Employment Law Alerts & Articles

« Back to blog homepage
Jan 01

New Restrictions On Credit Checks For Employment in California

As of January 1, 2012, California employers joined six other states to restrict the use of credit checks to make employment decisions as to most jobs and as to employment transaction such as hiring, promotion and termination.  Specifically, except for statutory exceptions identified under California Labor Code § 1024.5, AB 22 prohibits an employer from obtaining a consumer credit report for employment purposes.  The intent of the bill was to further protect employee rights, and address the growing concern related to the most recent recession and its effect on unemployment and the reduced financial capabilities suffered by today’s workforce.

The few exceptions the Labor Code carves out for private employers in California are limited to the following types of employment:

  1. A managerial position.  This would appear to relate to not only those individuals that qualify for the executive or managerial overtime exemption, but any supervisory role over another employee.
  2. A position for which the information contained in the report is required by law to be disclosed or obtained, such as fiduciary or professional positions requiring economic responsibilities and obligations.
  3. 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 bank or credit card information, social security numbers, or a person’s date of birth.  This exception was not meant to apply to retail or store cashiers who handle cash register transactions.
  4. A position in which the person is, or would be, a named signatory on a bank or credit card account of the employer, authorized to transfer money on behalf of the employer, or authorized to enter into financial contracts on behalf of an employer.  This includes positions such as a Chief Financial Officer, Accounting Department personnel, and Payroll employees.
  5. A position that involves access to confidential or proprietary information.  This exception appears to suggest that employees who execute Confidentiality and Non-Disclosure Agreements would qualify for exemption from the AB 22 prohibition against credit checks.
  6. A position that involves regular access to cash totaling Ten Thousand Dollars ($10,000.00) or more during the workday.

If an applicant or employee does fall under one of the statutorily identified exceptions, the employer may obtain a credit report about an individual’s credit worthiness, credit standing, or credit capacity provided the employer provides written notice to the employee explaining why a credit check is being requested, from whom, and allowing the employee to request a free copy.

It is important to note that AB 22’s prohibition relates to credit checks only; the new statute does not preclude employers from conducting background reference or criminal record checks (other than to require that the statutory notices to employees regarding background checks include the reporting agency’s website address with the contact information already required for reporting to the applicant or employee). 

However, the continued allowance of criminal background checks does not suggest that an employer should exercise its discretion to uncritically conduct criminal background checks.  For example, on January 11, 2012, Pepsi Beverages agreed to pay the Equal Employment Opportunity Commission $3.1 million in settlement of racial bias claims related to its use of criminal background checks to screen out job applicants.  Alleging that the company’s old policy of not hiring workers with arrest records disproportionately excluded black applicants, the settlement should serve as a poignant reminder to employers regarding the potential legal risks associated with the use of criminal background checks.

Leave a Reply

Your email address will not be published. Required fields are marked *