By Thomas Ahearn, ESR Staff Writer
A newly signed law in Oregon prevents employers — with limited exceptions — from using the credit histories of job applicants in making employment-related decisions.
Senate Bill (SB) 1045 — recently signed into law by Oregon Governor Ted Kulongoski — prohibits the use of credit history for employment purposes including hiring, discharge, promotion, and compensation. The new Oregon law, originally set to take effect July 1, 2010, has been declared by the governor to be effective immediately.
The new law establishes any violation as an unlawful employment practice, enforceable through the Bureau of Labor and Industries (BOLI) and civil action. However, SB 1045 provides exceptions for financial institutions, public safety offices, and other employment if credit history is job-related and use is disclosed to applicant or employee.
The exceptions to the new law include the following circumstances:
- Employers that are federally insured banks or credit unions;
- Employers that are required by state or federal law to use Individual credit history for employment purposes;
- The employment of a public safety officer, or
- Employers that can demonstrate that the information in a credit report is â€œsubstantially job-related AND the employer’s reasons for the use of such information are disclosed to the employee or prospective employee in writing.
Oregon now joins Washington and Hawaii as states placing limits on the use of credit reports for employment purposes by enacting bans on workplace credit checks. In 2007, Washington passed a law stating employers could not obtain a credit report as part of a background check unless the information was substantially job related and the employer’s reasons for the use of such information were disclosed to the consumer in writing. In 2009, Hawaii also placed limits on credit reports by making it an unlawful discriminatory practice for any employer to make an employment decision based upon an individual’s credit history or credit report, unless the information directly relates to an occupational qualification.
Private employers in Oregon will need to carefully review their justification for a credit report and be prepared to state those reasons in writing to an applicant before a credit report is requested or obtained.
The use of credit reports for the purposes of employment screening is a controversial subject, and critics who question the accuracy, relevance, and fairness of credit reports argue that a credit history has no relationship to the ability to perform the job and may result in unlawful discrimination.
In addition, applicants with financial situations severely impacted by the ongoing recession may be victimized again when a negative credit report makes it even harder to get a job, creating a ‘Catch-22’ situation in which applicants have bad credit because they cannot get jobs and cannot get jobs because they have bad credit.
However, others believe the use of credit reports for employment purposes is critical to preventing embezzlement or other problems where someone is hired to a position with access to cash or assets. Contrary to popular belief, employers do not see the credit scores — such as the widely used three-digit FICO model — and thus cannot use them for employment decisions.
Furthermore, the use of credit reports by employers may not be as common as some people think. A recent survey by the Society of Human Resource Management (SHRM) found that only 13 percent of organizations performed credit background checks on all candidates, while 40 percent did not conduct any credit background checks and 47 percent performed them on selected job candidates.
Many background screening firms — including Employment Screening Resources (ESR) — recommend that credit reports be reserved only for positions where there is a clear business justification, and to keep in mind that credit reports may contain information that is incorrect or not relevant to the job.