On April 12, 2011, Governor O’Malley signed into legislation the Job Applicant Fairness Act which generally prohibits employers from using an applicant’s or employee’s credit history in making employment decisions. Specifically, the Act prohibits most employers from using credit history in determining whether to deny employment to a job applicant; discharge an employee; decide compensation; or evaluate other terms and conditions of employment, unless it meets specific timing and job-relatedness requirements.

The Act applies to employers of any size, but certain employers are specifically excluded from the Act’s coverage. Various financial institutions, as well as employers who are required to inquire into an applicant’s or employee’s credit history under federal or state law, are excluded from the Act’s prohibitions.

The Act also provides limited exceptions that allow employers to request or use credit information where such information is related to a “bona fide purpose that is substantially job-related.” The bona fide purpose exception generally applies to those positions involving money-handling or other confidential job duties. For instance, employers may request or use credit information for employees in managerial positions that control or direct part of the business, employees who are provided expense accounts or corporate credit cards, and employees who have access to confidential business information. Notably, where an employer chooses to request or use credit information for a bona fide purpose, it must disclose its intent to do so in writing to the employee or applicant.

This law goes into effect on October 1, 2011. Maryland now joins Illinois, Washington, Oregon, and Hawaii as states that currently have prohibitions on the use of credit information in employment decisions. (See here and here). Unlike other state laws, however, Maryland’s law will not provide a private right of action. Instead, individuals who feel that an employer has violated the Act must file a complaint with the Commissioner of Labor and Industry, who will then investigate the matter. The Commissioner may assess a civil penalty of up to $500 for an initial violation of the Act, and up to $2,500 for repeat violations.

Fifteen other states currently have legislation pending along with the federal H.R. 321: Equal Employment for All Act, aiming to restrict employers’ use of credit reports.

Accordingly, employers who use credit history as part of a background check or other hiring processes should evaluate their policies in light of the recent momentum against using such information in employment decisions.