Pre-Employ Blog

Colorado Legislation Governs How Employers Use Credit Checks in Employment Decisions

Posted by admin on May 06, 2013

Employer use of credit checks and other screenings in employment decisions is once again the subject of recent legislation. Colorado became the latest in a string of states to limit how organizations can use such checks after Gov. John Hickenlooper signed into law a measure that restricts employer ability to reference such checks.

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SB13-018, also known as the "Employment Opportunity Act," which takes effect July 1, severely constricts an employer's capacity to consult a credit check when deciding to hire, fire or reassign an employee, among other employment actions.

The law stipulates that employers cannot utilize a consumer's credit information unless it is "substantially related to the employee's current or potential job." Employers cannot require job applicants and other workers to submit to a check, and may only use credit checks to inform decisions if the employer is a bank or financial institution or the report is legally required.

Demonstrating that a credit check is necessary would require an employer to prove the position is an executive-level job that has an employee assume fiduciary responsibility, access consumer financial records or involves contracts with federal government agencies.

Additionally, the Colorado legislation mandates that employers notify an employee or applicant upon taking adverse action related to a credit check. The law also enables individuals who are wronged by a noncompliant organization to seek legal recourse.

Colorado now joins California, Connecticut, Hawaii, Illinois, Maryland, Oregon, Vermont and Washington as states that keep laws on the books restricting employer usage of credit checks.

While credit checks do differ from background screenings, it's becoming increasingly apparent that state and federal governments have targeted the use of such checks in employment decisions. Firms that need to ensure they are completely compliant in these matters can work with an HR service provider to improve their operations.

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Topics: Colorado, HR Compliance