Last week, the New York City Council passed legislation that bans most NYC employers from checking a prospective employee’s credit history during the hiring process. The bill, sponsored by councilman Bill Lander, passed by a vote of 47-3 and serves as a victory for labor and consumer activists who have long been arguing that credit history is a poor predictor of job performance. Lander stated, “Credit checks for employment unfairly lock New Yorkers out of jobs…Millions of Americans who have bad credit, would also be great employees. What they need to repair their credit is a job, and to make it harder for them to get a job is the definition of unfair.”
The legislation, however, does not bar the usage of credit checks for jobs involving “public trust,” which include police officers, some high-level city workers and positions that involve cyber security or fiduciary duties.
The Federal Trade Commission (“FTC”) and the Equal Employment Opportunity Commission (“EEOC”) agree that background checks could have a “disparate impact” on black job applicants. The doctrine of disparate impact is applied in the employment context and occurs when an employment policy is racially-neutral on its face, but has the effect of discriminating against members of a minority group. The FTC and EEOC have released new compliance guidelines, which advise employers to be careful when basing employment decisions on background problems that may be more prevalent among a certain race. The EEOC has stated that African Americans are far more likely to have a criminal record, which in turn, may exclude them from job offers after employers conduct background checks. In 2011, the NAACP lobbied the EEOC to apply the disparate impact analysis to background checks and compelled employers to eliminate questions about felonies on job applications. Months later, the EEOC issued an enforcement guidance on the issue and recommended that employers not ask about convictions on job applications. The EEOC warned employers that it could “investigate disparate impact charges challenging criminal-record exclusions of black job candidates.”