Colorado Becomes the Ninth State to Prohibit Employers from Using Credit Information in Employment

Effective July 1, 2013, Colorado will be the 9th state to restrict an employer's right to use credit reports in employment decisions.

Some Important Information About the Act

Specifically, the bill:

Prohibits an employer's use of consumer credit information for employment purposes if the information is unrelated to the job;

• Requires an employer to disclose to an employee or applicant for employment (jointly, "employee") when the employer uses the employee's consumer credit information to take adverse action against him or her and the particular credit information upon which the employer relied;
• Authorizes an employee aggrieved by a violation of the above provisions to bring suit for an injunction, damages, or both; and
• Requires the department of labor and employment to enforce the laws related to employer use of consumer credit information.

Positions substantially related to the job:

Two types of employers are generally exempt from the law's prohibitions: (1) banks or financial institutions; and (2) employers who are required by law to procure consumer credit information. These two classes of employers are permitted to obtain and use credit information for all their employees, regardless of specific positions or responsibilities and need only abide by the law's additional adverse action requirements (detailed below).

The vast majority of employers, however, are prohibited from requesting or using an applicant or employees' consumer credit information unless that information is "substantially related to the employee's current or potential job." The statute defines the substantially related language to mean one of two types of positions:

1. A position that constitutes executive or management personnel (or officers or employees who constitute professional staff to executive and management personnel) and which involves one or more of the following:

• sets the direction or control of a business, division, unit or an agency of the business;
• owes a fiduciary responsibility to the employer;
• has access to customers', employees' or the employer's financial information; or
• has the authority to make payments, collect debts or enter into contracts.

2. A position that involves contracts with defense, intelligence, national security, or space agencies of the federal government.

Adverse Action

The new CO law also expands requirements for employers wishing to take adverse action in whole or in part based on information in a credit report. Any employer that relies, in whole or in part, upon consumer credit information to take any adverse action against an applicant or employee, must make a written disclosure to the employee or applicant explaining that it has relied on credit information to make an adverse action and noting the specific information which the employers relied. This is different from and more burdensome than the federal Fair Credit Reporting Act's (FCRA) requirements. 15 U.S.C. Sec. 1681 et. seq. The term "adverse action" is defined broadly to include denial of employment, demotion, and reassignment, a decrease in compensation, denial of promotion, termination or any other decision for employment purposes that adversely affects an employee or applicant. The law provides that the disclosure must be made in writing or "using the same medium in which the application was made". Although the law does not detail when the disclosures must be made, in order to comply with the FCRA as well, employers should consider doing so prior to making any employment decisions made". Although the law does not detail when the disclosures must be made, in order to comply with the FCRA as well, employers should consider doing so prior to making any employment decisions.

For Aurico clients, Aurico can administer the Adverse Action process on the employer's behalf.