As someone who has been in the employment screening and credit reporting
business since 1980, I have seen just about every attempt possible to thwart
the use of credit reports in various settings as a candidacy determinant
– especially the employment setting. Simply put, people continually try
to outlaw credit reports for every reason imaginable because they work with
deadly efficiency.
That said, most, if not all legislative attempts to ban the use of these
incredibly valuable tools have failed because they become so watered down
that the politicians are able to convince their constituencies that as long
as they persevere, the law will pass. Such is the case with the new AB 22
law in California created several revisions and vetoes ago by Assemblyman
Tony Mendoza and signed by Governor Jerry Brown over the weekend of October
8-9, 2011.
This bill has been presented to the Governor's desk and has twice failed
to garner the Governor's signature until Jerry Brown came into office. Similarly,
this one has virtually no teeth when the real measurements are made.
This legislation, like most of the knee-jerk liberally biased legislation
in California, was accomplished by Assembly Member Tony Mendoza, the architect
of the definitions of those areas where credit reports are no longer available
in the pre-employment setting. One can only imagine what went on his mind
when the NEW governor finally signed the bill after two failed attempts
with the old governor!
The new law hailed by those out of the know prescribes specific areas of
defined use until it gets to Chapter 7, which is the gaping loophole for
most employers, and for most employment positions available in California.
Now, usually, as a guy that takes the law very seriously, I cannot help
but be drawn to what some may consider the dark side, and want to advise
California employers of ways around this effectively useless law (the way
it is presently written) and to provide specifically the ways in which people
who hire can avail themselves of this still viable and highly valuable candidacy
determinant.
Let's begin with what may and may not be used in the hiring context with
regard to what is included in an employment credit report.
Actually, you can read the context of the law at the following site:
http://www.leginfo.ca.gov/pub/11-12/bill/asm/ab_0001-0050/ab_22_bill_20111009_chaptered.pdf
so it is easier to simply tell you what part of an employment credit report
may not be used, and that part is what many that presently use credit reports
don't use anyway, namely the trade line information, or, as the new law
reads:
Clearly, as long as what a prospective employer sees does not include
credit history (actual payment history) and a credit score (you know what
that is, namely a FICO score, which incidentally has been excluded from
ALL Employment Credit Reports from the three major credit bureaus ever since
"Employment Credit Reports" were invented), or "credit record" which is
the same thing as "credit history," the rest of what is included in an Employment
Credit Report is still available, and that is VERY important.
In practice, unless certain jobs require an actual understanding of the
payment history of a candidate, most employers presently opt of using the
payment histories. Instead they choose to use the parts of the credit report
which are very important, namely the identification part and the past employment
part, especially when it comes to trying to verify an applicant's prior
employment history, and in determining what the candidate's identities actually
are, versus who they say they are; which is critical in the determination
of prior criminal conviction history.
In essence what this new law has done is take away mostly what employers
don't care about anyway; namely the actual payment history unless the job
calls for it such as an accountant, cash handler, etc. Remember, credit
"scores" have never been available to employers, so that part of the law
is moot – yet another example of uninformed politicians trying to make policy
based on incorrect information and assumptions.
Now, let's look at the best possible gift that this new law has to offer
employers, namely paragraph 7 of Labor Code Section 1024.5, Section.
2. Chapter 3.6 which is one of the further identified areas where these
reports are available to a prospective employer:
I don't know about you, but as a 31+ year businessman, my competitive
edge has always been the way I do things in my business. That means
that when I hire someone, I don't want them discussing ANYTHING with my
competitors or anyone else as it could compromise my competitive edge and
put me out of business.
That said, how do I (as the law specifies) protect my "confidential
or proprietary information including a formula, pattern, compilation, program,
device, method, technique, process or trade secret"?
The answer is simple … with a proprietary and trade secrets agreement as
well as a germane company policy that is acknowledged by every one of my
employees.
What, you say? These types of agreements are unenforceable in California?
Well, that may very well be true, but the very existence of them while not
always enforceable establishes beyond any reasonable doubt what you as an
employer decides meets the standard of confidentiality and that directly
translates to Paragraph 7.
In essence, who can successfully argue that I do not have the right to reasonably
determine what parts of my business are confidential and proprietary? The
answer is NO ONE can determine that, except me (or potentially a court)
since I own and operate the business, and I am the one who can only determine
what confidential and proprietary methods and processes would be damaged
if they were to be unlawfully or otherwise disclosed to a third party.
This clearly proves that with such an agreement and policy in place, specifically
designed and intended to protect yourself and/or the business, and that
specifically delineates what was confidential and proprietary, that's all
you need to effectively be able to use credit reports in the hiring process
for most if not all of your candidates.
That said, it is important to understand that the Mendoza law is essentially
focused on relieving the stress on those who pose credit risks with regard
to the general employment populous, namely blue collar jobs, and "lesser"
skilled positions where a bad credit report shouldn't really apply. Contrary
to the mistaken beliefs of Governor Brown and Assemblyman Mendoza, most
employers are not concerned with a janitor's credit report.
In the end, the way to continue to use employment credit reports is to follow
the law, use everything in the credit report except the payment history,
and create a solid trade secrets and proprietary and confidential information
policy and agreement with your employees that formally establishes that
what you have is sacred and could result in the loss of business if compromised.
Once established, using employment credit reports is not a problem as long
as you give proper notice to the Consumer, obtain written consent, follow
the FCRA's Pre-Adverse and Adverse Action Notice Requirements and rely only
on the ID components and the employment histories, when the actual credit
history does not apply.
Author - Thomas C. Lawson CFE, CII is the CEO and Founder
of APSCREEN, the nations' oldest, continuously operated Factual Employment
Screening firm, based in Rancho Santa Margarita, CA. Mr. Lawson was the
first Court-Certified Expert Witness on Negligent Hiring from the Improper
Employment Screening perspective, and testifies on other HR matters, as
well. Published credits include Fraud Magazine (Editorial Review Board Member),
Business Week, LA Times, ABC's American Agenda, CBS Syndicated Talk Radio,
NBC's EXTRA!, and KNX News Radio, to name a few. Mr. Lawson is a proud member
of SHRM, PIHRA, ASIS, ACFE (Life), CII, WAD, WIN, NPRRA, PRRN* NAPBS* and
other local groups. Mr. Lawson can be contacted at (949) 459-5600. *Founding
Member
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