Blog

On January 29, 2020, the House of Representatives passed the Comprehensive CREDIT Act of 2020 (the “Act”), which would change federal laws pertaining to consumer reporting agencies and credit checks in a number of ways. Significantly for employers, the Act includes an amendment (originally H.R. 3614 – “Restricting Credit Checks for Employment Decisions Act”) to the Fair Credit Reporting Act (“FCRA”), which would restrict the use of credit information for most employment decisions.

Currently, the FCRA does not expressly prohibit employers from using credit checks when making employment decisions. The Act would amend Section 604 of the FCRA by precluding employers from requesting a consumer report bearing on the creditworthiness, credit standing, or credit capacity of an individual for employment purposes, except in limited circumstances where:

• the employer is required to obtain the report by federal, state, or local law or regulation;

• the information contained in the report is being used with respect to a national security investigation; or

• the report is necessary for a background check or related investigation of financial information that is required by federal, state, or local law or regulation.

Under the Act, if an employer intends to invoke one of these exceptions, the employer must disclose to the candidate the reason as well as a citation to the applicable law.

Note that this amendment of the FCRA would not impact other aspects of obtaining consumer reports for employment purposes, so employers would still be able to conduct background checks (subject to state and local restrictions).

The final vote of 221-189 on the Act largely split along party lines. Republican House members expressed concern about H.R. 3614 in committee review of the original bill, noting that the legislation could have unintended and undesirable consequences—particularly in the financial services industry.  Members observed that an employee’s “financial history is particularly important in the financial services industry, where employees routinely have access to vast amounts of personal and financial information.”

As of last year, 11 states – including California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont and Washington – and the District of Columbia have enacted laws that restrict the use of credit reports in employment decisions. Cities such as Philadelphia, New York City and Chicago have also passed laws regarding the use of credit checks in employment settings. While state and local laws differ in some respects, many do include narrow exceptions allowing credit checks for banks and financial institutions, positions with access to specified personal information, and positions that involve access to assets above a certain threshold, or that have signatory authority.

The Act now heads to the Senate, where it seems unlikely to pass in its current form, given the partisan divide regarding various provisions contained within the 197-page bill.  We will continue to monitor the legislation.

California's affordable housing nightmare is well known: More than 40% of residents are now classified as housing cost-burdened, the highest proportion of any state. In many cities in the San Francisco Bay Area, the nation's tightest housing market, the median rent for a one-bedroom apartment now exceeds $2,500, a figure that contributes to a growing homelessness problem, exacerbates gentrification and pinches ostensibly middle-class professionals like teachers and police officers as well as those even higher up the income ladder.

For one demographic the crisis is amplified. "I was born and raised in Oakland," Lee "Taqwaa" Bonner, a former felon turned advocate, said at a recent news conference. "I am employed in Oakland. … However, I cannot live in Oakland based solely on my criminal record, which happened 30 years ago." Excluded from the rental market, Bonner has often resorted to living in his car. Others have fared worse, spiraling into permanent homelessness, drug addiction and even death.

On Feb. 4, Oakland's City Council passed a new ordinance designed as a remedy, prohibiting public and private landlords from inquiring about potential tenants' criminal histories. The new law, called the Oakland Fair Chance Housing Ordinance, is the most expansive of its kind in California and among the first for major American cities. Decades after the start of the "ban the box" movement, which aims to stop employers from discriminating against the formerly incarcerated, proponents hope it will also act as a new catalyst in the battle to secure equal opportunity for the more than 70 million Americans burdened by criminal records.

"With more and more people returning home from the criminal justice system, housing is really the most basic need that people [have] in order to get back on their feet," says Council member Nikki Fortunato Bas, a co-sponsor. "It's really going to help create more opportunity and sort of level the playing field."

For decades criminal justice experts have highlighted the rampant stigma and discrimination that stifles former prisoners as they attempt to re-enter society – a phenomenon accelerated by the recent ubiquity of online background checks, an invesitgative tool critics point out is often incomplete or seriously flawed. And while the criminal justice system disproportionately impacts black men, it's also black men who, after their release, are often excluded from jobs, apartments, public benefits, and even vocational licensing on the basis of a conviction they've already served time for. "The real punishments begin," as one African American man who spent 17 years behind bars told The Washington Post, "when we are released from prison."

In 1998, Hawaii became the first state in the United States to pass legislation aimed at easing the burden, with a "ban the box" law that restricted both public and private employers from considering a prospective employee's criminal history until after a job offer was made. Since then, 35 states and more than 150 cities and counties have adopted similar "ban the box" employment discrimination laws. (Most apply only to public employers, although 13 states and 18 cities and counties have extended the legislation to the private sector. Some laws also apply to public contractors.)

Laws aimed at easing housing discrimination have come only recently, despite an overwhelming need: In one national survey of people affected by incarceration, nearly 80% of former inmates reported being denied housing because of prior convictions. In some cases whole families were evicted because a formerly incarcerated family member returned to the home; other respondents told of being forced to settle for substandard conditions.

"All of the places that I wanted to live – that were nice and where I could raise kids told me 'no,'" one study participant from Kansas told researchers from the California-based Ella Baker Center for Human Rights and elsewhere. "So I ended where I am now, in a rundown four-plex that's a slum with moldy walls."

Oakland's new law has various predecessors. In 2017, Seattle passed what advocates hailed as the country's most progressive "ban the box" housing law, an ordinance that prohibited most private landlords from considering applicants' criminal histories at all. The new law was promptly challenged by the city's real estate industry, which argued that it compromised safety and violated landlords' exercise of free speech. Critics also suggested council members had the wrong target. "If the city of Seattle is serious about reforming the criminal justice system, it should focus on reforming the criminal justice system," William Shadbolt, board president of the Rental Housing Association of Washington, said at a news conference. (In November, a Washington state Supreme Court judge ruled favorably toward the law, although a federal decision remains pending.)

Other cities, including Detroit, Chicago and Minneapolis, have also recently passed similar but less sweeping measures, stipulating that landlords cannot perform background checks until the end of the application process or that they can only consider more recent convictions. Two Bay Area cities, Richmond and San Francisco, have passed ordinances that apply only to affordable or municipally-subsidized housing.

But Oakland's new law, which became effective immediately, represents the state's first to apply more broadly to nearly all city rentals, allowing exceptions only for landlord-occupied units. Landlords also do not have to accept tenants on the federal lifetime sex offender list; affordable housing rentals are also permitted to exclude tenants with prior convictions related to manufacturing meth. Proponents argue the new law will help reduce recidivism and ease the area's homelessness crisis, as well as set off a new wave of municipal protections: Nearby Berkeley is expected to vote on a similar measure within weeks.

"Those of us who worked on this legislation are hoping that this is sort of the next frontier of this particular movement," says Bas, who previously worked on various "ban the box" employment policies.

Yet even supporters concede that the legislation amounts to a kind of Band-Aid for a far larger problem. America's structural racism continues to disadvantage people of color in virtually every segment of society, with the very need for "ban the box" laws serving as further evidence of the rampant overcriminalization and segregation of black men, says Andre Perry, a fellow in the Metropolitan Policy Program at The Brookings Institution, a Washington, D.C.-based think tank. In some cases the laws can even prove counterproductive, as employers or landlords simply find other, more generalized ways to discriminate against former prisoners and people of color, like excluding applicants with long gaps in their resumes or names that people associate with African Americans, he adds.

"I'm for banning the box, but it's insufficient as a tool when you're dealing with disrcimination," he says, where the real change needed is an adjustment in the underlying culture. "And that requires leadership. It requires investment in black communities. It requires hiring people."

Bas agrees. But with an already overcrowded local shelter system and increasing numbers of formerly incarcerated residents returning to a city where they can't find housing, Oakland is already facing an urgent crisis. "And if we don't address that," she says, "people's lives will be lost."

Many states and localities have been adopting “ban-the-box,” prohibiting employers (including private employers) from asking applicants to disclose information concerning their criminal histories prior to an initial interview or a conditional offer of employment.  Currently, all New England states except Maine and New Hampshire have a ban-the-box law that is applicable to private employers.  Bills that would have applied ban-the-box to private employers in both Maine and New Hampshire died in last year’s legislative sessions, but there is a good chance that similar legislation will resurface. 

Importantly, the ban-the-box law concerns criminal history information requested directly from applicants (and employees under certain state law).  Employers may request certain criminal history information from other sources (e.g., federal or state department of criminal justice systems) and/or through a third party vendor (e.g., consumer reporting agency), but there may be separate requirements for criminal background checks under applicable federal and/or state law.

Employers would be wise to review the relevant laws in all jurisdictions in which they do business and monitor further legislative activities on this topic.  In light of that information, employers may consider whether application documents, hiring practices, and criminal history check policies need to be updated.

Asking Applicants to Disclose Criminal History Information
The “ban-the-box” laws in Connecticut, Massachusetts, Rhode Island and Vermont impose restrictions on the timing of criminal history inquiries:  They prohibit employers from asking an applicant to disclose his or her criminal history information until a specified point in the hiring cycle (e.g., the interview stage or after a conditional offer of employment).  There are certain exemptions from such prohibition (e.g., required by law not to hire an individual convicted with certain offenses).  Significantly, Connecticut, Massachusetts and Vermont impose additional restrictions on the types of questions employers may ask even after they have passed the specified point in the hiring cycle.  Further, Connecticut and Massachusetts require certain disclaimers be included in certain hiring documents.  (See Conn. Gen. Stat. § 31-51i; M.G.L. ch. 151B, § 4 (9 1/2), (9); RI RSA § 28-5-7 (7); & 21 V.S.A. § 495j)

Here is a summary of the law regarding pre-employment inquiries into criminal history information in all six New England states:

• Maine.  Certain state government employees are protected from pre-employment criminal history inquires, but there is currently no ban-the-box law applicable to private employers.  A bill proposing prohibiting all Maine employers (including private employers) from asking an applicant to disclose the applicant’s criminal history until after the applicant received a conditional offer of employment was vetoed by Governor LePage in 2018. 
   
• Massachusetts.  Employers are generally prohibited from asking an applicant to furnish criminal offender record information prior to the interview.  In addition, an employer generally may not ask an applicant (at any point in the application process, even after receiving a conditional offer) or a current employee, whether in writing or orally, about certain criminal information (e.g., any misdemeanor convictions that occurred more than three years ago, criminal conviction records that have been sealed or expunged, an arrest or any offenses that did not result in conviction).  The law prohibits employers from taking adverse action against a prospective or current employee based on criminal history information obtained in contravention of ban-the-box.  Any form used by an employer that seeks information concerning an applicant’s criminal history must include the specific statement regarding expunged and sealed records as required by the law.
   
• New Hampshire.  New Hampshire has no restrictions.  A bill introduced last year that would have prohibited employers from asking about an applicant’s criminal history on a job application was vetoed by Governor Sununu.
   
• Rhode Island.  Employers are generally prohibited from inquiring on any application for employment or otherwise, orally or in writing, whether the applicant has ever been arrested, charged with or convicted of any crime.  The law permits employers to ask an applicant for information about his or her criminal convictions at the first interview or thereafter.
   
• Connecticut.  The Connecticut law generally prohibits employers from asking an applicant to disclose his or her criminal background information until after the interview or a conditional offer of employment.  Significantly, employers are prohibited from asking an applicant at any time during the hiring process, or a current employee, about erased criminal records.  Thus, the law effectively prohibits employers from relying on erased criminal records when making an adverse employment decision.  Further, any form used by an employer that contains any question concerning the criminal history of the applicant must contain specific disclosure language regarding erased records. 
   
• Vermont.  Employers are generally prohibited from asking an applicant to provide criminal history record information on the initial employment application form.  Employers are allowed to question applicants about their prior criminal records during a job interview or once the applicant has been deemed otherwise qualified for the position.  However, employers may not ask applicants to answer questions about arrests or convictions that have been expunged.  Further, the law requires that a person whose criminal history record is expunged or sealed by court order be treated as if he or she has never been arrested, convicted, or sentenced for the offense.  Thus, employers cannot rely on expunged or sealed records when considering an adverse employment decision. 

   

Obtaining Criminal History Information Elsewhere
Employers considering criminal background checks on applicants or employees should be aware that they may be subject to certain requirements under applicable state law, separate from the compliance with ban-the-box.  For example, Massachusetts generally requires that an employer obtain a written consent signed by an applicant/employee prior to conducting a criminal history background check, and that employers conducting five or more criminal history background checks a year have a written criminal background check policy in place, which must meet the minimum requirements under the law. 

Employers using a third-party vendor (e.g., consumer reporting agency) are generally subject to additional requirements under the federal Fair Credit Reporting Act (FCRA) as well as analogous state law.  For example, under the federal FCRA, employers must make certain disclosures to applicants/employees and obtain signed written authorizations from them before requesting background checks by a third party vendor.  Maine and Connecticut generally follow the federal FCRA, but Massachusetts, New Hampshire, Rhode Island, and Vermont require state-specific disclosures in addition to the federal requirements. 

Reliance on Criminal History Information
Whether obtained directly from an applicant and/or obtained through a background check on the applicant, criminal history information must be considered in a non-discriminatory fashion.  Under Equal Employment Opportunity Commission guidance, employers should make an individual assessment of a criminal offense in light of job-relatedness and business necessity, and consider all relevant factors, such as the nature and gravity of the offense or conduct; the time that has passed since the offense; and the nature of the job held or sought.  Moreover, certain states (e.g., Massachusetts) require additional factors to be considered in reviewing criminal history information (e.g., the age at the time of the offense, the number of offenses, any pending charges, etc.).

Action Items
Navigating through ban-the-box as well as the federal and state laws concerning criminal background checks can be complex.  As initial steps, we recommend the following:

• Update, if necessary, initial hiring documents (e.g., job applications) to ensure that such documents do not include a question about an applicant’s criminal history.
• Consider utilizing a criminal history questionnaire (including permissible criminal history questions) that should be used after the initial interview or after a conditional offer of employment.
• Train personnel involved in the hiring process on restrictions imposed by these ban-the-box laws, including permissible vs. impermissible questions.
• For multistate employers, determine whether a particular locality or state they operate in has a similar ban-the-box restriction.
• Take a fresh look at your current criminal background check policies and practices to ensure compliance with applicable law.

For questions regarding the ban-the-box laws in your state or criminal background checks in general, please contact Jim Erwin at jerwin@pierceatwood.com or 207.791.1237 or Soyoung Yoon at syoon@pierceatwood.com or 617.488.8129.

Image: CALmatters