New California law limits credit checks on new employees

Credit checks on prospective or current employees are a hot topic these days, and as of January 1, 2012, California employers are going to see a crack down on the use of credit checks in the hiring process. For small businesses that rely on credit checks as part of a comprehensive background check on prospective employees, this new law means a big change in what you can and can't find out about new staff.

AB 22 prohibits most employer or prospective employers from obtaining a consumer credit report for employment purposes. This law might be new to California, but similar versions of the new laws are already in effect in Connecticut, Hawaii, Illinois, Maryland, Oregon and Washington. For once,

Under AB 22, you cannot obtain a consumer credit report on a new or prospective employee unless the information is substantially job-related, meaning that the position of the person for whom the report is sought has access to money, other assets, or confidential information. However, there are some pretty big carve-outs that apply to prospective employees who will handle money.

While AB 22 bans credit checks on most employees, you can still require them for employees that fall into these categories:

- a managerial position;
- a position in the state Department of Justice;
- a sworn peace officer or other law enforcement position;
- 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 to specified personal information (other than the routine solicitation and processing of credit card applications in a store);
- a position in which the employee would be a named signatory on the employer’s bank or credit card account, or authorized to transfer money or enter into financial contracts on the employer’s behalf;
- a position that involves access to confidential or proprietary information; or
- a position that involves regular access to $10,000 or more of cash.

Note that these categories are defined by the new law, and are simplified here. If you are hiring an employee that falls into one or more of these categories,under AB 22 you must also provide written notice informing the employee or prospective employee of the specific reason for obtaining ta consumer credit report.

As always, this information comes with a disclaimer. Nothing in the above is intended to create an attorney-client relationship with the reader or to provide legal advice. This blog is provided as a service to clients, and is not intended as an advertisement. Every case is different and I always recommend you contact an attorney who will help you apply the facts of your specific case to the law.