A common question asked by start-ups or even just average average businesses is what information they can ask or use in vetting their potential employees. Some common forms used may be background checks, drug screening, and reference checks. Due to the economy creating many credit problems for average citizens (even more so with entrepreneurs who often use their own personal credit to bootstrap their company), I will take a look at the use of credit reports in making employment related decisions.
Existing federal law provides that, subject to certain exceptions, an employer may not get a credit report without prior disclosure of that the employer wants to obtain one and the employee consents. Existing federal law further requires, subject to certain exceptions, an employer, before taking any adverse action based on the report, to provide the consumer with a copy of the report and a written description of certain rights of the consumer.
California enacted AB 22 which amended California Civil Code Section 1785.20.5 to provide additional protections in this state to protect the potential employee when dealing with similar uses of credit reports. This law went into effect January 1, 2012. In addition the California Labor Code added Chapter 3.6 to include additional requirements. The law provides that the employer needs to follow the same federal requirements of disclosure that they want to obtain a credit report, but also requires the employer to state why they want it. The law goes on to further indicate that credit reports can only be requested for the following certain categories of types of positions (except by certain financial institutions): Learn more