New Law to Restrict New York City Employers from Considering Credit History

On April 16, 2015, the New York City Council overwhelmingly passed a bill that prohibits employers from using consumer credit history in hiring potential employees. Mayor Bill de Blasio signed the bill into law on May 6, 2015, which means the law goes into effect on September 3, 2015.

The proposed legislation, called the Stop Credit Discrimination in Employment Act (“Act”), will affect companies that consider consumer credit history (whether by credit report or otherwise) in making hiring decisions. It also bans the use of credit history for any employment purpose, not just for hiring. An employer could therefore not base any decision affecting, for example, compensation or the terms or conditions of employment on credit history.

It is important to note that, although this Act uses terms like “consumer credit reports,” it should not be confused with “consumer reports” that many may be familiar with from the federal Fair Credit Reporting Act, which can include all forms of background checks (though, unlike the Act, only if done by a third party). The scope of information covered by the Act is much more limited and truly only covers credit-related information.

The Act does not, however, apply in all circumstances. It contains several exemptions. It does not apply to:

• employees required to possess security clearance under federal or state law;
• employees required to be bonded under City, state, or federal law;
• employees with signatory authority over third-party funds or assets valued at $10,000 or more;
• employees with a fiduciary responsibility to their employer and authority to enter into agreements valued at $10,000 or more;
• police officers;
• employees at the department of investigation in a law enforcement position or who perform an investigative function;
• certain employees subject to background investigation by the department of investigation;
• non-clerical employees with access to trade secrets, intelligence information, or national security information; and
• employees with authority to modify the company’s digital security systems.

Although ten states and the City of Chicago also ban employers from checking the credit history of job applicants, the proposed legislation for New York City is broader. For example, eight of the other jurisdictions exempt financial institutions, which the New York City legislation does not do.

The Act does not specify penalties or damages for using credit history in making an employment decision. Instead, the bill modifies the New York City Human Rights Law, Section 8-101 et seq. of the Administrative Code of the City of New York. The Act thus effectively creates a new “protected class” and allows a private cause of action for discrimination against an employer that uses such information. An employer found liable for using credit history in making employment decisions would consequently be treated the same as one engaging in an unlawful discriminatory practice on the basis of age, race, national origin, gender, and the like. These damages are among the broadest of all employment discrimination protection statutes and include the potential for back pay, front pay, unlimited compensatory damages, and unlimited punitive damages.

Attorneys in Gordon & Rees’s New York Employment Practice Group are available to assist employers with any questions or concerns regarding the above.