Colorado Restricts Use of Credit Reports in Employment Background Checks
May 2, 2013
Our friend Pam Devata at Seyfarth & Shaw blogged yesterday that Colorado became the ninth state to prohibit the use of employment credit reports in hiring. As Pam reports, Colorado’s law will prohibit employers from using “consumer credit information” for employment purposes.
Colorado joins eight other states–California, Connecticut, Hawaii, Illinois, Maryland, Oregon, Vermont and Washington—in restricting access to consumer credit in the hiring process. The rational for the state action is summarized in the bill’s introduction:
“People who have lost their jobs are more likely to have lower credit scores and yet, as a result of employers’ use of credit information to make employment decisions, people with lower credit scores are less likely to become re-employed. The impact of this practice has been to create chronic barriers to employment for otherwise qualified people who may have a reduced credit score as a result of one or more layoffs in the family, being a single parent, a medical emergency, a divorce, or a death in the family.”
As we have pointed out in the past, the use of credit in the employment screening process is not a standard practice, and it is widely misunderstood. Credit scores are not part of an employment credit report. And many employers have bona fide job qualifications that require consideration of credit. In some instances, use of credit is mandated by statute. In the current economic climate, the states are eager to remove any potential barriers to employment and eliminate any potential discrimination against job applicants who might have bad credit history. And in the absence of a national standard, employers are left with a growing patchwork of state laws with vastly different requirements and considerations.
The Colorado law, effective July 1, 2013, is complicated. It applies to private sector employers with four or more employees with two main exceptions: banks and financial institutions, and employers who are required by law to procure consumer credit information. The rest of the state’s employers are prohibited from requesting or using an applicant’s (or employee’s) consumer credit information unless that information is “substantially related to the employee’s current or potential job.” The statute defines “substantially related” as one of two types of positions:
1. A position that constitutes executive or management personnel (or officers or employees who constitute professional staff to executive and management personnel) and which involves one or more of the following:
• sets the direction or control of a business, division, unit or an agency of the business;
• owes a fiduciary responsibility to the employer;
• has access to customers’, employees’ or the employer’s financial information; or
• has the authority to make payments, collect debts or enter into contracts.
2. A position that involves contracts with defense, intelligence, national security, or space agencies of the federal government.
Moreover, if an employer is relying on a qualification that is “substantially related” to the position the employer may, but is not required to, give the applicant or employee an opportunity to explain any unusual or mitigating circumstances. This sounds a lot like individualized assessment—a standard that the EEOC is now recommending when criminal records are used for employment. Finally, Colorado imposes adverse action requirements that extend beyond what is normally required under the Fair Credit Reporting Act.
The take-away is this: if you are an employer doing business in Colorado, and if consumer credit information is part of your hiring process, you should consult with your legal counsel and your background screening company to make sure that you are in compliance with this new law.
For a more detailed analysis of the bill, see Pam’s article here.
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