Mayor de Blasio Signs a New Law Restricting the Credit Checks That May Be Performed by New York City Employers

On May 6, 2015, Mayor Bill de Blasio signed into law a bill that restricts New York City employers’ ability to perform credit checks on applicants and employees and use their credit history as a basis for employment decisions.  (Int. No. 261-A.)  This new law will take effect on September 3, 2015.

1.     New Restrictions on Employment Credit Checks.

This new law amends the New York City Human Rights Law and makes it an unlawful discriminatory practice for an employer, labor organization, or employment agency (or an agent of such entities) to:

• request or use for employment purposes the “consumer credit history” of an applicant for employment or an employee; or
• otherwise discriminate against an applicant or employee with regard to hiring, compensation, or the terms, conditions or privileges of employment based on the consumer credit history of the applicant or employee.

“Consumer credit history” is defined as an individual’s credit worthiness, credit standing, credit capacity, or payment history, as indicated by:

(a)     a consumer credit report (which includes any written or other communication of any information by a consumer reporting agency that bears on a consumer’s creditworthiness, credit standing, credit capacity or credit history);

(b)     a credit score; or

(c)     information an employer obtains directly from the individual regarding: (i) details about credit accounts, including the individual’s number of credit accounts, late or missed payments, charged-off debts, items in collections, credit limit, prior credit report inquiries; or (ii) bankruptcies, judgments or liens.

2.     Exceptions to the New Restrictions.

Notably, this new law contains several limited exceptions:

(a)     It will not be unlawful for a credit check to be conducted by an employer that is required by state or federal law or regulations or by a self-regulatory organization as defined in Section 3(a)(26) of the Securities Exchange Act of 1934 (e.g., FINRA) to use an individual’s consumer credit history for employment purposes.

(b)     Additionally, employers may conduct and use credit checks for applicants and employees seeking or holding the following positions:

(i)      police officer, peace officer, a position with law enforcement or investigative function at the New York City Department of Investigation, or a position that is subject to a background investigation by the New York City Department of Investigation (provided, however, that the appointing agency may not use consumer credit history information for employment purposes unless the position is an appointed position in which a high degree of public trust has been reposed);

(ii)     a position in which an employee is required to be bonded under New York City, state or federal law;

(iii)    a position in which an employee is required to possess security clearance under federal law or the law of any state;

(iv)    a position:

(1)     having signatory authority over third party funds or assets valued at $10,000 or more; or

(2)     that involves a fiduciary responsibility to the employer with the authority to enter into financial agreements valued at $10,000 or more on behalf of the employer;

(v)     a position with regular duties that allow the employee to modify digital security systems established to prevent the unauthorized use of the employer’s or client’s networks or databases; or

(vi)     a non-clerical position “having regular access to trade secrets, intelligence information or national security information.” 

With respect to the exception in (vi), the law provides specific definitions for the information that may constitute “trade secrets, intelligence information or national security information”.  “Trade secrets” are narrowly defined as information that: (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use; (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy; and (iii) can reasonably be said to be the end product of significant innovation.  Trade secrets do not include general company information such as handbooks and policies.  Additionally, having “regular access to trade secrets” does not include access to or the use of client, customer or mailing lists.

The law also does not preclude an employer from requesting or receiving consumer credit history information pursuant to a lawful subpoena, court order, or law enforcement investigation.

3.     Enforcement.

If an employer unlawfully requests or uses an individual’s consumer credit history in violation of the law, the individual may file a claim with the New York City Commission on Human Rights or a lawsuit in court and seek relief available to victims of discrimination under the New York City Human Rights Law.  Such relief may include compensatory damages (including back pay and front pay), punitive damages, and attorneys’ fees (depending on the facts and circumstances of the case). 

This new law also requires the New York City Commission on Human on Rights to (a) request information from New York City agencies and private employers regarding the agencies’ and employers’ use of the exceptions to the law; and (b) within two years, submit a report to the New York City Council concerning the results of the Commission’s requests and any relevant feedback from agencies and employers.

4.     Next Steps.

In light of the significant restrictions in this new law, employers should take the following steps with respect to their New York City employees:

• Review background check procedures to ensure that, effective September 3, 2015, the employer will not be requesting or using consumer credit history for any applicant or employee unless the employer or the individual’s position is covered by an exception to the law.

• If an employer may conduct a credit check for a specific position because the position meets one of the exceptions in the law, the employer should review the job description for the position and any written agreements required for the position, to ensure that they accurately reflect the duties and responsibilities that make the position eligible for the exception.  For example, if the employer is relying on the exception for non-clerical workers having access to trade secrets: (a) the job description for this position should reflect that it is not a clerical position; and (b) any non-disclosure agreement for the position should specifically protect the trade secrets described in the new law.

• Revise all background check disclosure and authorization forms and any background check policies to clarify the appropriate scope of the background checks with respect to applicants’ and employees’ consumer credit histories. 

• Train staff involved with the application and selection process regarding the new restrictions under this law.

Employers must also be mindful that, for any credit check they may still obtain and use (or any criminal background check), they must also comply with the disclosure, authorization, and notice requirements of the federal Fair Credit Reporting Act and state and local fair credit reporting laws if they procure the background check from a third party consumer reporting agency.  In light of the recent rise in class action litigations challenging employer background check procedures under these laws, it is critical that employers’ authorization and disclosure forms, and other background check documentation, notices, and procedures strictly comply with the requirements set forth in these laws.  It may therefore be helpful for employers to use this opportunity to review their background check disclosure and authorization forms generally for compliance with the federal Fair Credit Reporting Act and applicable state and local fair credit reporting act laws.  

Additionally, in light of the Equal Employment Opportunity Commission’s and state agencies’ recent scrutiny of the impact of criminal and credit checks on different protected classes, employers should regularly review their background check procedures and ensure that: (a) their practices do not have an unlawful disparate impact on any protected class, and (b) they are not administering background checks or using the results of such checks in a manner that results in disparate treatment of applicants or employees based on a protected characteristic. 

Please do not hesitate to contact us if you have any questions regarding New York City’s new law restricting credit checks, or steps that your company should take to ensure it is lawfully conducting background checks.