Countless people have been affected by the harsh economic times of the past several years. Many were unable to meet their financial obligations and stopped paying their bills which ultimately resulted in diminished credit ratings. In turn, job prospects also diminished. Pre-employment credit screenings are often standard practice and an unacceptable credit rating can be a bar to potential employment opportunities.
The New Jersey Legislature is currently reviewing this situation to determine whether reform is appropriate. There has been some recent movement towards banning and/or restricting an employer’s ability to use credit checks to screen potential applicants. The rational is that these checks often deprive people of the ability to get back on their feet. Some see the checks as patently unfair, especially if there is no correlation between the job functions to be performed and strength of the employee’s credit rating. Further, some studies have shown that credit checks are often unreliable and produce incorrect data, with 20% of credit reports containing errors.
A new bill to ban employment credit checks (S455) passed the New Jersey Senate last year and was approved by the Assembly Labor Committee in December. It has now made its way to the full Assembly. The bill bans credit checks unless required by law or in certain circumstances where an employer reasonably believes that an employee has engaged in financial activity that violates the law. The checks would also still be permissible if they constitute a bona fide occupational qualification for a particular position (i.e. a job in the financial industry, a position that gives the employee authority to issue payments, transfer money or have an expense account).
The exceptions appear to be an attempt to balance employers’ legitimate concerns for their business interests against the need for access to employment. Many employers may feel that the protections are still not adequate and that they are being deprived of the ability to obtain important information about potential candidates. At the current time, there is no clear answer as to how the balancing will play out in New Jersey.
However, even if the bill is not passed in New Jersey, there is similar federal legislation pending called the Equal Employment for All Act. It is prudent for employers to monitor both of these bills carefully, as they could impact the way they screen applicants. At the current time, employers are still permitted to rely upon credit checks, but human resource departments are advised to keep abreast of the potential changes. If either of these bills does ultimately pass, in addition to updating their screening procedures, employers should also not forget to update their employee handbooks to conform to the law. A qualified employment attorney can assist you in drafting a provision that keeps your business in compliance.