Oregon Employers Face New Limitations on Using Credit History

Senate Bill 1045, which will take effect on July 1, 2010, prohibits Oregon employers from using the credit history of an applicant or employee in making employment-related decisions. The law does, however, provide some exceptions to the ban on an employer’s use of an employee’s credit history. First, the law is not applicable to employers who are financial institutions, law enforcement agencies, or public safety agencies. Second, the law does not apply to employers who are required by state or federal law to use an employee’s credit history for employment purposes. Finally, and most relevant to private employers, an employer may obtain and use an employee’s credit history if such information is “substantially job-related.”

The Oregon Bureau of Labor and Industries (“BOLI”) has recently issued administrative regulations that clarify the provisions set forth in SB 1045. The regulations significantly limit the definition of “substantially job-related” to certain positions. The first position identified is one that requires access to financial information beyond that which is customarily provided in retail transactions that are neither loans nor extensions of credit. The regulations define “financial information customarily provided in retail transactions” as information related to the exchange of cash, checks, and credit or debit card numbers. That means that employers cannot justify the need for a credit history solely based on an employee’s access to cash or run of the mill consumer transactions – as of July 1, 2010, the bar is set much higher for an employer to justify the use of a credit history. The other position provided for in the regulations is less controversial – one in which the employer is required to obtain credit history as a condition of obtaining insurance or a surety or fidelity bond.

If an employer determines that a position qualifies for a credit history check under the “substantially job-related” exception, the regulations impose a disclosure requirement. Specifically, an employer must provide, in writing, the reasons for the investigation of an applicant or employee’s credit history. The regulations do not set out what information an employer should provide.

Thus, in the event that an employer desires to perform a credit history check on an applicant or employee, they must use the “substantially job-related” exception cautiously. Additionally, the employer should prepare a standard notice form, and provide that form to any applicant where the credit history is “substantially job-related”. The form should provide an area where the employer can describe its justification for the credit check. Employers should also be aware of their obligations under the federal Fair Credit Reporting Act, which requires disclosures in advance of obtaining a consumer report; and also require certain notifications to an applicant or employee in the event the employer uses a consumer report to make a hiring or promotion decision.

What is apparent is that the Oregon legislature and governor have chosen to cut back the ability of employers in Oregon to use credit history in employment decision-making. Employers should make sure that they have a very good reason (that is – one that complies with the law) for wanting a credit history, and proceed cautiously in order to comply with Oregon and federal law regulating this subject.

New Restrictions in Oregon for using Credit History for Employment Purposes

The Oregon Legislature just passed Senate Bill 1045, which Governor Kulongoski signed on Monday, March 29, 2010, that will prohibit an employer from obtaining or using a credit history report of an applicant or current employee in order to make employment hiring, firing, and promotion decisions. The new law is effective as of July 1, 2010. If an employer violates this new law, it will be liable for compensatory and punitive damages.

The Bill has a number of exceptions. First, if the employer is a bank or a law enforcement agency, the restriction does not apply. Second, if the employer is required to check credit history under federal law, the restriction does not apply. Last, if the employer can show that the information is “substantially job-related” and the reasons for the employer’s use of the information are disclosed to the applicant or employee in writing, the restriction does not apply.

Unfortunately, the Legislature did not define what it considers to be a “substantially job-related” reason for a credit history check. This could allow for judicial interpretation that produces unexpected results for both employers and employees. The courts could make the substantially job-related exception so expansive that any employer can fit within the exception when it gives its employees a boiler-plate form stating the importance of good credit history. On the other hand, the courts could make the exception so narrow that employers will face liability for relying on credit history, even when they have a valid reason to do so.

The Oregon Bureau of Labor and Industries will seek public comments on possible regulations that will interpret Senate Bill 1045. In the meantime – that is, once the bill is effective on July 1 of this year – employers should reevaluate their systems and procedures for using credit checks in employment decisions.