United States: New York City Will Prohibit Most Employers From Basing Employment Decisions On An Applicant Or Employee’s Consumer Credit History

The New York City Council passed the Stop Credit Discrimination in Employment Act last Thursday.  It amends the New York City Human Rights Law to prohibit most employers from making employment decisions based on an employee or applicant's consumer credit history. The law will go into effect in the late summer. We discuss the law and its implications below.

Why the Council Says the Law Was Needed

Credit reports generally provide information about an individual's financial history, including credit use, late payments, and credit inquires, along with public information related to finances such as bankruptcies.  Proponents of the law argued that the ability of employers to utilize credit reports in making employment decisions, including hiring decisions, disadvantaged minorities, low-income workers and victims of domestic violence and had no real correlation to job performance.  As Council Speaker Melissa Mark-Viverito stated: "All New Yorkers deserve the chance to compete for a job based on their skills and qualifications, not three digits on a financial report. . . .  Just because you've struggled with medical bills or student loans does not make you any less hard working, qualified, or trustworthy than anyone else."  The Speaker was one of forty-three co-sponsors of the new law, and thus, not surprisingly, it passed by an overwhelming majority and we are hard-pressed to see a scenario where the Mayor doesn't sign it.

What the New Law Says

The law amends the New York City Human Rights Law by adding a new subsection that makes it an "unlawful discriminatory practice for an employer, labor organization, employment agency, or agent thereof to request or to use for employment purposes the consumer credit history of an applicant for employment or employee, or otherwise discriminate against an applicant or employee with regard to hiring, compensation, or the terms, conditions or privileges of employment based on the consumer credit history of the applicant or employee" (emphasis mine).

The law defines "consumer credit history" to mean an applicant or employee's "credit worthiness, credit standing, credit capacity, or payment history," as indicated by:

  1. a consumer credit report, which includes "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";
  2. credit score; or
  3. information an employer obtains directly from the individual regarding (i) 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 (ii) bankruptcies, judgments or liens.

In other words, employers can no longer account for their employees' credit histories when deciding whether to hire or fire them or to promote them or in making any other decision about their employment.  At least that's the case for most employers.  There are, of course, exceptions to this general rule.

Who the Law Excludes From its Protections

The initial draft of the bill had one limited exception: where state or federal law required employers to consider an individual's credit history when making an employment decision.  The final bill expanded on that concept to exclude credit checks where state or federal law or regulations or where regulations of a self-regulatory organization require the employer to use consumer credit history for employment purposes.  The law also permits employers to pursue credit history information through a lawful subpoena, court order or law enforcement investigation.

Opponents of the bill – ever weary of fraudulent activity and negligent hiring claims – also pushed for exceptions for certain "sensitive" positions, which the final bill now addresses.  They include the following positions:

  1. police and peace officers, generally;
  2. Department of Investigation positions in law enforcement or where investigative functions are involved or appointed positions subject to a DOI background investigations that are deemed to carry a high degree of public trust, as determined by the Commission on Human Rights through Rulemaking;
  3. positions where federal, state or city law requires the individual to be personally bonded;
  4. positions where federal or state law requires the employee to possess security clearances;
  5. individuals in a non-clerical position having regular access to trade secrets, intelligence information or national security information;
  6. individuals in a position with signatory authority over third party funds or assets valued at $10,000 or more; or that involve a fiduciary responsibility to the employer with the authority to enter into financial agreements valued at $10,000 or more on behalf of the employer;
  7. positions with regular duties that allow the employee to modify digital security systems established to prevent the unauthorized use of the employer's or client's networks or databases; and
  8. employees obligated by §12-110 of the Administrative Code or by Mayoral Executive Order to disclose information to the Conflicts of Interests Board regarding creditors or debtors.

It is clear from this list that unlike some other similar laws, the City's law does not exclude all workers in the financial services industry from its protections, and it expressly accounts for those working in cybersecurity.

Further, the law also provides its own definition of "trade secrets," which differs from the common law definition that New York courts have utilized.  Under the law, 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.  But the law goes further and specifically carves out from its trade secrets definition "general proprietary company information such as handbooks and policies.," and states "that the term 'regular access to trade secrets' does not include access to or the use of client, customer or mailing lists."  We look forward to seeing how courts interpret this definition in the future.

So What's Next For Employers?

New York City joins at least 10 other jurisdictions that have banned consumer credit checks in employment in recent years.  The law will go into effect in mid-August (and we'll send a reminder as that deadline nears).

For employers who haven't done so already, they should start reviewing their existing background check policies and procedures to determine which employees, if any, should be subject to credit checks.  Employers should understand that while the law is littered with exceptions, they appear narrow, and thus, employers should think twice before performing a credit check on certain applicants and employees.  Failure to do so could be costly as violators are subject to the City Human Right Law's full panoply of damages and penalties, including punitive damages and attorneys' fees.  Further, where employers continue to perform background checks on certain individuals, they should remain keenly aware of the disclosure and authorization requirements under the New York State and Federal Fair Credit Reports Acts.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Michael S. Arnold
 
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