California Governor Jerry Brown signed Assembly Bill 22 which limits the use of credit reports in the pre-employment screening process. The new law takes effect on Jan 1, 2012. California joins six other states that have passed similar legislation, although all of these laws do contain specific exceptions depending on the type of position or industry.

The new law amends both the CA Labor Code as well as CA Civil Code. An brief summary of the changes are below.

Labor Code Section 1024.5

This new section of the Labor Code limits when private and public sector employers, except for financial institutions, can use consumer credit reports in connection with hiring and personnel decisions. However, employers may still consider credit reports if the individual is applying for (or works in) the following positions:

1. a managerial position (defined below);
2. employees of the State Department of Justice;
3. peace/law enforcement officers;
4. a position for which credit history information is required by law;
5. a position that affords regular access to bank or credit card account information, Social Security numbers, or dates of birth, provided, however, that the access to this information does not merely involve routine solicitation and processing of credit card applications in a retail establishment;
6. a position where the individual is or will be a named signatory on the bank or credit card account of the employer and/or authorized to transfer money or authorized to enter into financial contracts on the employer’s behalf;
7. a position that allows access to confidential or proprietary information; or
8. a position that allows regular access during the workday to the employer’s, a customer’s or a client’s cash totaling at least $10,000.

As defined by CA law, a management position is defined as one with all of the following characteristics:

1. duties involve managing the business or department thereof;
2. directing the work of at least two people;
3. having authority to hire/fire or has real input on these decisions;
4. uses discretion and independent judgment in performing the job;
5. primarily performs exempt work under the Fair Labor Standards Act;
6. earns twice the California minimum wage for full time employees which would equate, at this time, to $2,733.33 per month or $33,278.00 per year to be a management employee.

Amended Civil Code Section 1785.20.5

This amended Civil Code section requires employers to notify the individual in writing the permissible purpose under Labor Code section 1024.5 that a credit report is being ordered.

Recommended Actions

Employers that hire in California, as well as Hawaii, Washington, Oregon, Illinois, Maryland and Connecticut, should review their policies to ensure they are in compliance with the new laws regarding credit reports. In addition, CA employers should make sure that their disclosure forms address the new requirement regarding written notification of permissible purpose for ordering credit reports.