Last week, the Stop Credit Discrimination in Employment Act became effective.  It amended the New York City Human Rights Law to prohibit most employers from making employment decisions based on an employee or applicant’s consumer credit history.  You can read the specifics here.  The NYC Commission on Human Rights has now released enforcement guidance detailing its interpretation of this new law.  Our immediate takeaway: employers should attempt to utilize the law’s exemptions sparingly, and when they do, they should document it sufficiently.  We breakdown the guidance below.

The Commission Interprets the SCDEA Broadly

From the outset, the Commission makes it clear that it is required to interpret the law broadly, because (i) the City Council wanted the SCDEA to be the strongest anti-credit discrimination law in the nation, and (ii) the Human Right Law requires that its provisions be construed liberally.  In all: the Commission takes the view, consistent with City Council findings, that consumer credit history should not factor into employment decisions related to most positions in the City.

Thus, Not Surprisingly, the Commission Interprets the SCDEA’s Exemptions Narrowly

The Commission stated that employers should construe the SCDEA’s exemptions narrowly, and that the burden rests with the employer to prove by a preponderance of the evidence the exemption’s application.  We focus on four of the SCDEA’s exemptions below.

  1. Positions where state or federal law or regulations or where the regulations of a self-regulatory organization require the employer to use consumer credit history for employment purposes

The Commission confirmed that the SCDEA does not apply to individuals required to register with FINRA.  This does not mean however, that employers who are FINRA members are wholly exempted as many of their employees may not be required to register with FINRA.  The Commission further noted that, to its knowledge, the only New York State law that would satisfy this exemption related to licensed mortgage loan originators.

  1. Non-clerical positions having regular access to trade secrets

The Commission stated that “trade secrets” does not include regular access to information such as “recipes, formulas, customer lists, processes, and other information regularly collected in the course of business or regularly used by entry-level and non-salaried employees and supervisors or managers or such employees.  In other words, think twice before applying this exemption even if the individual will have access to certain sensitive information.

  1. Positions involving responsibility for funds or assets worth $10,000 or more

The Commission stated that this exemption only applies to executive-level positions with financial control over the Company, including but not limited to, CFOs and COOs, and it does not include all staff in the finance department.

  1. Positions involving digital security systems

Likewise, this exemption, the Commission said, only applies to executive-level positions, such as a CTO, or other information technology executives who control access to all parts of a company’s computer system.  It does not include any person who may access a computer system or network available to employees, or all staff in an IT department.

The Commission Wants You to Document any Claimed Exemption

Although not required by the SCDEA, the Commission is advising employers to inform the applicant or employee any time it seeks to apply an exemption.  The Commission also wants employers to create and maintain an exemption log that identifies the following information:

  1. The claimed exemption;
  2. Why the claimed exemption covers the exempted position;
  3. The name and contact information of all applicants or employees considered for the exempted position;
  4. The job duties of the exempted position;
  5. The qualifications necessary to perform the exempted position;
  6. A copy of the applicant’s or employee’s credit history that was obtained pursuant to the claimed exemption;
  7. How the credit history was obtained; and
  8. How the credit history led to the employment action.

The Commission says an entry should remain on the log for at least five years, and that it may require employers to share their exemption log with the Commission upon request.  Again, while this is not statutorily-required, the Commission kindly notes that following this guidance could help an employer “avoid a Commission-initiated investigation into employment practices.”

A Violation May Occur Even Without an Adverse Employment Action

The Commission made it clear that employers may violate the law simply by requesting consumer credit history even if they don’t otherwise act on it.  The Commission said that liability will ensue from such a request, and the question over whether it led to any adverse employment action (i.e. a rejection of the applicant) would only factor into any damage or penalty determination.  Further, the Commission did make it clear that a credit history request does not preclude an employer from researching a candidate or employee’s background or experience, evaluating their resume and references and conducting online searches (e.g., via Google or LinkedIn).

The Commission Says it Will Take Violations Seriously

Consistent with the NYC Human Rights Law’s penalty provision, the Commission stated that it “will impose” civil penalties of up to $125,000 for violations, or up to $250,000 where those violations are the result of willful, wanton or malicious conduct.  It said that the ultimately penalty amount would be determined based upon several factors, including (i) the severity of the violation; (ii) the existence of subsequent violations; (iii) the employer’s size, considering both the total number of employees and its revenue; and (iv) the employer’s actual or constructive knowledge of the SCDEA.  Of course, other damages are available as well, including back and front pay and compensatory and punitive damages.

Takeaways

The Stop Credit Discrimination in Employment Act is the result of a City Council finding that consumer credit history is rarely relevant when making an employment decision, and therefore, employers should be restricted from requesting such information except in very limited circumstances.  The Commission has also adopted this view in its enforcement guidance.  Thus, now that the law is in effect, City employers should be careful before making a credit history request for job applicants and current employees.  They should closely examine whether the individual can meet one of the exemptions and if they decide to apply the exemption, they should strongly consider following the Commissions documentation guidelines.  Employers should also remain aware of the separate disclosure and authorization requirements under the New York State and Federal Fair Credit Reports Acts.