In California, employees are protected by employment laws that prohibit hiring discrimination based on race, color, ancestry or age. However, in a job market that has become increasingly competitive since the beginning of the latest recession, employers are using personal credit histories to make hiring and firing decisions.
Using credit histories can lead to employment discrimination and in some cases even racial discrimination. Under Title VII of the Civil Rights Act, it is illegal to make hiring decisions that have an unequal racial impact. Using credit histories to make hiring decisions could violate the Civil Rights Act if it causes employers to pass on minorities more frequently.
A recent survey shows that almost 60 percent of employers run a credit check before hiring. Employers claim these checks are necessary to determine if the applicant is trustworthy, reliable and to reduce the possibility of legal trouble in the future.
For employees, on the other hand, these checks on their credit history can mean the difference between getting an interview or not. Credit checks could hurt potential employees' chances and may not actually reveal personal character.
In these difficult economic times, many people have lost their jobs and subsequently their credit history is negatively impacted. This negative credit history is then used against them in their search for a new job. Basically, a cycle is created making it more difficult for those with poor credit to get a smaller number of jobs.
In an effort to stem this discrimination, California enacted a new law in January to protect employees. This law prohibits employers from running credit checks on potential employees unless the information is pertains to the job the person is applying for.
Source: The Sacramento Bee, "In tight job market, background checks' influence raises questions," Tony Pugh, March 20, 2012