United States: NYCCHR's Enforcement Guidance On NYC Credit Check Law: Answers And New Questions

Last Updated: October 13 2015
Article by Jill L. Rosenberg

On September 2, 2015, the New York City Commission on Human Rights (NYCCHR or Commission) issued Enforcement Guidance (Guidance) on the New York City Stop Credit Discrimination in Employment Act (SCDEA), which took effect on September 3, 2015. As detailed in our earlier blog post, the NYCCHR has been charged with enforcing the SCDEA, which amends the New York City Human Rights Law (NYCHRL) to prohibit employers from requesting or using consumer credit history in hiring and other employment decisions, except in limited circumstances.

The Guidance is the Commission's initial effort to provide interpretative guidance on the key provisions of the SCDEA. The Guidance answers many questions as to how the NYCCHR is likely to interpret the law, but raises others. At a recent public briefing on the new law and the Commission's Guidance, Paul Keefe, a Supervising Attorney in the Enforcement Bureau, indicated1 that the Guidance is preliminary in nature and will likely be further clarified through FAQs which the NYCCHR has begun to post, as well as formal rules, which the NYCCHR plans to issue through notice and comment rule making.

A theme that resonates throughout the Guidance is the legislative intent to severely limit the use of credit checks in employment decisions and narrowly construe the law's exemptions. That said, several provisions of the Guidance appear to be at odds with the plain text of the law. At the recent public briefing, Mr. Keefe noted the Commission's interest in hearing from the employer community and other interested parties regarding areas that may warrant further guidance and/or clarification.

Set forth below is a summary of the Guidance.

What is a Consumer Reporting Agency?

The Guidance adds to the SCDEA's definition of "consumer credit history" and a "consumer credit report" a definition of a "consumer reporting agency", which is defined to include "any person or entity that, for monetary fees, dues, or on a cooperative nonprofit basis, engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports or investigative consumer reports to third parties." The Guidance notes that a person need not regularly engage in these activities in order to be a consumer reporting agency under the SCDEA.

What is a Violation of the SCDEA?

Under the Guidance, any of the following acts, regardless of whether they lead to an adverse employment action, will constitute a violation of the SCDEA:

  • Requesting consumer credit history from applicants or employees, orally or in writing;
  • Requesting or obtaining consumer credit history of an applicant or employee from a consumer reporting agency; and
  • Using consumer credit history in an employment decision or action.

According to the Guidance, the SCDEA does not prevent employers from conducting their own research on potential employees' background and experience, including public records and online searches using Google, LinkedIn and other online tools. However, broad internet searches present the risk of obtaining other types of personal information about a candidate that an employer may not consider in the hiring process.

What Positions are Exempt from the SCDEA?

According to the Guidance, the exemptions to coverage under the SCDEA are to be construed narrowly and apply to certain positions or roles, as opposed to an entire employer or industry. Further, an employer claiming an exemption, if challenged, will have the burden of proving same by a preponderance of the evidence.

Employers Required to Use Credit History by Law, Regulation or a Self-Regulatory Organization

The SCDEA explicitly exempts employers who are required to use an individual's consumer credit history for employment purposes by "state or federal law or regulations or by a self-regulatory organization [SRO] as defined in section 3(a)(26) of the securities exchange act of 1934." With regard to the SRO exemption, the Guidance covers only FINRA members making employment decisions about individuals who are required to register with FINRA. The Guidance makes no mention of other SROs, like the National Futures Association (NFA), which has its own registration and financial disclosure requirements for individuals who transact in certain financial products and services regulated by the NFA.

In addition, while the Guidance correctly states that the SCDEA excludes "employment decisions about people who are required to register with FINRA," which would include registered investment professionals, the Guidance supports this statement by citing to a recent FINRA Rule (Rule 1230) that relates solely to the registration of certain covered operations professionals who perform "back office" functions.

Given the intent of the SCDEA to exempt securities brokers and similar professionals who invest clients' money, it is hoped that the NYCCHR will amend and/or clarify its Guidance on these points.

Police and Peace Officers

Police and Peace Officers (as defined by New York Criminal Procedure Law) are exempt from the SCDEA. The Guidance makes clear, however, that civilian positions (which would include private security employees) are not exempt.

Positions Requiring Bonding

The SCDEA exempts positions for which bonding is required under federal, state or City law or regulation. The Guidance provides examples of positions that must be bonded by law or regulation, including auctioneers and ticket sellers and resellers.

Access to Trade Secrets

The SCDEA exempts non-clerical positons having regular access to trade secrets. "Trade secrets" have a specific definition under the SCDEA and exclude "general proprietary company information" like handbooks, policies, and client, customer or mailing lists. The Guidance interprets this exclusion from the definition of "trade secrets" to also include information like "recipes, formulas, customer lists, processes regularly used by entry-level and non-salaried employees and supervisors or managers of such employees."

Positions Involving Responsibility for Funds or Assets Worth $10,000 or More

The SCDEA exempts positions (1) having signing authority over third party funds or assets valued at $10,000 or more or (2) that involve a fiduciary duty to the employer with the authority to enter financial agreements valued at $10,000 or more on behalf of the employer.

The Guidance does not specifically address the third-party signing authority exception. With respect to the exemption for positions with authority to enter agreements on behalf of the employer, the Guidance suggests that it should apply only to executive level positions, like CFOs and COOs. However, this narrow interpretation seems at odds with the express language that the exemption should apply to any individuals who have the authority to bind the employer regarding financial agreements valued at $10,000 or more. During the recent public briefing, Mr. Keefe suggested that the exemption could apply to employees below the executive level if they in fact have the requisite signing authority, as might be the case in a larger organization. For example, a company policy might require two signatures on a check of $10,000 or more. In that case, both signatories, not just the most senior of the two, would be subject to the exemption.

Positions Involving Digital Security Systems

The SCDEA exempts employees whose regular duties allow them to modify digital security systems established to prevent the unauthorized use of the employer's networks or databases. According to the Guidance, this exemption includes positions at the executive level, such as a chief technology or senior information technology executive that controls access to all parts of a company's computer system. The Commission's Guidance appears to be more narrowly drawn than the law itself. In many large organizations, there may be professionals below the executive level who are responsible for cybersecurity and have the ability to access and modify the company's digital security systems. During the recent public briefing, Mr. Keefe suggested that the exemption might apply to these individuals as well.

Documenting the Exemption

According to the Guidance, an employer claiming one of the exemptions from the law should:

  • Inform applicants of the exemption that applies prior to conducting the credit check; and
  • Maintain a record (an "exemption log") that includes, among other things, applicants/employees who are subject an exemption, the applicable exemption, the job duties and qualifications for the exempted position, the basis for the claimed exemption, information about any other applicants/employees considered for the position, a copy of the credit history obtained by the employer, and where applicable, how the credit history led to the employment action.

The Commission expects employers to share this information with them upon request.

Penalties for Violation of the SCDEA

The Guidance sets out specific monetary penalties that the NYCCHR will impose for violations of the SCDEA. These include civil penalties of up to $125,000 for violations, and up to $250,000 for violations that are determined to be the result of "willful, wanton or malicious conduct."

While the scope and other details of the SCDEA are likely to continue to evolve, employers should review their hiring processes and relevant policies now for compliance with this new law.

Footnote

1 Statements of Paul Keefe, Supervising Attorney, Law Enforcement Bureau, at public briefing held on September 28, 2015 at Proskauer LLP.

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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