Credit Checks: Yes or No?

As reported by the Wall Street Journal and by SHRM the EEOC has been holding hearings whether the use of credit checks on potential employees should be utilized by a company in making a hiring decision. Representatives from SHRM (tesitmony can be found here), the US Chamber of Commerce, the law firm of SeyfarthShaw, LLP, and others testified on behalf of continuing the practice of using credit checks. Advocates for low income individuals testified against their use. The major point appears to be that poor credit potentially could be a bar to gaining employment in these tougher economic times. I have had some clients and students inquire about the use of credit checks as well. So I thought I would weigh in on the subject for my readers.

Credit checks usage as a background check, and indeed all background checks, are treated the same as consumer credit checks and are governed by the Fair Credit Reporting Act. The FCRA requires that you have an applicants permission to check their background. It also requires that if you make some adverse determination on the basis of that background check that you inform them, give them an opportunity to respond and to potentially correct the information if it is indeed incorrect. You can find the entire FCRA here. (Note it is an 86-page document.) The law does hold a company to the standard of insuring that their practices do not result in disparate impact, recognizing that minorities have historically have poorer credit records than do non-minorities, in some cases due to discrimination.

So the major complaint about the use of credit history as a hiring tool is that some companies use it across the board for all applicants as an indicator of "character" and "personal responsibililty." They deem this as "fitness for the job." In my opinion this is a poor decision making process and a misuse of the law. Character and personal responsibility are better left to the interview. Using the credit report is the lazy way out. Of course if they screw this up, they may be conducting illegal interviews as well.

What is the proper use of the credit check as a decision making tool? Determining if the position requires the employee to handle company money, company credit, customer money or customer credit, such as access to credit cards. Putting people in these positions without a credit check could expose the company to liability, either due to internal theft or to theft of consumer information. Let me give an example. I once ran across a company that would do a credit check on an employee on a whim. Poor decision making. Unfortunately for them, the one person they did not credit check was the person they hired to be their accountant. She had a good resume and she interviewed very well. She came across as trustworthy. So imagine their surprise when auditors discovered that she had embezzled over $60,000. If they had check her credit they would have discovered that she was $120,000 in debt. That might not have altered their decision to hire her, after all she was a good accountant. But it might have put them on alert to more closely manage her work. Either way money, time, effort, and heartache might have been prevented.

So my answer to the question in the title is YES. I would use, and have used, credit checks in making determinations on candidates for positions in which the future employee would be exposed to things that might damage my company or a client of the company. If you are running a piece of machinery, interviewing candidates, emptying the trash, filing reports, sewing clothes, cleaning the carpet I don't care what your credit history has been. I just require that you come to work and do a good job. If your credit history gets your car repossed then it might become an issue, but only if you can no longer get to work.

Will companies continue to use the credit check incorrectly? I am pretty sure the answer to that is YES. These are probably also the same companies that violate the FLSA, the Civil Rights Act, FMLA, the ADA and most of the other laws. Does that mean all of those have to be changed? Nope. Just need to penalize companies that violate them.

There is no one-to-one connection between your character and your credit... not today anyway.

So what do you do? Are you a YES or a NO?

You can find a differing opinion from Lance Haun here.

Does Unemployed = Unqualified? Refusing to Hire the Long-Term Unemployed

A trend in hiring seems to be developing. According to Don Chapman, a reporter for the Atlanta-Journal Constitution, an increasing number of companies, looking for both white collar and blue collar workers, are specifying in the "Want Ads" that workers who have been unemployed since 2009 need not apply. In his article "Long-term jobless told not to apply" Mr. Chapman relates a number of stories of applicants being turned away because they have been unemployed for more than six months.

The reasons being given by employers vary. The include:

• We only want people who have current skills
• We only want people who are motivated
• Someone thought they were deadwood, why would we want them
• If they were good they would be employed
• Using time of unemployment as a screening tool lets us keep our applicant pool manageable.

The question is: Is this the proper way to go about this? Sure I understand some of the reasoning and motivation behind what is being done, but I can think of other ways to accomplish this without the VERY PUBLIC DOWNSIDE to running an ad like this. And what is the downside? Here is a list.

1. First, you get your company named splashed all over the front page in a very negative way.
2. You may be engaging in disparate impact which will get you investigated by the EEOC. AND THEY ARE WATCHING. Disparate impact comes from the fact that a larger percentage of the long term unemployed are racial minorities, older workers or the disabled and by having an across-the-board ban on long term unemployed applicants you are discriminating against them. You will have the burden of proof in defending your "bona fide" business reason for using that selection process.
3. You are SCREAMING "COME AND ORGANIZE US"  to any union paying attention. If you are "unfair" in one aspect of your business you may be "unfair" in another and your employees may be good targets for the "help" of a union.
4. You may actually be missing some very good workers. Maybe an applicant has gone and gotten recent training in the job for which they are applying and thus may be more current or safer than even the people you have on staff right now. If you will not accept their application you will never know. You may also be missing people who will be hard working and productive because they have had a taste of unemployment and they don't like it. They want to avoid it in the future and so they will bust their butts to be good in order to avoid it in the future.

So what can you do to avoid having to look at 10,000 applications? Here are some suggestions:

1. Be more specific in your minimum requirements. "Must be able to lift 50 lbs. and have warehouse experience" is going to get you way too many people. Besides you have to be willing to make a reasonable accommodation on the lifting. If you have a particular warehouse computer system then make experience with that a minimum requirement. Increasing your "minimum requirements" and stating that they are a minimum will help some.
2. If you have a particuar skill that is necessary and you want to make sure that the applicant has it use a screening test. There are commercial tests that have been shown to be both valid and reliable that will help you cull through applicants.
3. If you are anticipating a large volume of applicants and don't have the staff to handle it, then consider outsourcing the process.
4. Don't accept applications if you don't have an opening.

Those are just a few suggestions. I am sure my recruiting friends out there can come up with other suggestions. Or do some of you think this trend is the best way to go? I would like to hear some "PRO" arguments if you have one.

I know the truism that "a currently employed candidate is the best candidate" is still widely held in the business world among HR people. However, in today's world it may not be so true and certainly may not be the most prudent method to use to fill most jobs.