Massachusetts Set to Restrict Employers from Using Credit Checks in Making Employment Decisions

Seyfarth Synopsis: On March 14, 2024, the Massachusetts House of Representatives passed legislation that would prohibit employers from obtaining or using a true credit report for employment purposes. The proposed law, which includes only limited exceptions, would be one of the most restrictive of its kind in the country. The bill is expected to pass the Senate and be signed by Governor Maura Healey. If passed, the law would go into effect January 1, 2025.

Key Provisions

Scope of Restriction. The proposed law, titled “An Act Reducing Barriers to Employment Through Credit Discrimination” would amend Massachusetts Consumer Protection Law (G.L. c. 93A) and prohibit employers from requesting true credit reports from a consumer reporting agency (i.e., background check company or credit bureau). The law applies to information related to an applicant or employee’s “credit worthiness, credit standing, or credit capacity.” The law specifically prohibits employers from:

• using information in a credit report as a factor in determining eligibility for employment, promotion, reassignment, or retention;
• requesting or obtaining a consumer report for employment purposes;
• requiring an employee or applicant to answer a question about information contained in a background check report regarding credit worthiness, credit standing or credit capacity; or
• requesting that an employee or applicant waive their rights under the law.

Exemptions. The proposed law contains the following narrow exceptions to procuring and using credit information in the employment context:

• employers required by federal or state law (e.g., banks and credit unions) or the rules of a self-regulatory organization (e.g., registered securities exchanges and associations) to use a consumer report for employment purposes; and
• employees or applicants holding positions that require a national security clearance.

Although restrictive, the law applies only to credit checks and does not prevent employers from obtaining other kinds of background checks from consumer reporting agencies – e.g., criminal history reports, motor vehicle records, education and employment verifications, etc.

No Retaliation. The bill contains robust anti-retaliation and anti-discrimination provisions. Employers are prohibited from taking adverse action against applicants or employees for engaging in the following conduct:

• filing a complaint alleging a violation of the Consumer Protection law;
• alleging violations of the law;
• participating, assisting, giving evidence, or testifying in proceedings related to the new law; or
• opposing a violation of the new law.

Penalties. Violation of the proposed law would constitute an unfair trade practice under Chapter 93A allowing individuals to recover monetary damages, attorney’s fees, costs and, in the case of willful or knowing violations, double damages.

Comparison with Other State and Municipal Laws Governing Credit Checks. As noted above, if passed, this law would be one of the most restrictive in the United States. Eleven states (CA, CO, CT, HI, IL, MD, NV, NY, OR, VT, WA), the District of Columbia, Puerto Rico, and some municipalities (e.g., Philadelphia, New York City, Chicago, etc.) currently have laws limiting the use of credit checks in the employment context. The exceptions included in most of these laws are broader than those included in the Massachusetts law.

Some typical exceptions found in similar laws allow employers to conduct credit checks if the applicant or employee will (i) have access to confidential information, cash, or financial information (of the company, consumers, clients, etc.); (ii) significant managerial or operational responsibility; or (iii) if the credit history information is job-related. The standard for job-relatedness varies with some statutes requiring that employers show that credit information is “substantially” related to the job in question, whereas other laws require that credit history be “reasonably” related.

Action Items. Employers should monitor the progress of this bill and if it passes:

• Review their background check process and determine if they still desire to obtain credit checks on Massachusetts applicants or employees.
• If yes, they will need to assess:
  • whether they fall under any of the exceptions included in the new law; and
  • ensure their current process is compliant with laws regulating credit checks.
• If an exception does not apply, employers will need to:
  • stop performing credit checks for Massachusetts applicants or employees before January 1, 2025;
  • review their background check forms for Massachusetts applicants and employees and remove references to credit checks.

Employers with questions about the proposed legislation or other background check questions should reach out to their relationship partner or any member of the Seyfarth Background Screening Compliance Team.