Employment and Labor Update

New Background Check Rules for New York City Employers

September 1, 2015

On September 3, 2015, a new law will go into effect which prohibits many private sector employers in New York City from requesting or using an employee’s or applicant’s consumer credit history. Additionally, later this fall, New York City will begin to regulate employers' use of criminal history for pre-employment screening. Employers should scrutinize their pre-employment paperwork and hiring practices to ensure that they comply with these new laws.

The New York City Credit History Law makes it illegal for many employers “to request or to use for employment purposes the consumer credit history of an applicant for employment or employee.” The law defines “consumer credit history” as including “any information by a consumer reporting agency that bears on a consumer’s creditworthiness, credit standing, credit capacity or credit history,” credit reports and credit scores. Unless an exception applies, employers may not ask employees or applicants about their credit status, bankruptcies, judgments or liens, and using any consumer credit history information in an employment decision will now constitute unlawful discrimination under the New York City Human Rights Law.

The law carves out a few exceptions to the general rule prohibiting employers' use of consumer credit history. The prohibition does not apply to:

Employers required by state or federal law or regulations or a self-regulatory organization to use an individual’s consumer credit history for employment purposes;
Certain public sector positions, including law enforcement or appointed positions entailing a high degree of public trust;
Positions in which an employee is required to be bonded under City, state or federal law;
Positions which require security clearance under state or federal law;
Non-clerical positions having regular access to trade secrets, intelligence information or national security information;
Positions having signatory authority over third-party funds or assets valued at US$10,000 or more; or that involve a fiduciary responsibility to the employer with the authority to enter financial agreements valued at US$10,000 or more on behalf of the employer; or
Positions 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.

Moreover, even if the position is subject to one of the enumerated exceptions, employers must be careful to follow the federal Fair Credit Reporting Act and state law when requesting and utilizing employees‘ or applicants’ consumer credit information.

Additionally, as noted above, New York City has enacted a law known as the Fair Chance Act, which will also soon prohibit employers from making any inquiry, whether to the applicant or through public records, about an applicant’s criminal record until after a conditional offer of employment is extended to the applicant. Once the conditional offer is made, the employer can make inquiries into criminal history but will have to follow certain steps before taking any adverse action based on information disclosed through the inquiry, including providing the criminal history and an analysis of how that history impacts the proposed employment “in a manner to be determined by” the NYC Commission on Human Rights. As the Fair Chance Act becomes effective October 27, 2015, the Commission is expected to issue guidance soon.

Both of these changes in the law will require most employers operating in New York City to revise their initial employment application forms to eliminate credit history or criminal history questions from such forms and to re-evaluate when and how they seek such information, if at all. In this regard, New York City joins a host of other jurisdictions that have been active in regulating the pre-employment use of credit or criminal history, including California, Connecticut, Illinois, and Washington, D.C.

If you have any questions regarding this Sidley Update, please contact the Sidley lawyer with whom you usually work, or

Eric G. Hoffman

Counsel

eric.hoffman@sidley.com

+1 212 839 5939

Employment and Labor Practice

To receive Sidley Updates, please subscribe at www.sidley.com/subscribe.

Sidley Austin provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship.

Attorney Advertising - For purposes of compliance with New York State Bar rules, our headquarters are Sidley Austin LLP, 787 Seventh Avenue, New York, NY 10019, 212.839.5300; One South Dearborn, Chicago, IL 60603, 312.853.7000; and 1501 K Street, N.W., Washington, D.C. 20005, 202.736.8000.