Beginning in 2012, California law prohibits most employers from using consumer credit reports to screen job applicants. Where screening is allowed, the information sought and obtained cannot be over seven years old with a few exceptions, such as bankruptcy within the last ten years. The employer must also follow detailed notice requirements. Here are the highlights of this law.
When employment screening can include credit reports
The California Labor Code contains the new limits on employment screening with credit reports. Exempt from the law: law enforcement agencies, the California Department of Justice, and financial institutions such as banks and credit unions that are subject to federal oversight. Other private employers may only use credit reports in job screening where state or federal law requires that information to be obtained, or in situations where the applicant:
- Would have regular access to $10,000 or more in cash belonging to the employer, a customer, or a client during the workday. Or,
- Would be authorized to sign on the employer’s bank or credit card account, or transfer money or sign financial contracts for the employer. Or,
- Would have regular access to bank or credit card account information, the social security number, and the date of birth of any single individual, except for the routine solicitation and processing of credit card applications in a retail establishment. Or,
- Would have access to confidential or proprietary information which is valuable and not generally known, and which the owner has made reasonable efforts to keep secret. Or,
- Would hold a managerial position, defined as an employee who qualifies for the executive exemption set forth in the Industrial Welfare Commission’s Wage Orders. The executive exemption test is very detailed and depends on the amount of pay and actual duties; it varies by industry.
The law only applies to the use of consumer credit reports. It does not prevent an employer from asking for information that verifies income or employment, such as pay slips or W2’s. If the applicant refuses to agree to a credit check in a situation where it is allowed by law, the employer is free to reject the applicant for that reason.
A new notice requirement has now been added to the California Civil Code. Starting this year, the employer must give the applicant written notice specifying the legal basis for obtaining the credit check. As per existing law, the employer must still inform the applicant in writing that a credit check will be performed, obtain the applicant’s permission, disclose who will perform the credit check, and tell the applicant that he or she can check a box on the form to receive a free copy of the credit report. If the applicant has checked the box, the report must be furnished within three days of when it is sent or given to the employer.
If a report contains a notice of address discrepancy, the employer must take reasonable steps to determine whether the credit report is actually for that job applicant, or if he or she has been confused with someone else.
If the employer decides not to hire the applicant based on the credit report, the applicant must be given the name and address of the reporting agency making the report, a copy of the report itself, and a summary of the applicant’s rights under the Federal Credit Reporting Act.
An employer who obtains the credit report of a job applicant can only use the report for its own employment purposes. The employer’s use cannot violate any federal or state equal opportunity law or regulation. The employer must also have procedures in place to properly dispose of records containing the credit report information.
Call SAN DIEGO LAW FIRM™ for skilled help with employee credit checks
The experienced business lawyers at SAN DIEGO LAW FIRM™ can help your business craft clear written policies and forms for using credit checks on job applicants. We can also help you develop a record-keeping system to comply with credit check laws and other federal and California requirements for employment screening.
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