June 14, 2013 UPDATED IMPORTANT LEGAL CONSIDERATIONS RESTRICTIONS ON UTILIZING EMPLOYMENT CREDIT REPORTS

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1 June 14, 2013 UPDATED IMPORTANT LEGAL CONSIDERATIONS RESTRICTIONS ON UTILIZING EMPLOYMENT CREDIT REPORTS Last year we reported to you that California, Connecticut, Hawaii, Illinois, Maryland, Oregon, Vermont, and Washington limited the employer s right to obtain and use credit information for making employment decisions. This year there are two new states that also limit employer s ability to utilize employment credit reports Colorado and Nevada. Further, the federal Equal Employment Opportunity Commission has been contemplating issuance of additional restrictive guidance on employment credit reports. Edge highly recommends that before ordering and utilizing employment credit reports for employment background screening in the following states that you review and consult with your legal counsel. Because of the extreme limitations and legal exposure from California Edge has implemented an automatic compliance suspension for California employment credit reports. When Edge detects that an applicant/employee s address indicates that they reside in California, the employment credit report will be automatically suspended and Edge will contact you to either confirm or to cancel the order. This restricts any inadvertent ordering and utilizing of California employee credit reports and minimizing your legal exposure. Please contact us if you have any questions about this feature.

2 CALIFORNIA Employers shall not use consumer credit reports for employment purposes unless the person is or will be employed in certain positions: (1) A managerial position, which has all the following characteristics: duties involve managing the business or department thereof; directing the work of at least two people; having authority to hire/fire or has real input on these decisions; uses discretion and independent judgment in performing the job; primarily performs exempt work under the Fair Labor Standards Act; earns twice the California minimum wage for full time employees which would equate, at this time, to $2, per month or $33, per year to be a management employee. (2) Employees of California Department of Justice. (3) Police/law enforcement officers. (4) When credit report information is required by law. (5) Has access to banks/credit card information, SSN and DOB of persons (routine processing of credit card purchases not included). (6) Has signatory authority on bank/credit cards of the employer. (7) Has authority to transfer funds on behalf of the employer. (8) Has authority to enter into financial contracts on behalf of the employer. (9) Has access to confidential proprietary information of employer. (10) Has regular access to cash of $10,000 or more of the employer, customer or client. (11) Positions with any financial institution subject to 15 U.S.C [Disclosure of Non- Public Personal Information] either directly or indirectly through other federal or state statutes or regulations. Unlike other state statutes, California law requires the consumer be informed on the authorization and consent form that a consumer credit report is being sought and for which listed positions which allow such a report be stated. Thus, the employer must either fill in a blank or select from a checklist on the form. The CRA could confer with its California clients that order credit reports and determine if they have permitted position and then pre-fill the form to list the permitted position. This is the first credit report restriction statute that has a practical application will require the CRA to confer with the end user.

3 COLORADO Effective July 1, 2013, an employer cannot use consumer credit information to evaluate an applicant/employee for a job unless the law specifically permits this information to be used. The following employers may, as a matter of right, request credit reports: (1) Banks or financial institutions. (2) Employers required by law to obtain a credit report. Other employers may only request and use a credit report if it is substantially related to the position being filed. The statue provides what appears to be an exclusive list of what constitutes substantially related. A credit report is substantially related to: (1) Executive and management personnel or officers. (2) Employees who constitute professional staff to executive and management personnel (officers of the corporation are not mentioned, but they may be assumed to also occupy executive or managerial positions). AND ONE OR MORE OF THE FOLLOWING ALSO APPLY TO THOSE POSITIONS: (1) The person sets the direction or control of a business, division, unit or agency of a business. (2) Has a fiduciary relationship to the employer. (3) Access to customers, employees, or employer s personal or financial information, other than information customarily provided during a routine retail transaction. (4) Authority to issue payments, collect debts or enter into contracts. The law also states that a credit report is substantially related if the position (and this need not be part of an executive management team, such as staff) involves contracting with defense, intelligence, national security or space agencies of the federal government. If a credit report is obtained under the substantially related use, then the employer must provide to the applicant/employee a notice that a credit report will be obtained. If an employer takes adverse action based in whole or in part upon what is contained in a credit report, the employer shall disclose that fact and the actual information relied upon, in writing, to the consumer. Employer shall use the same method of communication by which the application was received.

4 CONNECTICUT Employers may only request a credit report if such is substantially related to a current job or potential job. The following are positions where a credit report is deemed substantially job related: (1) Any position with a state or federally charted financial institution. (2) A managerial position which involves the direction or control of a unit, division or agency of a business. (3) An employee will have access to personal or financial information of customers, employees or the employer if that information is beyond that presented in a typical retail transaction. (4) An employee has authority to issue payments, transfer money or enter into contracts on behalf of employer. (5) An employee has an expense account, company debit or credit card. (6) An employee has access to confidential/proprietary business information or trade secrets. (7) A credit report is required by law. (8) The employer reasonably believes that the employee has engaged in specific activity that constitutes a violation of law related to employee s employment. (9) The employer has a bona fide purpose for requesting or using information in the credit report that is substantially job related and is disclosed in writing to the employee or applicant.

5 HAWAII An employer may only order a credit report after an offer of employment has been made, but only under certain circumstances. An employer may only order a credit report after an offer of employment has been made but only regarding the following: (1) Employers authorized to obtain a credit report under some other state or federal law. (2) Managerial or supervisory employees who use independent, judgment to perform their job. (3) Employers of federally insured financial institutions. ILLINOIS An employer may not inquire about or obtain a credit report unless the employer is excluded or there is an exemption for a specific position. Positions Exempted from exclusion: (1) State or federal law requires bond or surety for position. (2) Employee has custody or unsupervised access to cash or marketable assets exceeding $2,500, assets include cargo/inventory, but not fixtures, furnishings or equipment of employer. (3) Employee has signatory power of business assets of $100 or more. (4) A managerial position that can direct or control a business. (5) Employee will have access to personal, confidential and financial information, trade secrets, or state or national security information. (6) The EEOC or Illinois Department of Labor determines position is appropriate for a credit report. (7) State or federal law requires position to have a credit report.

6 MARYLAND An employer may not use a credit report to deny employment, discharge an employee, or use of compensation determination. However, per the statute, an employer may request the credit report on an applicant after an offer for employment has been made. The Bill specifically authorizes other types of consumer reports for background screening permitted under the FCRA. ALSO - A credit report may be used for "Bona Fide Purposes" that are substantially job-related and if the obtaining of a credit report is disclosed to the applicant or employee in writing. Bona Fide purposes include: (1) A manager of a business, department, division, unit or agency. (2) Those having access to personal information of a customer, employee or employer (except customer information supplied in a typical retail transaction is not included). (3) A position having a fiduciary responsibility to the employer, including the issuance of payments, collecting debts, transfer of money or entering into contracts on behalf of employer. (4) An employee having an expense account or corporate debit or credit card. (5) An employee with access to a formula, pattern, computation, program, device, method, technique or process that a. is a business secret and the one who discloses could obtain economic value therefrom and b. the employer maintains reasonable procedures to keep the information secret. (6) An employee who has access to other confidential business information.

7 NEVADA Effective October 1, 2013, an employer cannot refuse to hire, promote or take adverse action against the employee who refuses to permit a credit report that is not permitted by this new law. An employer can only request a credit report under the following conditions: (1) Obtaining a credit report is required by federal or state law. (2) Credit information is reasonably related to the position being filled. The following are deemed to be reasonably related (however, this listing evidentially is not an exclusive list and an employer can justify the use of credit reports for other positions). a. The job entails the care, custody and handling of money, financial accounts, corporate credit or debit cards or other assets of the employer. b. Access to trade secrets of the employer. c. A position with managerial or supervisory responsibilities. d. Care, custody and handling or responsibility for personal information of another person. e. Access to personal financial information of another. In addition, certain employers have a right to request a credit report. (1) Federal or state charter financial institutions. (2) State or local law enforcement but only for employees with direct exercise of law enforcement authority. (3) Licensed gaming establishments. Enforcement. Individuals may sue for violation of the statute within three (3) years. Attorney fees may be awarded to the prevailing party, not just to the consumer. Thus a consumer individually or as a class could be obligated to pay the fees of an employer who prevails on such a claim. The Labor Commission can also enforce this law and can seek injunctive relief and fines up to $9,000 per violation.

8 OREGON Employers may not use credit report unless substantially job related. The term substantially job related has been limited by the Labor Department to positions that require: (1) As an essential job function to have access to financial information beyond that customarily is a part of a retail transaction such as an exchange of cash, checks, and credit or debit cards. The processing of loans or extensions of credit would permit a credit report if access to more detailed financial information is required to do the job. (2) A credit report is necessary to obtain a surety or fidelity bond. VERMONT Employers may not inquire about or use an applicant s or employee s credit report or credit history with respect to employment, compensation, or a term, condition, or privilege of employment unless: (1) The information is required by state or federal law or regulation. (2) The position being sought or held involves access to confidential financial information (defined as sensitive financial information of commercial value that a customer or client of the employer gives explicit authorization for the employer to obtain, process, and store and that the employer entrusts only to managers or employees as a necessary function of their job duties). (3) The employer is a financial institution (as defined in 8 V.S.A (32)) or a credit union (as defined in 8 V.S.A (5)). (4) The position being sought or held is that of a law enforcement officer (as defined in 20 V.S.A. 2358), emergency medical personnel (as defined in 24 V.S.A. 2651(6)), or a firefighter (as defined in 20 V.S.A. 3151(3)). (5) The position being sought or held requires a financial fiduciary responsibility to the employer or a client of the employer, including the authority to issue payments, collect debts, transfer money, or enter into contracts. (6) The employer can demonstrate that the information is a valid and reliable predictor of employee performance in the specific position being sought or held.

9 (7) The position being sought or held involves access to an employer s payroll information. However, even if an employer can avail itself of one of these exemptions, the applicant s or employee s credit report or history may not be the sole factor in decisions regarding employment, compensation, or a term, condition, or privilege of employment. If an employer lawfully is permitted to obtain credit history, the employer must: (1) Obtain the employee s or applicant s written consent each time the employer seeks to obtain the employee s or applicant s credit report; and (2) Disclose in writing to the employee or applicant the employer s reasons for accessing the credit report, and, if an adverse employment action is taken based upon the credit report, disclose the reasons for the action in writing. WASHINGTON An employer may not request a credit report in regard to an applicant or employee unless the use of the information is disclosed in writing and is substantially job related or required by law.