More states are restricting credit reports for employment purposes

Connecticut has joined five other states (Hawaii, Illinois, Maryland, Oregon, and Washington) that, with some exceptions, prohibit the use of credit reports in employment decisions. Effective October 1, 2011, S.B. 361 will ban many employers from using credit information in determining whether to deny employment to an applicant, terminate an employee, decide compensation, or evaluate other terms and conditions of employment. Financial institutions, as well as employers who are required to obtain credit reports under federal or state law, are excluded from the Act’s provisions

There are certain exceptions to the S.B. 361 prohibitions. Employers may request or use credit reports when such information is related to a “bona fide purpose that is substantially job-related.” The bona fide purpose exception generally applies to positions involving money handling or other sensitive job duties. If an employer requests or uses credit information for a bona fide purpose, it must disclose its intent to do so in writing to the employee or applicant.

As in Connecticut’s S.B. 361, employers in the other states that have passed employment-related credit report restriction laws need to ensure that their hiring, retention, and promotion practices fall within the guidelines of their legislation.