NYC Moves to Ban Credit Checks in Employment Decisions

Beginning September 3, 2015, New York City employers will no longer be able to consider an individual’s credit history as part of a background check in hiring or employment decisions. The New York City Council passed the informally named “Stop Credit Discrimination in Employment Act,” by an overwhelming majority in mid-April and Mayor Bill de Blasio signed it into law on May 6, 2015.

The new bill will make the use of “consumer credit history” in making employment decisions an unlawful discriminatory practice. As an amendment to the New York City Human Rights Law, the new bill will affect all employers with four or more employees. Individuals alleging discrimination under the amended rule can sue for a host of remedies including:

  • Back pay
  • Front pay
  • Emotional distress
  • Punitive damages

“The term "consumer credit history" means an individual's credit worthiness, credit standing, credit capacity, or payment history, as indicated by: (a) a consumer credit report; (b) credit score; or (c) information an employer obtains directly from the individual  regarding (1) details about credit accounts, including the individual's number of credit accounts, late or missed payments, charged-off debts, items in collections, credit limit, prior credit report inquiries, or (2) bankruptcies, judgments or liens. A consumer credit report shall include any written or other communication of any information by a consumer reporting agency that bears on a consumer's creditworthiness, credit standing, credit capacity or credit history.” (N.Y.C, N.Y., Administrative Code  §§ 8-102(29) (2015)).

“Carve-outs” to the New Regulation

Even in light of its relative restrictiveness a number of employers will still be allowed to consider an individual’s credit in spite of the legislation, including employers required to do so by state or federal law or by a self-regulatory organization as defined by section 3(a)(26) of the Securities Exchange Act of 1934[1]. Employers of the following occupations are also exempt:

  • Police officers, peace officers, or positions with a law enforcement or investigative function at the department of investigation;
  • Positions in which an employee is required to be bonded under city, state or federal law or where employees must gain security clearance under federal or state law;
  • Occupations involving a “high degree of public trust”;
  • Occupations where employees are allowed to modify digital security systems established to prevent the unauthorized use of the employer's or client's networks or databases;
  • Positions which have signatory authority over third party funds or assets valued at $10,000 or more or that involves a fiduciary responsibility to the employer with the authority to enter financial agreements valued at $10,000 or more on behalf of the employer; AND
  • Non-clerical positions where employees have regular access to trade secrets[2], intelligence information[3], or national security information[4].

The new bill is simply an additional restriction beyond existing federal and state background check requirements established by the Fair Credit Reporting Act and New York’s Fair Credit Reporting Act. Employers are still required to comply with all federal and state laws with respect to other background checks, including criminal and reference checks.

Despite the broad exceptions listed above employers are cautioned to also pay attention to Section 525(b) of the Bankruptcy Code, which prohibits discrimination when conducting background checks against individuals because they are or have been debtors in a bankruptcy proceeding.

Guidance for Employers

Other jurisdictions that have passed similar legislation prohibiting credit checks from being considered as part of hiring or employment decisions include California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont, and Washington[5].
 
As so-called fair chance initiatives further regulating employers’ use of background checks gain traction across the country employers may want to revisit their practices to ensure continuing compliance with local, state, and federal law and should consult with an experienced employment attorney.

[1] “[A]ny national securities exchange, registered securities association, or registered clearing agency…” Securities Exchange Act of 1934 §3(a)(26).
[2] “The term "trade secrets" means information that: (a) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use; (b) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy; and (c) can reasonably be said to be the end product of significant innovation. The term "trade secrets" does not include general proprietary company information such as handbooks and policies. The term "regular access to trade secrets" does not include access to or the use of client, customer or mailing lists.” NYC Int-261-2014 A
[3]“ The term "intelligence information" means records and data compiled for the purpose of criminal investigation or counterterrorism, including records and data relating to the order or security of a correctional facility, reports of informants, investigators or other persons, or from any type of surveillance associated with an identifiable individual, or investigation or analysis of potential terrorist threats.” Id.    
[4] “The term "national security information" means any knowledge relating to the national defense or foreign relations of the United States, regardless of its physical form or characteristics, that is owned by, produced by or for, or is under the control of the United States government and is defined as such by the United States government and its agencies and departments.”  Id.    
[5] See e.g. CA Bill AB 22; CO Senate Bill 13-018; CT Public Act 11-223; HI House Bill 31 SD1 CD1; IL Public Act 096-1426; MD House Bill 87 and Senate Bill 132; NV Senate Bill 127; OR Senate Bill 1045; VT Act No. 154 (S. 95); and  WA RCW Chapter 19.182.020.

 

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