Connecticut has become one of a growing number of states that has enacted legislation prohibiting employers from using credit reports as a screening tool to determine the quality of job applicants or to evaluate current employees. As more and more employers are using credit histories to make employment decisions, federal and state legislatures and the Equal Employment Opportunity Commission (“EEOC”) have turned their attention to the impact such use has on job applicants and employees. In fact, the EEOC has initiated a nationwide discrimination action against the Kaplan Higher Education Corporation alleging that the company engaged in a pattern or practice of unlawful discrimination by rejecting job applicants based on their credit histories.

The Connecticut bill was hotly contested – employers look at credit reports as useful tools in making hiring and other employment decisions, while employees and applicants fear that they will be unfairly judged by companies. In a survey released by the Society for Human Resource Management in January 2010, thirteen percent of employers said they conduct credit background checks for all job candidates, and forty-seven percent said they use credit checks for some applicants. Fifty-four percent of surveyed employers stated that their primary reason for conducting credit checks is to reduce and prevent theft and embezzlement.

Connecticut’s new law (Public Act 11-223), signed by Governor Malloy on July 13, 2011 and which will be effective October 1, 2011, applies to all Connecticut employers who have at least one employee. Such employers are prohibited from requiring applicants and current employees to consent to requests for credit reports that contain information about credit scores, credit account balances, payment history, savings or checking account balances or account numbers.

The law, however, does allow employers to require such consent if:

  1. the employer is a financial institution; 
  2. a credit report is required by law;
  3. the employer reasonably believes that the employee has engaged in specific activity that constitutes a violation of the law related to the employee’s employment; or 
  4. a report is substantially related to the individual’s current or potential job, or the employer has a bona fide job-related purpose for requesting or using the information which is disclosed in writing to the employee or applicant.

Many employers will likely seek to utilize the fourth exception and assert that a credit report is “substantially related” to the individual’s current or potential job. The law provides that a credit report is “substantially related” if the position:

  1. is managerial in nature and involves setting the direction or control of a business, division, unit or an agency of a business;
  2. involves access to personal or financial information of customers, employees or the employer;
  3. involves a fiduciary responsibility to the employer (for example, the authority to issue payments, collect debts, transfer money or enter into contracts);
  4. provides an expense account or corporate debit or credit card;
  5. provides access to confidential or proprietary business information, or trade secret information; or
  6. involves access to the employer’s nonfinancial assets valued at $2500 or more (for example, library collections or prescription drugs).

If an employee or job applicant believes that a credit report was requested or required in violation of this law, such individual may file a complaint with the Department of Labor (“DOL”). The DOL will conduct an investigation and possibly hold a hearing, and if the employer is found to have violated the law, a civil penalty of $300 will be assessed for each unlawful inquiry.

To avoid such penalties, Connecticut employers that require employees or job applicants to consent to credit screening should seek counsel to determine whether any of the law’s exceptions apply. If an employer intends to utilize an exception, especially the “substantially related” exception, human resources personnel should be trained on the law’s provisions to ensure compliance.

While employers are concerned about protecting their businesses and preventing fraud and theft, others, including the EEOC, argue that an individual’s credit history is not necessarily related to that individual’s qualifications, and that the use of credit checks may unfairly impact those with damaged histories. Connecticut’s law appears to be an attempt at a compromise. It does not allow employers to utilize credit reports across the board, but permits such use when an individual’s creditworthiness is relevant to the position to be held by that individual.