California Assembly Bill No. 22, signed into law by Governor Jerry Brown on 9 October 2011, prohibits employers from conducting credit checks on certain job applicants or employees. With the passage of AB 22, California joins Connecticut, Hawaii, Illinois, Maryland, Oregon, and Washington as states that have curtailed an employer's ability to use credit reports for employment purposes, including the screening of prospective employees.
Even prior to the enactment of AB 22, both federal and state law regulated the use of credit reports in California in the employment context. The Fair Credit Reporting Act (FCRA) and the California Investigative Consumer Reporting Agencies Act (ICRA), respectively, generally required employers to provide notice before obtaining a consumer credit report about a current or prospective employee, and imposed obligations on employers who took adverse action based on the contents of such reports.
With the passage of AB 22, employers now are precluded from using pre-employment credit checks for certain California-based employees as a matter of course – regardless of whether they provide notice or obtain authorization before doing so. Under AB 22, and with the exception of certain financial institutions mentioned below, employers "shall not use a consumer credit report for employment purposes" unless the person for whom the report is sought is employed in, or applying for, one of the following positions:
- A managerial position (which is defined as one that meets the requirements of the executive exemption set forth in the California wage orders).
- A position in the state Department of Justice.
- A position in law enforcement, including that of a sworn peace officer.
- 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:
- Bank or credit card account information.
- Social security number.
- Date of birth.
A position in which the person is, or would be, any of the following:
- A named signatory on the bank or credit card account of the employer.
- Authorized to transfer money on behalf of the employer.
- 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 (US$10,000) or more of the employer, a customer, or client, during the workday.
While some may question whether these exceptions swallow the new rule, employers should take care to ensure that applicants or employees fall into one of the above categories before seeking a credit report. Employers also must provide written notice (i) informing the subject of the report of the employer's intent to obtain a report; (ii) identifying the specific statutory basis for requesting the report; (iii) stating the source of the report; and (iv) containing a box that the subject of the report may check to receive a copy of the report. If the applicant or employee indicates that he or she wishes to receive a copy of the report, the employer must convey this request to the credit reporting agency, which in turn, must provide a copy of the report to the employer and the subject, simultaneously and at no charge to the subject of the report.
AB 22 further requires that when employment is denied in whole or in part because of information contained in a consumer credit report, the prospective employer must so inform the unsuccessful candidate and supply the name(s) and address(es) of the consumer credit reporting agency or agencies who made the report.
Certain financial institutions subject to 15 U.S.C. sections 6801 to 6809 are exempt from AB 22. Such employers may use consumer credit reports to screen prospective employees in compliance with the FRCA and the ICRA.
AB 22 grants any person who suffers damages as a result of a violation of the statute a private right of action to recover resulting monetary damages. Maintaining reasonable procedures to assure compliance with the strictures of AB 22 may provide a defense to liability, however. AB 22 will be codified as California Labor Code section 1024.5.