Is credit history a protected class? In some states it is, and in others, including Wisconsin, it may soon be. Accordingly, legal liability may follow if an employer takes action against someone because of his/her credit history.
For years, employers have refused to hire or employ individuals with blemished credit histories. Estimates reveal that nearly half of all employers discriminate in some form or fashion against individuals on the basis of their credit report. Does it make sense? For the millions of Americans who have had to file for bankruptcy because of medical bills or as a result of being laid off, the answer is “no.” For many employers, however, credit histories provide invaluable insight into whether an individual is responsible, trustworthy and capable of using good judgment.
Amidst strong feeling on both sides of the issue, legislators across the country are seeking to strike a balance. Hawaii, Washington and New Jersey, for instance, all prohibit discrimination on the basis of credit history, but with exceptions. Wisconsin, Ohio and Michigan have similar legislation in the works.
In Wisconsin, credit history discrimination cases will likely be analyzed much like conviction/arrest record discrimination cases are analyzed. That is, employers are (or would be) prohibited from taking action against an individual on the basis of his/her credit history unless the credit history was substantially related to the circumstances of the individual’s position.
Under this analysis, if the circumstances of the individual’s credit history suggest that the individual lacks the ability and/or willingness to act with honesty, integrity or responsibility in performing a particular job, the credit history would be substantially related to the position at issue and the employer would be free to take action. Factors used in this analysis would include, but not be limited to, the nature of the job or activity, the essential duties of the job or activity, and the individual’s character traits as revealed by the circumstances of his/her credit history.
At the end of the day, whether an individual’s credit history is substantially related to a given position would require a case-by-case analysis. That being said, it is relatively safe to assume (without looking too closely at actual circumstances) that an individual’s credit history may be substantially related to a job involving the management of money at a financial firm. Conversely, a person’s credit history may not be substantially related to a position at a fast food restaurant, even if the position requires the occasional handling of cash. As with conviction/arrest record discrimination cases, the relationship must be truly substantial to shield an employer who discriminates on the basis of credit history from liability.
Notably, express prohibitions on an employer’s ability to consider credit history in employment-related decisions are a creation of state legislation, as opposed to federal law. Does this mean that employers who do business outside the few states that have passed legislation to prohibit credit record discrimination are in the clear?
Not necessarily. Title VII prohibits discrimination in employment on the basis of race, national origin and gender. As the U.S. Supreme Court has held, the law not only prohibits overt discrimination, but also prohibits “practices that are fair in form, but discriminatory in operation.” (Griggs v. Duke Power Co., 401 U.S. 424 (1971).) Hence, employment practices that have a “disparate impact” on members of a protected class may run afoul of Title VII.
Many have maintained, some successfully, that taking action against someone on the basis of his/her credit history has a disparate impact on minorities and women. Indeed, minorities and women have historically received lower wages and fewer opportunities in the workplace than their white male counterparts. Accordingly, it is not surprising that demographic data from various studies show that minorities and women are more likely to have lower household incomes, live in poverty and therefore struggle with credit. From these studies, direct correlations have been drawn between race/gender and credit scores. These correlations have been used to support findings that employment practices that take credit history into consideration may disparately impact minority groups and women.
As Chairman Stuart J. Ishimaru of the EEOC noted last year, “the EEOC has had a longstanding position that credit check policies can have an unlawful disparate impact in violation of Title VII’s prohibitions against . . . discrimination.”
The bottom line in all of this is that employers should use caution in taking action against individuals on the basis of credit history. Whether or not state legislators have enacted laws to expressly prohibit discrimination on this basis, liability can flow from even the most facially neutral policies and/or practices. One of the best ways to avoid liability in this arena is to make sure that an individual’s credit is not an automatic bar to employment unless there is a very strong relationship between the individual’s credit history and the particular job.
Warren Buliox is an attorney at Gonzalez Saggio & Harlan LLP, practicing employment law in the Milwaukee office. He can be reached by telephone at 414-277-8500 or via email at firstname.lastname@example.org.