Understanding the Impact of the Job Applicant Fairness Act on Your Maryland Business
Some states permit employers to perform credit checks on applicants for employment. However, Maryland enacted the Job Applicant Fairness Act (the “Act”) on April 12, 2011. The law dictates when an employer can run or use credit history-related information for employment purposes. Let’s review some of the important aspects of the law and how Maryland employers can avoid violating the law during the hiring process.
What is the Job Applicant Fairness Act in Maryland?
The Job Applicant Fairness Act restricts the use of credit reports by employers in making employment decisions. The law applies to current employees and job applicants. However, several exceptions under the law allow employers to use credit histories for employees and job applicants in specific circumstances.
In addition to restricting the use of credit information for job applicants and employees, the Act describes how employees can file complaints against employers for violating the law. The Act imposes civil penalties on employers who violate the law.
How Does the Act Protect Job Applicants?
Many employers use credit reports during the hiring process. They might access a job applicant’s credit history to verify their identity and previous employers. In some cases, an employer might want to use a credit report to get an idea of how an applicant manages their personal responsibilities.
With the enactment of the new law, employers are restricted in how they can use credit information during the hiring process. The Act states an employer cannot use an applicant’s or employee’s credit report to decide:
To hire someone applying for a job with the company;
To fire a current employee; or,
The compensation and employment terms for an employee.
While there might be justifiable reasons for checking a job applicant’s credit report, Maryland legislators wanted to protect job applicants from discrimination based on their past credit history. The Act is designed to give applicants an equal opportunity in the employment market so they are judged on their qualifications instead of their credit history.
Are All Employers Required to Follow the Maryland Job Applicant Fairness Act Apply?
The law does not apply to all Maryland employers. The law does not protect job applicants or employees applying for jobs with these employers:
The employer is required by federal or state law to consider the person’s credit history or report for employment purposes.
The employer is a privately insured credit union (i.e., credit union share guaranty corporation) approved by the Maryland Commissioner of Financial Regulation.
The employer is a financial institution with insurance for the deposits it accepts, such as an FDIC insured bank or credit union.
The employer is an entity registered with the United States Securities and Exchange Commission as an investment advisor.
The law was not intended as a blanket protection for every employee or job applicant in every situation. Exceptions to the Act let employers use a job applicant’s or employee’s credit report in specific situations. The law acknowledges that a person’s credit history could directly affect their job-related duties when working in a bank or certain financial institutions.
Exceptions to the Act
Several exceptions to the Job Applicant Fairness Act allow employers covered by the law to use an applicant’s or employee’s credit report or credit history. For example, an employer can use a job applicant’s credit report or history after the applicant has received a job offer. However, the report cannot be used to determine employment terms and conditions, including the pay rate.
Employers may also use an employee’s or applicant’s credit history or report if the employer has a bona fide reason for requesting and/or using the information. The reason must be substantially related to the person’s job. An employer who uses an employee’s or applicant’s credit history or credit report must provide written notice to the person.
Penalties for Violating the Act
The Commissioner of Labor and Industry investigates complaints. Employers who violate the Act can be fined $500 for the first violation. Second and subsequent violations can be fined $2,500 per violation.
The Impact of the Act on Maryland Businesses
Maryland businesses must carefully evaluate their use of credit reports and credit histories for employment-related decisions. Many entry-level positions without access to personal or confidential information positions without access to personal or confidential information might not create a bona fide, job-related reason to request an applicant’s or employee’s credit history. Even for upper-level positions, employers must make sure they can support the use of credit information for a bona fide reason listed in the Act.
Compliance with the Act avoids civil penalties. While the Act does not give statutory grounds for filing lawsuits for violations, it allows for lawsuits to enforce a civil penalty ordered by the Commissioner. Because second and subsequent violations are fined at $2,500 per violation, the cost could be substantial if a company does not implement strict procedures to ensure compliance with the law.
The Take-Away
The Maryland Job Applicant Fairness Act drastically restricted the use of a job applicant’s or employee’s credit report or credit history. Employers must now ensure they only use credit information for employees and job applicants when they have a bona fide, job-related reason that complies with the Act.
Compliance with the law avoids costly civil penalties. If you are unsure whether your company’s policies comply with the Act, consult a Maryland business lawyer with Thienel Law, LLC.
FAQs About the Maryland Job Applicant Fairness Act
Frequently asked questions about the Job Applicant Fairness Act include:
Are there any circumstances in which an employer covered by the law may consider my credit history?
An employer can consider your credit history if it is not covered by the law. Employers may also consider your credit history if you have been offered a job and they are not using your report to decide how much to pay you or for other employment terms. Employers can use credit histories for bona fide, job-related reasons.
What jobs would make an employee’s or job applicant’s credit history or credit report substantially job-related?
Examples of job positions that could have duties or responsibilities that would be considered substantially job related for the use of an applicant’s or employee's credit report or credit history could include:
Jobs that provide access to a company’s confidential business information.
Jobs that involve a fiduciary duty to the employer, such as positions with authority to enter contracts, make payments, transfer money, or collect business debts.
Management positions that give the person the ability to control or set the direction of a department, agency, business, or division of the company.
Jobs that include access to a corporate credit or debit card or an expense account.
Jobs that let the employee access the personal information of clients, customers, other employees, or the employer.
Positions that have access to confidential programs, processes, formulas, techniques, or methods that derive independent economic value.
The job-related exceptions are meant to be construed on a narrow basis. Employers should not use the exceptions to broadly encompass positions without a bona fide reason that is substantially job-related.
What purposes are considered bona fide and substantially job-related that permit an employer to use or request information in a credit history or credit report?
The Act defines bona fide purpose that is substantially job related as being positions or jobs that involve:
Control over the director or control of a business;
Access to confidential business information;
Ability to use corporate debit, credit, or expense accounts;
Fiduciary duties;
Access to confidential trade secrets; and,
Access to personal information, including Social Security numbers, individual taxpayer identification numbers, driver’s license numbers, and financial account numbers.
Accidental or possible exposure to information would not meet the “substantially job-related” requirement for using credit information. The employer has the burden of proving that the reason they used an employee’s or applicant’s credit report was a bona fide reason allowed by the Act.
What happens after a complaint has been filed?
When an employee or job applicant files a complaint, the Commissioner of Labor and Industry investigates the allegations. The Commissioner determines whether the employer negligently or willfully violated the law. If possible, the Commissioner resolves the matter informally.
When complaints are not resolved informally, the Commissioner can fine the employer for violations. The first violation results in a $500 fine. Second and subsequent violations result in a $2,500 fine. The order to pay the civil penalty is sent to the employer and the person who filed the complaint.
What is the process for an employer to appeal an order to pay the civil penalty?
The employer has 30 days after receiving the order to pay a civil penalty to file an appeal. The written request for an administrative hearing must be filed with the Commissioner of Labor and Industry.
If the administrative hearing upholds the civil penalty, the employer must pay the penalty. The Commissioner or the person who filed the complaint can file an action in circuit court to enforce the order to pay a civil penalty.
If you have questions about how this new law affects your business, contact Steve today for a consult.
