A new Maryland statute effective October 1, 2011 restricts employers in their use of credit information in making employment decisions. The Job Applicant Fairness Act ("the Act"), which was signed by the governor in April 2011 and is codified at Md. Code Lab. & Empl. § 3-711, makes Maryland one of six states to enact legislation limiting an employer's use of credit reports for employment purposes. The statute applies to any entity with employees in Maryland, not just those entities that are based in Maryland.   

The Act prohibits most employers from using credit information to determine whether to (i) deny employment to a job applicant; (ii) discharge an employee; or (iii) determine compensation or the terms, conditions, or privileges of employment. Consideration of credit information is permissible under only limited circumstances. First, an employer may request or use an applicant's or employee's credit history or credit report if the applicant has already received an offer of employment and the purpose of obtaining the information is something other than one of the prohibited purposes described above. Second, an employer may request or consider the information if it has a bona fide purpose for doing so that is substantially job-related and is disclosed in writing to the employee or applicant. Such a "bona fide purpose that is substantially job-related" would exist for positions that:  

  • Are managerial positions involving handling money or confidential duties;
  • Involve access to personal information of a customer, employee, or employer, except for personal information customarily provided in a retail transaction;
  • Involve a fiduciary responsibility to the employer, including the authority to issue payments, collect debts, transfer money, or enter into contracts;
  • Are provided expense accounts or a corporate debit or credit card; or

Involve access to confidential business information (described in greater detail in the statute).

In addition to the above exceptions, there are certain Maryland employers that are exempt from the Act's requirements altogether. In particular, the Act does not apply to an employer that is: (i) required to inquire into an applicant's or employee's credit report or credit history under federal or state law for employment purposes; (ii)  a financial institution that accepts deposits that are insured by a federal agency, or an affiliate or subsidiary of the financial institution; (iii)  a credit union share guaranty corporation that is approved by the Maryland Commissioner of Financial Regulation; or (iv)  an entity, or an affiliate of the entity, that is registered as an investment advisor with the U.S. Securities and Exchange Commission.  Notwithstanding passage of the Act, Maryland employers may still conduct background checks on applicants or employees, provided the background checks do not involve credit checks, consistent with the requirements of the federal Fair Credit Reporting Act. Those employers exempt from the Act or satisfying one of the Act's statutory exceptions may consider credit history as part of their background checks but would still be required to comply with the Fair Credit Reporting Act.

Employers who violate the Act will be assessed a civil penalty by the Commissioner of Labor and Industry of $500 for an initial violation and up to $2,500 for a repeat violation. If an employer fails to pay any assessed penalty, the Commissioner or the complaining employee may bring an action in court to enforce the order.  The new Maryland law is part of a growing legislative trend. Five other states (Hawaii, Illinois, Oregon, Washington, and most recently California) have similar laws restricting the use of credit checks for employment purposes, and approximately sixteen (16) other states have introduced measures that limit employer use of credit report information.

In order to avoid liability under the Act, before using credit checks for employment purposes, Maryland employers should first determine whether they are exempt from the Act's coverage. Assuming the Act is applicable, employers should take care to ensure that any use of an applicant's or employee's credit history falls into one of the statutory exceptions described above.That is, employers must ensure that (1) an applicant has already received a job offer and the credit history is not being used for a prohibited purpose, or (2) the position at issue is one for which there is a bona fide purpose that is substantially job-related (as defined in the Act), and if so, the applicant or employee is informed of the use of his/her credit history in writing.