By Anthony Zaller on August 21, 2015
Since January 1, 2012, Labor Code section 1024.5 restricts which positions
employers can require credit checks. It is important to note that credit
reports or credit checks are different than background checks. The law
defines “consumer credit report” as “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:
… (2) employment purposes….” See Civil Code section 1785.3(c). It is
important for employers to understand the difference between obtaining a credit
report versus a more general background check.
2. California employers can
only preform credit checks for a limited number of positions.
Employers are only permitted to obtain consumer credit reports for
applicants/employees who meet one of the following categories:
A managerial position (defined as an employee who meets the executive exemption
set forth in the Industrial Welfare Commission’s Wage Orders).
A position in the state Department of Justice.
That of a sworn peace officer or other law enforcement position.
A position for which the information contained in the report is required by law
to be disclosed or obtained.
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 all of the following types of information of any one person:
(A) Bank or credit card account information. (B) Social security number. (C)
Date of birth.
A position in which the person is, or would be, any of the following: (A) A
named signatory on the bank or credit card account of the employer. (B)
Authorized to transfer money on behalf of the employer. (C) Authorized to enter
into financial contracts on behalf of the employer.
A position that involves access to confidential or proprietary information,
including a formula, pattern, compilation, program, device, method, technique,
process or trade secret that (i) derives independent economic value, actual or
potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who may obtain economic value
from the disclosure or use of the information, and (ii) is the subject of an
effort that is reasonable under the circumstances to maintain secrecy of the
information.
A position that involves regular access to cash totaling ten thousand dollars
($10,000) or more of the employer, a customer, or client, during the workday.
3. If employers can conduct a credit check, employers must
notify employees of certain information.
The law requires that the employer provide the following information to the
applicant/employee prior to obtaining a consumer credit report:
The notice shall inform the person that a report will be used, and shall
identify the specific basis under subdivision (a) of Section 1024.5 of the
Labor Code for use of the report. The notice shall also inform the person of the
source of the report, and shall contain a box that the person may check off to
receive a copy of the credit report. If the consumer indicates that he or she
wishes to receive a copy of the report, the user shall request that a copy be
provided to the person when the user requests its copy from the credit
reporting agency. The report to the user and to the subject person shall be
provided contemporaneously and at no charge to the subject person.
4. If the position is denied based upon the applicant’s/employee’s
credit information, the employer must provide an additional notification.
The law requires that if an applicant/employee is denied employment “either
wholly or partly” because of information obtained in a consumer credit report,
the employer must provide the following information:
Whenever employment involving a consumer is denied either wholly or
partly because of information contained in a consumer credit report from a
consumer credit reporting agency, the user of the consumer credit report shall
so advise the consumer against whom the adverse action has been taken and
supply the name and address or addresses of the consumer credit reporting
agency making the report. No person shall be held liable for any violation of
this section if he or she shows by a preponderance of the evidence that, at the
time of the alleged violation, he or she maintained reasonable procedures to
assure compliance with this section.
5. Employers must keep all financial information
confidential.
Disclosure of credit information obtained for an applicant or employee would be
a violation of the individual’s right of privacy. Therefore, employers
must take steps to safeguard this information and ensure that only employees
who have a need to know have access to the information, and that these
employees understand that it is confidential information that cannot be shared
even with other employees in the company that do not have a reason to know the
information.
Since January 1, 2012, Labor Code section 1024.5 restricts which positions employers can require credit checks. It is important to note that credit reports or credit checks are different than background checks. The law defines “consumer credit report” as “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: … (2) employment purposes….” See Civil Code section 1785.3(c). It is important for employers to understand the difference between obtaining a credit report versus a more general background check.
Employers are only permitted to obtain consumer credit reports for applicants/employees who meet one of the following categories:
A managerial position (defined as an employee who meets the executive exemption set forth in the Industrial Welfare Commission’s Wage Orders).
A position in the state Department of Justice.
That of a sworn peace officer or other law enforcement position.
A position for which the information contained in the report is required by law to be disclosed or obtained.
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 all of the following types of information of any one person: (A) Bank or credit card account information. (B) Social security number. (C) Date of birth.
A position in which the person is, or would be, any of the following: (A) A named signatory on the bank or credit card account of the employer. (B) Authorized to transfer money on behalf of the employer. (C) Authorized to enter into financial contracts on behalf of the employer.
A position that involves access to confidential or proprietary information, including a formula, pattern, compilation, program, device, method, technique, process or trade secret that (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who may obtain economic value from the disclosure or use of the information, and (ii) is the subject of an effort that is reasonable under the circumstances to maintain secrecy of the information.
A position that involves regular access to cash totaling ten thousand dollars ($10,000) or more of the employer, a customer, or client, during the workday.
3. If employers can conduct a credit check, employers must notify employees of certain information.
The law requires that the employer provide the following information to the applicant/employee prior to obtaining a consumer credit report:
The notice shall inform the person that a report will be used, and shall identify the specific basis under subdivision (a) of Section 1024.5 of the Labor Code for use of the report. The notice shall also inform the person of the source of the report, and shall contain a box that the person may check off to receive a copy of the credit report. If the consumer indicates that he or she wishes to receive a copy of the report, the user shall request that a copy be provided to the person when the user requests its copy from the credit reporting agency. The report to the user and to the subject person shall be provided contemporaneously and at no charge to the subject person.
4. If the position is denied based upon the applicant’s/employee’s credit information, the employer must provide an additional notification.
The law requires that if an applicant/employee is denied employment “either wholly or partly” because of information obtained in a consumer credit report, the employer must provide the following information:
Whenever employment involving a consumer is denied either wholly or partly because of information contained in a consumer credit report from a consumer credit reporting agency, the user of the consumer credit report shall so advise the consumer against whom the adverse action has been taken and supply the name and address or addresses of the consumer credit reporting agency making the report. No person shall be held liable for any violation of this section if he or she shows by a preponderance of the evidence that, at the time of the alleged violation, he or she maintained reasonable procedures to assure compliance with this section.
5. Employers must keep all financial information confidential.
Disclosure of credit information obtained for an applicant or employee would be a violation of the individual’s right of privacy. Therefore, employers must take steps to safeguard this information and ensure that only employees who have a need to know have access to the information, and that these employees understand that it is confidential information that cannot be shared even with other employees in the company that do not have a reason to know the information.
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