Use of Credit Reports in Employee Hiring

Employee privacy is a recurring issue for California employers.  Many companies use credit reports when screening job candidates.  Under federal and California law, a job candidate must give permission for the employer to obtain the credit report.  Also, before taking any adverse action based on the report, liking turning down the job candidate, the employer must provide the candidate with a copy of the report and a disclosure of rights the candidate has.

California law also says that an employer shall not use a credit report for employment purposes unless the report is for hiring certain types of employees.  In specific, credit reports can be used only to hire managers, state Department of Justice employees, law enforcement personnel, a person for which the information in a report is required by law to be disclosed or obtained, a person with regular access to information that could be used for identity theft, a person with spending or contracting authority, a person that involves access to trade secrets, or a person with regular access to more than $10,000 in cash each day.  These laws do not apply to financial institutions.

California law also says that if an employer is going to use a credit report in hiring, it must provide the candidate with a notice that identifies the reason for obtaining a credit report.  The employer must also offer a copy of the credit report to the candidate and provide a copy upon request.

As a practical matter, the bases for using credit reports under California law correspond to the kinds of jobs for which employers are currently obtaining credit reports.  The positions described in the law are for positions that require trustworthy personnel, and the categories are fairly broad.  Accordingly, California law may not, in reality, significantly narrow the range of jobs for which credit reports are typically obtained.  It would, however, prevent employers from routinely using credit reports in a blanket fashion for hiring.  In any case, employers should check their employment policies and checklists to make sure they are not overusing credit reports when they hire new employees.

Stephen S. Wu

Stephen S Wu

 

Attorney Stephen Wu is a partner in the law firm of Cooke Kobrick & Wu LLP in downtown Los Altos.  He can be reached at (650) 917-8045 or at swu@ckwlaw.com.

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