The California legislature and governor passed several new laws governing the employer-employee relationship that will take effect on January 1, 2012. One of these significantly restricts the ability to conduct background checks on current and prospective employees. Under California Labor Code Section 1024.5, employers may not obtain consumer credit reports for employment purposes. While this does not seem like a significant issue, the definition of “consumer credit report” is broad, and includes “any written, oral, or other communication of any information by a consumer credit reporting agency bearing on a consumer's credit worthiness, credit standing, or credit capacity, which is used or is expected to be used, or collected in whole or in part, for the purpose of serving as a factor in establishing the consumer's eligibility for: (1) credit to be used primarily for personal, family, or household purposes, or (2) employment purposes, or (3) hiring of a dwelling unit…” Cal. Civ. Code § 1785.3. A consumer credit reporting agency is any person or entity, other than a governmental body, that “regularly engages in whole or in part in the business of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer credit reports to third parties.” Id. Given these broad definitions, any time an employer uses a third party for assistance with background checks, that employer may violate the new law.
Understanding this law is particularly important for property managers, many of whom regularly run credit checks on prospective employees, just as they would on prospective tenants. The law does have some exceptions, which may apply, depending upon what the employee will be doing. An employer may obtain a consumer credit report on candidates for: most exempt managerial positions; employees who will regularly handle the employer’s banking or credit card accounts or more than $10,000 in cash; and, employees who will regularly have access to trade secrets or other confidential information. Candidates seeking employment as resident managers or leasing agents may fall into an exemption for employees who will have regular access to all of the following types of information regarding any one person: bank or credit card account information, Social security number, and date of birth. If a new employee will regularly accept rental applications, the employer may have the right to obtain a consumer credit report.
When the employer can lawfully obtain a consumer credit report, Section 1024.5 imposes new procedural requirements. Before using a credit check, the employer must tell the candidate, in writing, that it plans to obtain a consumer credit report, identify the applicable statutory exception permitting them to do so, identify the source of the report, and provide a box for the employee to check to request a free copy of the report. Larger commercial credit reporting agencies will most likely prepare forms that satisfy all of these requirements. If you rely on a smaller business, or a business that provides credit information as only one aspect of its operations, you should develop your own form that fulfills all of these requirements. Using a standard form will significantly reduce the risk of making an improper request for credit information.
* Maggie Grover has been helping employers
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