Miami Employment Lawyer Blog

I have seen a disturbing trend in the South Florida job market. Many clients have come into my office in Miami stating that they have been rejected for a job based on information in their credit report. Indeed, the practice of disqualifying a job applicant because of his or her negative credit history is becoming increasingly widespread. A recent study by the Society of Human Resource Management found that almost half of employers nowadays use credit checks as a screening measure for new employee hiring. In addition, a study by the University of Florida also found that almost half of all retail employers now use credit checks as a job screening tool.

This practice, however, may constitute unlawful discrimination. Specifically, Title VII of the Civil Rights Act of 1964 prohibits hiring practices that disadvantage minorities, even if the practice is facially neutral, unless the company can prove that the practices are related to measuring a person's capability to do a job. The Supreme Court of the United States stated long ago in Griggs v. Duke Power Company, 401 U.S. 424 (1974) that a facially neutral hiring practice that has a disproportionate impact on minorities is illegal unless it is job related for the position in question and consistent with business necessity. In addition, recently, the U.S. Equal Employment Opportunity Commission's (EEOC) assistant legal counsel noted that rejecting job applicants based on financial criteria such as a poor credit rating may have a disproportionate impact on minority groups.

With respect to credit checks, the evidence is overwhelming that minority groups have a worse credit score than non-minorities. In fact, in a study by the Federal Home Loan Mortgage Corporation (Freddie Mac), it was found that both African Americans and Hispanics have statistically significantly lower credit scores that their White counterparts. Furthermore, even the Federal Reserve found in 1991 that African American borrowers obtain loans far less often and on worse terms than non-minorities, concluding that there is widespread and institutionalized discrimination in the nation's banking system. Also, an article in the University of Miami Law Review in 2005 found that African Americans make up a disproportionate percentage of debtors in bankruptcy, which further affects a person's credit score. Therefore, it is unquestionable that minorities have on the average lower credit scores than non-minorities. As such, the use of credit checks in hiring practices will have a disproportionate impact on minorities and may constitute unlawful discrimination.

Because of these reasons, Courts are beginning to apply Title VII concepts to these types of employer practices. In fact, as early as 1974, a U.S. District Court in Illinois found that a police department could only use financial information in their background checks if using the information did not have an adverse impact on minorities or if it is job related and consistent with business necessity. See United States v. City of Chicago, 385 F. Supp. 543 (N.D. Ill. 1974). Recently, in 2004, an EEOC charge was filed against the Johnson & Johnson Company alleging that an employee was denied a position because of a credit check. That case resulted in a settlement that changed the way that the company uses credit checks in their hiring practices. Even the EEOC in a 2006 Directive for its Compliance Manual stated that the practice of screening job applicants based on credit history would be subject to challenge under the discrimination laws.

Despite this alarming trend, there may be some relief coming in the future. An example is the bill introduced on August 10, 2009 by Wisconsin State Representative Kim Hixon that seeks to prohibit the use of credit checks as a job screening tool by employers. According to Rep. Hixon, Assembly Bill 367 will stop employers from using poor credit history as a deciding factor for employment.