Job Applicant Fairness Act (Maryland)

MARYLAND’S JOB APPLICANT FAIRNESS ACT PRESENTS A POTENTIAL MINEFIELD FOR UNWARY EMPLOYERS

In most states, employers can run a credit check on applicants for employment, subject to applicable federal law on background screening.  Recently, however, the State of Maryland enacted legislation barring this practice for most employers in Maryland.  The Maryland Job Applicant Fairness Act (“JAFA” or “Act”), enacted April 12, 2011, prohibits employers from utilizing a person’s credit reports or credit history in (1) determining whether to hire or fire an employee or (2) using credit reports or credit history as a basis for determining employment compensation or the terms, conditions, or privileges of employment.  Effective October 1, 2011, the JAFA makes employers who willfully or negligently violate the Act subject to penalties of up to $500 for an initial violation and up to $2,500 for a repeat violation

Several exceptions exist that still allow some employers to continue using credit reports in making employment decisions.  For example, certain financial institutions or registered investment advisors may continue to use credit reports as a basis for hiring or firing employees.  Maryland employers may also still request or use an applicant’s or employee’s credit report or credit history if:

(a)  the applicant has received an offer of employment and the credit report or credit history will be used for a purpose other than making a hiring or firing decision or determining compensation or the terms, conditions, or privileges of employment; OR

(b) the employer has a bona fide purpose for requesting or using information in the credit report that is substantially job related and disclosed in writing to the employee or applicant.

Determining whether an employer has a bona fide purpose for requesting the information is likely to generate substantial future controversy.  According to the Act, employment positions in which the employee may have access to confidential business information will support a finding the employer has a bona fide purpose of using information contained in the employee’s credit report.  Since most employers believe that there are unique aspects of their businesses that must remain confidential to ensure a competitive advantage, it may be predicted that many employers will try to take advantage of this exception.  After this law goes into effect, expect courts to grapple with the breadth of this “bona fide purpose” exception and struggle to interpret the statute in a way that prevents the exception from swallowing the rule.