New Credit Check Restrictions Could Expose Employers to Potential Liability

The Maryland Job Applicant Fairness Act, which recently took effect after being signed into law by Governor O’Malley last spring, now prohibits an employer from using a job applicant’s credit history or credit report in determining whether to hire an applicant, discharge an employee, or to “determine compensation or the terms, conditions, or privileges of employment.”  The Act exempts some employers from the prohibition, such as certain financial institutions, companies required by federal or state law to conduct credit inquiries, and entities registered as investment advisors with the Securities and Exchange Commission.  Notwithstanding, the vast majority of employers will be required to comply with the Act, which means that any employer who currently utilizes an employee or applicant’s credit history and reports in making employment decisions will have to cease doing so, or ensure that it only uses such information for employees or applicants that fall within the specific exceptions enumerated by the Act.

The Act does not serve to completely bar an employed from using credit information when it can be shown that it is for a job-related inquiry.  Specifically, under the Act, an employer may request or use an applicant’s or employee’s credit report or credit history if:

(i)                 An applicant has received an offer of employment; and the credit report/history will be used for a purpose other than to hire an applicant, discharge an employee, or to determine compensation or the terms, conditions, or privileges of employment; or

(ii)               The employer has a “bona fide purpose” for requesting or using information in the credit report or credit history that is substantially job-related and disclosed in writing to the employee or applicant.

The legislature has provided guidance to employers in determining whether it has a bona fide purpose that is substantially job-related, which will generally require the employee to be in a managerial position that is involved in control of a business, have access to confidential personal information of customers or other employees, have a fiduciary responsibility arising from the ability to manage financial transactions of the company, have a company expense account or credit card, or have access to certain confidential business information.

If an employer violates the Act, proceedings may be instituted with the Maryland Department of Labor, Licensing, and Regulation (DLLR), and civil monetary penalties may be assessed for both negligent and willful violations.  Notably, the Act does not expressly provide a statutory right of action for applicants or employees who believe that they have been injured by an employer’s violation of the Act.  Notwithstanding, in cases where an employee is discharged for reasons relating to information gained from an unlawful credit search, it is conceivable that the affected employee will bring a common law wrongful discharge action, alleging that the discharge violated the public policy directives upon which the Act is based.