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Your Legal Corner - Client Alert Blog

Most California Employers Now Prohibited From Performing Employee Credit Checks

Written By: Melissa C. Marsh, Esq., California Attorney, November 2011 Add to Favorites
Effective January 1, 2012, Labor Code section 1024.5 prohibits most California employers from obtaining a consumer credit report on a job applicant and/or employee, except in very limited circumstances. Beginning January 1, 2012, California employers may only obtain, or request, a consumer credit report on an employee, or prospective employee, if the employee falls into one of six categories, including:
  1. An employee that qualifies for the "executive" overtime pay exemption;
  2. An employee who the law otherwise requires the employer to perform a credit check;
  3. An employee who has, or will have, regular access to bank and/or credit card account information, or the social security number and date of birth of the employer or any of its clients;
  4. An employee who is, or will be, a signatory on the employer's bank or credit card account(s), authorized to transfer money on behalf of the employer, or authorized to enter into financial contracts on behalf of the employer;
  5. An employee who is, or will have, regular access to $10,000 or more in cash belonging to the employer, or the employer's client(s); and
  6. An employee that will or has access to "trade secrets" as defined in the California Civil Code.
If the employee, or prospective employee, falls within one of the above six (6) exemptions, the employer may still request a credit check, but must do so in compliance with all federal and state notice and procedural requirements. As to California's notice requirements, effective January 1, 2012 A.B. 22 amends California Civil Code 1785.20.5 to require the employer before obtaining a credit report to provide the prospective employee with advanced written notice identifying the specific basis under Labor Code section 1024.5(a) for use of the report. Existing state law further mandates that the written notice inform the prospective employee of the source of the report and contain sufficient space for the prospective employee to request a copy of the credit report. If the employer later makes an adverse employment decision based on information contained in the prospective employee's credit report (e.g. a decision not to hire), the employer is required to inform the applicant and provide the name and address of the consumer credit agency that provided the report.

It should be noted that California employers may, and most should, continue to check a prospective employee's references and where appropriate may want to conduct a criminal background check.

Tags: employee credit check
Posted In: Employment Law News 

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Disclaimer: The information presented on this web site was prepared by Melissa C. Marsh for general informational purposes only and does not constitute legal advice. The information provided in my articles and alerts should not be relied upon, or used as a substitute for professional legal advice from an attorney you retain to advise or represent you. Your use of this Internet site does not create an attorney- client relationship. Transmission of this article is not intended to create, and receipt of it does not constitute, an attorney-client relationship. All uses of the contents of this site, other than personal uses, are prohibited. You may print or email a copy of any information posted on this web site for your own personal, non-commercial, use, but you may not publish any of the articles or posts on this web site without the Express Written Permission of Melissa C. Marsh.

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Located in Los Angeles, California, the Law Office of Melissa C. Marsh handles business law and corporation law matters as a lawyer for clients throughout Los Angeles including Burbank, Sherman Oaks, Studio City, Valley Village, North Hollywood, Woodland Hills, Hollywood, West LA as well as Riverside County, San Fernando, Ventura County, and Santa Clarita. Attorney Melissa C. Marsh has considerable experience handling business matters both nationally and internationally. We routinely assist our clients with incorporation, forming a California corporation, forming a California llc, partnership, annual minutes, shareholder meetings, director meetings, getting a taxpayer ID number (EIN), buying a business, selling a business, commercial lease review, employee disputes, independent contractors, construction, and personal matters such as preparing a will, living trust, power of attorney, health care directive, and more.