Limitations on credit checks for employment
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 reporton 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:
Bank or credit card account information.
Social Security number.
Date of birth.
6) A position in which the person is, or would
be, any of the following:
A named signatory on the bank or credit card account of the employer.
Authorized to transfer money on behalf of the employer.
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
“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 . . . .
article is for educational purposes only and is not intended to constitute