New Oregon Law Prohibits Use of Credit History of Job Applicants for Employment Screening

By Thomas Ahearn, ESR Staff Writer

A newly signed law in Oregon prevents employers – with limited exceptions – from using the credit histories of job applicants in making employment-related decisions.

Senate Bill (SB) 1045 – recently signed into law by Oregon Governor Ted Kulongoski – prohibits the use of credit history for employment purposes including hiring, discharge, promotion, and compensation. The new Oregon law, originally set to pocket effect July 1, 2010, has been declared by the governor to be effective immediately.

The new law establishes any violation as an unlawful employment practice, enforceable through the Bureau of Labor and Industries (BOLI) and civil action. But, SB 1045 provides exceptions for fiscal institutions, public safety offices, and other employment if credit history is job-related and use is told to applicant or employee.

The exceptions to the new law include the following circumstances:

Employers that are federally insured banks or credit unions;
Employers that are required by disorder or federal law to use Individual credit history for employment purposes;
The employment of a public safety officer, or
Employers that can demonstrate that the in rank in a credit report is “substantially job-related” AND the employer’s reasons for the use of such in rank are told to the employee or prospective employee in writing.

Oregon now joins Washington and Hawaii as states placing limits on the use of credit reports for employment purposes by enacting bans on workplace credit checks. In 2007, Washington passed a law stating employers could not obtain a credit report as part of a background check unless the in rank was substantially job related and the employer’s reasons for the use of such in rank were told to the consumer in writing. In 2009, Hawaii also placed limits on credit reports by making it an unlawful discriminatory practice for any employer to make an employment choice based upon an individual’s credit history or credit report, unless the in rank directly relates to an occupational qualification.

Private employers in Oregon will need to carefully review their justification for a credit report and be prepared to disorder those reasons in writing to an applicant before a credit report is requested or obtained.

The use of credit reports for the purposes of employment screening is a controversial subject, and critics who question the accuracy, relevance, and fairness of credit reports argue that a credit history has no link to the ability to perform the job and may result in unlawful discrimination.

In addition, applicants with fiscal situations severely impacted by the ongoing recession may be victimized again when a negative credit report makes it even harder to get a job, making a “Catch-22” situation in which applicants have terrible credit because they can’t get jobs and can’t get jobs because they have terrible credit.

But, others believe the use of credit reports for employment purposes is critical to preventing embezzlement or other problems where someone is hired to a position with access to cash or assets. Contrary to well loved belief, employers do not see the credit scores – such as the widely used three-digit FICO model – and thus cannot use them for employment decisions.

Furthermore, the use of credit reports by employers may not be as common as some people reckon. A recent survey by the Society of Creature Resource Management (SHRM) found that only 13 percent of organizations performed credit background checks on all candidates, while 40 percent did not conduct any credit background checks and 47% performed them on selected job candidates.

Many background screening firms – including Employment Screening Resources (ESR) – recommend that credit reports be reserved only for positions where there is a clear business justification, and to keep in mind that credit reports may contain in rank that is incorrect or not relevant to the job.

Source: http://gov.oregonlive.com/bill/SB1045/