed in an executive capacity means any employee:

          (a) Whose duties and responsibilities involve the management of the enterprise in which he/she is employed or of a customarily recognized department or subdivision thereof; and

            (b) Who customarily and regularly directs the work of two or more other employees therein; and

        (c) Who has the authority to hire or fire other employees or whose suggestions and recommendations as to the hiring or firing and as to the advancement and promotion or any other change of status of other employees will be given particular weight; and

(d) Who customarily and regularly exercises discretion and independent judgment; and

(e) Who is primarily engaged in duties which meet the test of the exemption. The activities constituting exempt work and non-exempt work shall be construed in the same manner as such items are construed in the following regulations under the Fair Labor Standards Act effective as of the date of this order: 29 C.F.R. Sections 541.102, 541.104-111, and 541.115-116. Exempt work shall include, for example, all work that is directly and closely related to exempt work and work which is properly viewed as a means for carrying out exempt functions. The work actually performed by the employee during the course of the workweek must, first and foremost, be examined and the amount of time the employee spends on such work, together with the employer’s realistic expectations and the realistic requirements of the job, shall be considered in determining whether the employee satisfies this requirement.

(f) Such an employee must also earn a monthly salary equivalent to no less than two (2) times the state minimum wage for full-time employment. Full-time employment is defined in Labor Code Section 515(c) as 40 hours per week.

Thus, if a California employer or prospective employer is seeking to obtain a consumer credit report for employment purposes on an employee or prospective employee, the position must fit within one of the above statutory exceptions.  Additionally, the employer or prospective employer must follow the notice and authorization requirements of both the Fair Credit Reporting Act and the Consumer Credit Reporting Agencies Act.



[1]“Consumer credit report” means any written, oral or other communication of any information by a consumer credit reporting agency bearing on a consumer’s credit worthiness, credit standing, or credit capacity, which is used or expected to be used, or collected in whole or in part, for the purpose of serving as a factor in establishing the consumer’s eligibility for: . . .(3) employment purposes . . . .

 

This article is for educational purposes only and is not intended to constitute legal advice.

 


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