New York, New York Part II: The Stop Credit Discrimination in Employment Act
October 6, 2015
New York City has two new background screening laws that are about to shake up the status quo for employers. Yesterday we looked at the Fair Chance Act—here’s the link if you missed it. Today we look at the recently enacted restriction on credit reports and some recent guidance that has been published to help employers comply.
By way of background, the Stop Credit Discrimination in Employment Act (SCDEA), which went into effect on September 3, 2015, prohibits employers from using an individual’s consumer credit history when making employment decisions about applicants or current employees. The law includes a limited set of exemptions for sensitive positions which include the following:
- an employer, or agent thereof, that is required by state or federal law or regulations or by a self-regulatory organization as defined in section 3(a)(26) of the securities exchange act of 1934, as amended to use an individual’s consumer credit history for employment purposes
- persons applying for positions as or employed as police officers or peace officers, as those terms are defined in subdivisions thirty-three and thirty-four of section 1.20 of the criminal procedure law, respectively, or in a position with a law enforcement or investigative function at the department of investigation;
- in a position that is subject to background investigation by the department of investigation, provided, however, that the appointing agency may not use consumer credit
- in a position in which an employee is required to be bonded under City, state or federal law;
- in a position in which an employee is required to possess security clearance under federal law or the law of any state;
- in a non-clerical position having regular access to trade secrets, intelligence information or national security information;
- in a position: (i) having signatory authority over third party funds or assets valued at $10,000 or more; or (ii) that involves a fiduciary responsibility to the employer with the authority to enter financial agreements valued at $10,000 or more on behalf of the employer.
- in a position with regular duties that allow the employee to modify digital security systems established to prevent the unauthorized use of the employer’s or client’s networks or databases.
The New York City Commission on Human Rights (NYCCHR) is charged with enforcement of the law, and it recently issued enforcement guidance on the SCDEA. The enforcement guidance makes it clear that the NYCCHR is going to interpret the law very broadly and limit the use of the exemptions. In other words, employers need to exercise extreme caution if relying on an exemption.
Specifically, the NYCCHR’s enforcement guidance states that employers claiming an exemption have a duty to show that the position or role falls under one of the eight exemptions in the SCDEA and that they must inform candidates or employees of the claimed exemption. Employers need to keep a detailed written record of the claimed exemption under which the credit check is performed, the name and contact information of all applicants or employees considered for the exempted position, the duties and qualifications for the position, a copy of the applicant or employee’s credit history that was obtained pursuant to the claimed exemption, and a record of how the credit history was obtained. This information needs to be kept for five years, and employers need to be prepared to furnish this information to the NYCCHR upon request.
Seyfarth Shaw’s employment law team (including employment credit expert Pam Devata), provided some clarification on the NYCCHR enforcement guidance following a recent presentation on September 28, 2015, where NYCCHR staff attorney, Paul Keefe, held a question and answer forum for management counsel and employers. According to Seyfarth’s analysis, the NYCCHR clarified the following interpretive positions:
- The “FINRA Exception,” detailed in the NYCCHR’s guidance is broader than indicated by the guidance. The guidance states that individuals required to register with FINRA are exempt from the SCDEA, referencing by footnote FINRA Rule 1230. However, FINRA Rule 1230 does not encompass all employees required to register with FINRA. The NYCCHR clarified that the intent is to exempt all positions required to register with FINRA, and further, to cover individuals required to register with similar self-regulatory organizations, such as the National Futures Association.
- Likewise, the exception for “positions that allow the employee to modify digital security systems protecting the employer or client’s networks or databases” is broader than previously suggested. For instance, the guidance suggests that this exemption is narrow and will only cover “Chief Technology Officers” or “senior information technology executives.” However, larger employers with additional positions that do not have a CTO or executive title but are able to modify the digital security systems would likewise be able to conduct credit checks on those employees.
- Should an exemption apply, employers are required to maintain an exemption log for five years, detailing (1) the claimed exemption; (2) why the claimed exemption covers the exempted position; (3) the name and contact information of all applicants considered for the position; (4) the job duties of the exempted position; (5) the qualifications necessary to perform the exempted position; (6) a copy of the applicants’ credit history that was obtained; (7) how the credit history was obtained; and (8) how the credit history led to the employment decision. It will be the employer’s burden to prove the exemption was properly applied through this documentation.
- Finally, and perhaps most significantly, the NYCCHR clarified that the “intent of the law” is to avoid reference to credit checks at any point in the application process, and even after a conditional offer is provided, unless an exemption is met. Consequently, the NYCCHR will take a strict interpretation of the statute, and clarified that it would likely view FCRA Disclosure and/or Acknowledgment forms referencing credit history as noncompliant with the law, even if the employer does not ultimately obtain the applicant’s consumer credit report. This is not referenced anywhere in the statute or the guidance.
NYCCHR can impose civil penalties for violations of the SCDEA of up to $125,000, and of up to $250,000 for violations that are the result of willful, wanton, or malicious conduct. These penalties are in addition to other remedies available to private litigants who claim that the employer’s use of their credit history violates the New York City Human Rights Law. Remedies under the New York City Human Rights Law may include, but are not limited to, back and front pay, along with compensatory and punitive damages and attorney’s fees.
The Bottom Line
- DO exercise extreme care when using credit reports in the employment process in New York City. The NYCCHR is interpreting the exemptions in a very narrow way.
- DON’T include a reference to credit checks on your disclosure or authorization forms in New York City unless you meet one of the exemptions.
- DO follow the strict requirements of the NYCCHR for notice to applicants and record-keeping, including the 5 year retention period.
- DO check the NYCCHR website for more information including FAQs that they will use as an ongoing forum to answer employers questions.
As always, consult with you legal counsel and your screening firm to make sure that your policies and procedures are compliant with this and other screening laws.
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