Continuing the trend of states stopping employers from routinely obtaining credit reports on applicants and employees to use in making employment decisions, Vermont Act No. 154 (S. 95) prohibits employers in the state, subject to various exceptions, from using or inquiring into credit reports or credit histories of job applicants and employees in the employment context and further prohibits discriminating against individuals based on their credit information. Vermont is the eighth state to restrict the use of credit reports by employers, joining California, Connecticut, Hawaii, Illinois, Maryland, Oregon, and Washington. The text of the new law, which goes into effect July 1, 2012, is available at: http://www.leg.state.vt.us/docs/2012/bills/Passed/S-095.pdf.
Enacted into law by Governor Peter Shumlin on May 17, 2012, Vermont Act No. 154 (S. 95) pertains to “credit history” that includes any credit information obtained from any third party, not only information contained in a credit report. The Act sets forth exemptions based on the type of employers at issue and the position or responsibilities of applicants or employees. Employers are exempt and may obtain and use credit information if they meet one or more of these conditions:
- The information is required by state or federal law or regulation.
- The position of employment involves access to confidential financial information.
- The employer is a financial institution or credit union as defined by state law.
- The position of employment is that of a law enforcement officer, emergency medical personnel, or a firefighter as defined by state law.
- The position of employment 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.
- The employer can demonstrate that the information is a valid and reliable predictor of employee performance in the specific position of employment.
- The position of employment involves access to an employer’s payroll information.
However, even exempted employers that seek to obtain or act upon the credit information of an applicant or employee are prohibited by the Act from using credit report or credit history as the sole factor in making any employment decision. In addition, the Act requires employers to first obtain the written consent of the employee or applicant to the disclosure of the credit information and must also disclose in writing its reasons for accessing the report. If an employer intends to take an adverse employment action based on any contents of the credit report, the employer must notify the applicant or employee in writing of its reasons for doing so and also offer the subject an opportunity to contest the accuracy of the credit report or credit history.
Credit checks of job applicants by employers have become more common recently. According to a 2010 survey from the Society for Human Resource Management (SHRM), ‘Background Checking: Conducting Credit Background Checks,’ 60 percent of employers polled conducted credit checks on some or all job applicants. Specifically:
- 47 percent of employers surveyed conducted credit checks on job candidates for selected jobs.
- 13 percent of employers surveyed conducted credit checks on all job candidates.
- 40 percent of employers surveyed did not conduct any credit checks on job candidates.
When asked in the SHRM survey which categories of job candidates their organization conducted credit background checks on:
- 91 percent of employers surveyed said job candidates with fiduciary or financial responsibility (handling money, banking, accounting, technology, etc.).
- 46 percent of employers surveyed said job candidates for senior executive positions (CEO, CFO, etc.).
- 34 percent of employers surveyed said job candidates with access to highly confidential employee information (salary, benefits, medical information, etc.).
- 30 percent of employers surveyed said job candidates with access to company/other property (information technology, administrative services, etc.).
More than half employers surveyed – 54 percent – said the primary reason they conducted credit background checks on job candidates to reduce or prevent theft, embezzlement, and other criminal activity. The SHRM survey is available at:
Critics of using credit reports for employment purposes said the practice can have a disparate and discriminatory impact on protected groups such as people of color. Another concern expressed is that credit reports can also be inaccurate and are not valid predictors of job performance. In addition, the use of credit histories can create a “Catch-22” situation for job applicants where they cannot pay their bills because they do not have a job but cannot get a job because of bad credit since they cannot pay their bills.
To help job applicants better understand credit checks, Employment Screening Resources (ESR) co-authored a white paper titled ‘The Use of Credit Reports in Employment Background Screening – An Overview for Job Applicants’ that shows the many protections applicants have when it comes to credit reports. The white paper also points out the fact that an ‘Employment Credit Report’ differs from the standard credit report and does NOT contain three-digit credit scores. The complimentary white paper is available at http://www.esrcheck.com/Download/.
The new Vermont law is the most recent example of credit report background checks by employers being increasingly regulated by state laws. Other states, and the U.S. Equal Employment Opportunity Commission (EEOC), are considering further restrictions on credit checks by employers. This growing trend was ranked 2nd on the Employment Screening Resources (ESR) Top 10 Background Checks Trends for 2012. To view the trends, visit http://www.esrcheck.com/ESR-Top-10-Trends-in-Background-Checks-for-2012.php.
For more information about U.S. states currently limiting use of employment credit checks by employers, visit:
http://www.esrcheck.com/States-with-Laws-Regulating-Credit-Reports-for-Employment.php. For more information about background checks, visit Employment Screening Resources (ESR) – ‘The Background Check Authority’ and a nationwide background screening firm accredited by The National Association of Professional Background Screeners (NAPBS®) – at http://www.esrcheck.com/, call 415.898.0044, or email firstname.lastname@example.org.
About Employment Screening Resources (ESR):
Employment Screening Resources (ESR) – ‘The Background Check AuthoritySM’– provides accurate and actionable information, empowering employers to make informed safe hiring decisions for the benefit for our clients, their employees, and the public. ESR literally wrote the book on background screening with “The Safe Hiring Manual” by Founder and CEO Lester Rosen. ESR is accredited by The National Association of Professional Background Screeners (NAPBS), a distinction held by a small percentage of screening firms. By choosing an accredited screening firm like ESR, employers know they have selected an agency that meets the highest industry standards. For more information about Employment Screening Resources (ESR), visit http://www.esrcheck.com/, call 415.898.0044 or 888.999.4474 (Toll Free), or email email@example.com.
About ESR News:
The Employment Screening Resources (ESR) News blog – ESR News – provides employment screening information for employers, recruiters, and jobseekers on a variety of topics including credit reports, criminal records, data privacy, discrimination, E-Verify, jobs reports, legal updates, negligent hiring, workplace violence, and use of search engines and social network sites for background checks. For more information about ESR News or to send comments or questions, please email ESR News Editor Thomas Ahearn at firstname.lastname@example.org.