Effective July 1st, the State of Colorado will become the ninth state to bar employers from using credit checks during the hiring process or for any other employment purpose. Under the “Employment Opportunity Act”, Employers may not use “any written or oral information bearing on a consumer’s credit worthiness, credit standing, credit capacity or credit score in evaluating a person for employment, hiring, promotion, demotion, reassignment, adjustment in compensation level, or retention,” according to an alert from Seyfarth Shaw LLP.
The law covers almost all employers with four or more employees. There are very few exceptions, most notably banks or financial institutions and “employers who are required by law to procure consumer credit information”. All other employers are only allowed to request or use credit information if that information is “substantially related to the employee’s current or potential job,” which fall into two subsets: managerial roles that include direct control of an organization, access to personal financial information of employees, or make payments, collect debts or enter into contracts on behalf of said organization and a “position that involves contracts with defense, intelligence, national security, or space agencies of the federal government.” Even if these conditions are met, employers must still provide a “bona fide purpose” for requiring the information and must disclose that purpose to the applicant. If these conditions are not met, an employer is barred from using or requesting that the applicant consent to the use of this information.
Another important provision of this law that is less prominent states that an employer must disclose in writing to the applicant or employee when adverse action is taken based on information obtained in a credit report, “noting the specific information which the employers relied…The term ‘adverse action’ is broadly defined.”
Beginning July 1st, employers within the state that aren’t banks, financial institutions and “employers who are required by law to procure consumer credit information” should heavily weigh any decision to use applicant or employee credit information in relation to employment and HR policy based on the assumption that an exception is warranted and legally permitted. The state Division of Labor in the Department of Labor and Employment is empowered to enforce the provisions of this law and, after an investigation and hearing, can “award civil penalties up to two thousand five hundred dollars ($2,500) to a prevailing party.”
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