On May 17, 2012, Vermont Governor Peter Shumlin enacted into law Act No. 154 (S.95) which prohibits employers from inquiring about or using credit history information for employment purposes. The Act, which goes into effect on July 1, 2012, applies to all employers in Vermont, subject to certain exemptions.
Vermont joins California, Washington, Oregon, Hawaii, Illinois, Maryland and Connecticut as the states that have enacted legislation restricting employers’ use of credit reports in employment decisions. Other states have similar proposed legislation. The Equal Employment Opportunity Commission (EEOC) has also indicated their stance that the use of credit reports in hiring decisions may have a disparate impact on certain minority groups. The EEOC is expected to issue updated enforcement guidance on this issue.
The New Act’s Requirements
Act No. 154 prohibits employers with one or more employees from refusing to hire, terminating or otherwise discriminating against individuals with respect to “employment, compensation, or a term, condition, or privilege of employment because of the individual’s credit report or credit history.” It also prohibits employers from inquiring about an employee or applicant’s credit report or credit history. It should be noted that “credit history” includes any credit information obtained from any third party, not only information contained in a credit report.
Employers are exempt from both restrictions if one or more of the following conditions are met:
- The information is required by state or federal law or regulation.
- The position of employment involves access to “confidential financial information,” which means sensitive financial information of commercial value that a customer or client of the employer gives explicit authorization for the employer to obtain, process and store and that the employer entrusts only to managers or employees as a necessary function of their job duties.
- The employer is a financial institution or a credit union as defined under applicable state law.
- The employee or applicant will or does work as a law enforcement officer, emergency medical personnel or a firefighter (as those positions are defined in state law).
- The position will require the employee or applicant to have a financial fiduciary responsibility to the employer or a client of the employer, including the authority to issue payments, collect debts, transfer money or enter into contracts.
- The employer can demonstrate that the information is a “valid and reliable predictor of employee performance in the specific position of employment”.
- The position of employment involves access to an employer’s payroll information.
However, even exempt employers are prohibited from using credit report or credit history as the “sole factor” in making an employment decision. It should be noted that there are several consent and disclosure requirements in the Act for employers that qualify for an exemption:
- Exempt employers that take adverse action against an employee or applicant based in part on his/her credit history must return the report to the individual or destroy it altogether.
- Exempt employers must disclose in advance in writing to the employee or applicant the reason that the employer is accessing the credit report or credit history.
As also required by the Fair Credit Reporting Act (15 U.S.C. §1681 et seq.), the new Act requires employers to:
- First obtain the employee or applicant’s written consent to the disclosure of the credit information. According to Act No. 154, this must be done each time the employer seeks to obtain the credit information.
- Notify the employee or applicant in writing of its reasons for taking adverse employment action based partly on the contents of the credit report.
- Allow the employee or applicant to contest the accuracy of the credit report or credit history.
Vermont Act No. 154 allows an employee or applicant to bring an action against an employer seeking compensatory and punitive damages, equitable relief, reinstatement, and attorneys’ fees.
In the current economic environment, the enactment of laws prohibiting employers from using credit information in employment decisions is a marked trend with the EEOC weighing in also. It is predicted that we will see more of this legislation being enacted as several states have similar legislation pending. Therefore, it is important for employers to keep abreast of new legislation, continually review their hiring policies and procedures regarding the use of credit information, and to consult legal counsel to ensure compliance.