How to Navigate a Difficult Hiring Landscape

There are two groups few employers consider a legal risk, but which are a source of considerable interest with federal and local legislatures and regulators — the unemployed and those with problematic credit revealed in pre-employment credit checks.

It is axiomatic: employers are seeking candidates who are most qualified for an available position. Equally popular is the belief that past performance is one of the best indicators of future performance. With these tenets in mind, there is a growing concern that employers automatically exclude unemployed workers when filling an open job. The unemployed individual, the thinking goes, must be out of work and unable to find work for a reason. This is more than idle hand-wringing.

Put aside the effectiveness of using current employment as a job prerequisite — is this practice against the law? Until recently, the answer was probably no. There was no state or federal law that prevents limiting candidates to the currently employed. There was — and still is — however, a risk that an agency such as the EEOC could determine that such a policy has a disproportionate impact on a protected group like a particular race or the disabled. If the EEOC came to such a conclusion, this could make for an expensive and potentially high-profile class-like lawsuit.

In May, the District of Columbia enacted the first law in the nation to actually make discriminating against the unemployed illegal. The Unemployed Anti-Discrimination Act of 2012 makes it illegal to consider the unemployed status of an applicant in employment and hiring decisions. The law does not allow for a private lawsuit, but it does have teeth, including a series of incrementally higher fines for each violation, meted out by the District of Columbia Office of Human Rights. Some states may follow suit — California has considered a similar law. A 2011 attempt by President Obama to introduce a companion federal law failed, however.

A more evolved argument has developed around using poor credit as a reason to exclude otherwise qualified job applicants. The question posed is: isn’t poor credit history an indicator that an applicant may have issues making him or her less desirable for an open position, particularly where handling money or resources is involved? Employers, both public and private, have used credit checks as a qualifying benchmark for decades.

The EEOC has taken a dim view of refusing to hire candidates based on poor credit alone. The EEOC instructs that, unless the credit check is “essential to the particular job in question,” it could “tend to impact more adversely on minorities and females.” The EEOC is not taking this lightly. It has filed several nationwide systemic hiring discrimination lawsuits against private companies based on theories of disparate impact caused by credit and/or background checks.

State legislatures are not letting this issue rest either.

In May, Vermont became the eighth state to prohibit employers from using credit history in the hiring process. Vermont’s Act No. 154 (S. 95) generally precludes employers from even inquiring about credit history, let alone using credit reports or credit history information in the employment context. The act is premised on the legislature’s statement that credit reports “do not provide meaningful insight in to a candidate’s character, responsibility or prospective job performance.”

Based on these developments, coupled with the EEOC’s statements that the use of credit history may have a disparate impact on certain minority groups, employers are well advised to reassess their practices and polices on the use of credit information in employment.

The takeaway from both of these issues is complicated. These are still tough economic times, and excluding entire groups of job candidates from applying grates against our concerns around spiraling unemployment. On the other hand, employers in the grips of these same tough times must be incredibly careful who they select — employers are asking employees to do more with less, and can only afford to hire the highest qualified candidates.

Rebecca P. Bromet is a partner at law firm Seyfarth Shaw. She can be reached at editor@diversity-executive.com.