Oregon Legislature Enacts Workplace Credit Check Ban

During its February 2010 special session, the Oregon Legislature adopted Senate Bill 1045, prohibiting employers from using credit histories in making employment-related decisions. When the governor signs the bill into law, which he is expected to do, Oregon will join Washington and Hawaii as one of three states that have effectively banned workplace credit checks. This trend underscores the importance of employers and in-house counsel being aware of state law restrictions pertaining to credit and background checks,  particularly in multistate businesses.

The law goes into effect on July 1, 2010, and makes it “an unlawful employment practice for an employer to obtain or use for employment purposes information contained in the credit history of an applicant for employment or an employee, or to refuse to hire, discharge, demote, suspend, retaliate or otherwise discriminate against an applicant or an employee with regard to promotion, compensation or the terms, conditions or privileges of employment based on information in the credit history.”

The new law does not affect an employer’s ability to conduct criminal background checks or investigate a prospective employee’s employment history.

Notably, the Oregon law differs from the federal Fair Credit Reporting Act. Under the federal act, an employer can make employment-related decisions based on credit history but, prior to running a credit check, must notify prospective employees in writing and receive their consent. Additionally, if the employer decides not to hire because of the credit report, the employer has disclosure, notice and other obligations. In contrast, the Oregon law creates an outright ban on the use of credit history in employment-related decisions.

There are four exceptions to the prohibition:

1. Bank and credit union employers
2. Employers that are required by state and federal law to use credit histories for employment purposes
3. Public safety officer employers
4. Employers that can demonstrate that credit information is "substantially job-related” and that provide written disclosure of the reasons for the use of the credit check

The statute does not further define what “substantially job-related” means, nor has the Oregon Bureau of Labor and Industries (BOLI) adopted rules to inform employers on how it will be applied.

In the absence of clear rules or guidance from BOLI, employers that intend to continue utilizing credit histories after July 1, 2010, should proceed with caution and consult legal counsel to determine whether they fit into one of the statute’s exceptions. If they do not fit within an exception, employers should develop alternatives to current practices by July 1, 2010, to avoid penalties and civil liability. A violation of the new law is an unlawful employment practice, and an aggrieved individual can file a complaint with BOLI and a civil lawsuit for injunctive relief, reinstatement or back pay, and attorney’s fees.

Compliance Steps

• Do not obtain credit histories for employees or applicants on or after July 1, 2010, unless your company fits squarely into an enumerated exception.
• Seek counsel before concluding that credit information is “substantially job-related.”
• You may obtain criminal background checks as before.