New Credit Check Restrictions for Maryland Employers Take Effect October 1st

Date: September 26, 2011

During its 2011 legislative session, the Maryland Legislature passed the Job Applicant Fairness Act, which was signed into law by Governor O'Malley on April 12.  The law imposes significant restrictions on the ability of employers to perform credit checks on job applicants and employees.  This article examines the details of the new law, and the likely effects for employers.

For many Maryland employers, obtaining a credit report on prospective employees has become a routine part of the hiring process.  The recent passage of the Job Applicant Fairness Act will require employers to reevaluate, and in some cases limit, their use of such reports. 

The Act creates a general rule that employers may not obtain or use credit reports to deny employment to an applicant, terminate an employee, or set the terms and conditions of an individual's employment.

The Act then provides two major exceptions to this general rule. 

The first is a complete exemption for financial institutions that accept deposits insured by the federal government, as well as affiliates and subsidiaries of such institutions.  Similar total exemptions apply to credit unions, certain investment advisors, and entities required by state or federal law to obtain credit reports as part of mandated background checks for their employees.

For all other Maryland employers, the Act bans the use of credit reports in employment decisions unless the employer has a bona fide, job-related reason for performing the credit check which has been disclosed in writing to the employee.  This “job-related” requirement is in many ways the central focus of the Act.  In defining what constitutes a job-related basis for obtaining the credit check, the Legislature has made a determination for businesses of what constitutes a valid reason for seeking information about an applicant's credit history, and has prohibited the use of such credit information in employment decisions in all other circumstances.  The Act provides that a job-related reason for obtaining a credit report exists when the position for which the applicant has applied meets one of five criteria:

  1. The position is at the managerial level and involves setting the direction of the business, or a department or unit within a larger business;
  2. The position involves access to certain personal information of customers or employees, such as Social Security numbers or financial account numbers, provided that the personal information at issue is more detailed than what is customarily provided in a retail transaction; 
  3. The position involves a fiduciary responsibility to the employer, including the authority to make payments, transfer money, or enter into contracts;
  4. An employee hired for the position will be provided with an expense account or a corporate debit or credit card; or
  5. The position involves access to the employer's trade secrets or other confidential business information.

The Act creates a procedure by which applicants or employees who believe that a violation has occurred may file a complaint with the Department of Labor, Licensing and Regulation (DLLR).  The DLLR is authorized to conduct investigations into alleged violations, and may assess a civil penalty of up to $500 for an initial violation of the Act, and up to $2,500 for a repeat violation.  The Act does not, however, create a statutory right of action for individuals to file a lawsuit based on a violation of the Act. 

Finally, the Act contains a provision explicitly confirming that the Act is not to be construed as prohibiting employers from obtaining consumer reports or investigative consumer reports during the hiring process, provided that such reports do not contain credit information.  The use of such reports, of course, remains subject to the terms and restrictions contained in the federal Fair Credit Reporting Act. 

Takeaway for Employers
With the Job Applicant Fairness Act taking effect on October 1, 2011, Maryland employers who use credit checks in making employment decisions will need to evaluate their use of such reports to determine whether they are in compliance with the limitations imposed by the Act.  Specifically, employers must consider the range of positions for which they use credit reports in the hiring process.  For many entry-level positions which do not involve access to confidential data, the use of credit information will be effectively barred by the Act.  Even where more senior positions are at issue, the Act will require employers to assess the particular statutory language to ensure that one of the five conditions for utilizing credit reports has been met with regard to each position for which credit information will be used in employment decisions.

Editor's Note: The Job Applicant Fairness Act is codified at Md. Code Ann., Labor & Employment § 3-711.