Proposed Texas Legislation Would Limit Employers’ Ability to Use Employees’ and Job Applicants’ Credit Information

24 March 2017 Labor & Employment Law Perspectives Blog

Texas State Representatives Terry Canales (District 40, serving part of Hidalgo County) and Nicole Collier (District 95, serving part of Tarrant County) have proposed legislation related to employers’ consideration of credit information for employees and job applicants.  HB 317 amends Chapter 52 of the Texas Labor Code by generally prohibiting a covered employer’s use of an employee’s or job applicant’s “credit score, credit account balances, payment history, savings or checking account balances, or savings or checking account numbers” as a “condition of employment” unless the employer meets one of 4 exceptions.  HB 317 has been pending in the Business and Industry Committee since testimony was first heard on the proposed legislation (in its original form) on March 13, 2017, but a vote is expected soon on this controversial bill.

Representative Canales testified at the March 13 committee hearing that agencies report that 20% of all credit reports have “major errors” that are difficult for individuals to dispute and that medical bills account for around 52% of all overdue debt on credit reports.  He further argued that there is “no evidence” that lower credit scores lead to lower work performance.  The proposed legislation, according to its author, is geared to rectify a “catch-22” for employees who lose their jobs and therefore fail to pay their bills, but then cannot obtain subsequent employment because their credit score was adversely affected by that failure.  At the end of the hearing, the committee instructed Representative Canales to work with certain interested parties to put forth a substitute bill that tried to account for their additional input.

In its current form though, HB 317 is not without limit in its application.  The proposed legislation would not apply to employers who have less than 15 employees in 20 or more calendar weeks in the current or preceding calendar year (i.e., persons who do not meet the definition of “employer” in Tex. Lab. Code § 21.002(8)).  And it does not prohibit use of credit information if a covered employer: (1) is a “financial institution” or regulates the financial services; (2) is required to use it by law; (3) “reasonably believes” the individual has violated the law related to his or her employment; or, (4) the information is “substantially related to the employment position” and the employer has a “bona fide employment purpose” for the information and discloses its intent to and reason for its use to the individual.

The fourth exception above may ultimately prove to be the most contested part of the proposed legislation because of its expansive language.  The definition of “substantially related to the employment position” contains various criteria that potentially cover a multitude of positions.  These positions include: (1) a manager involved in the direction or control of the employer (or even just a part of it); (2) an employee who has access to customers’, coworkers’, or the employer’s personal or financial information (other than in retail scenarios); (3) an employee with any fiduciary responsibility to the employer; (4) the employee has an expense account or corporate credit card; (5) the employee has access to $2,005 or more worth of the employer’s nonfinancial assets; or, (6) the employee has access to confidential, proprietary, or trade secrets information.

Employers are likely to argue that they can meet one or more of those criteria and have the required “bona fide employment purpose” for use of the information, and employees may counter that such arguments are shams.  Because the phrase “bona fide employment purpose” is not defined in the proposed legislation, there may be wiggle room on both sides of the equation for argument.  That wiggle room would likely be defined (or confined, as the case may be) through case law in order to give employers and employees more predictability regarding their obligations and rights under the bill’s provisions.  One potential solution may be to incorporate, by statute or later through case law, a burden shifting analysis similar to that used in other Texas Labor Code or federal Title VII cases.

Employers are likely to monitor this proposed legislation, and any future iterations of or substitutes for it, because it comes with up to a $1,000 per instance price tag for employers who violate it.  If passed, the bill would generally take effect September 1, 2017, unless an adverse employment action is involved, in which case the bill would govern adverse actions after January 1, 2018.  Before and after the effective date though, employers still need to be cognizant of the federal Fair Credit Reporting Act, which likewise outlines certain obligations associated with an employer’s use of a variety of background information, including credit reports.

The full text of the proposed legislation (in its current, publicly available form) can be read here.

This blog is made available by Foley & Lardner LLP (“Foley” or “the Firm”) for informational purposes only. It is not meant to convey the Firm’s legal position on behalf of any client, nor is it intended to convey specific legal advice. Any opinions expressed in this article do not necessarily reflect the views of Foley & Lardner LLP, its partners, or its clients. Accordingly, do not act upon this information without seeking counsel from a licensed attorney. This blog is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Communicating with Foley through this website by email, blog post, or otherwise, does not create an attorney-client relationship for any legal matter. Therefore, any communication or material you transmit to Foley through this blog, whether by email, blog post or any other manner, will not be treated as confidential or proprietary. The information on this blog is published “AS IS” and is not guaranteed to be complete, accurate, and or up-to-date. Foley makes no representations or warranties of any kind, express or implied, as to the operation or content of the site. Foley expressly disclaims all other guarantees, warranties, conditions and representations of any kind, either express or implied, whether arising under any statute, law, commercial use or otherwise, including implied warranties of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Foley or any of its partners, officers, employees, agents or affiliates be liable, directly or indirectly, under any theory of law (contract, tort, negligence or otherwise), to you or anyone else, for any claims, losses or damages, direct, indirect special, incidental, punitive or consequential, resulting from or occasioned by the creation, use of or reliance on this site (including information and other content) or any third party websites or the information, resources or material accessed through any such websites. In some jurisdictions, the contents of this blog may be considered Attorney Advertising. If applicable, please note that prior results do not guarantee a similar outcome. Photographs are for dramatization purposes only and may include models. Likenesses do not necessarily imply current client, partnership or employee status.

Related Services


FTC shuts down bogus debt collectors of “phantom debt”!
28 September 2021
Internet, IT & e-Discovery Blog
COVID-19 Vaccinations Required for Covered Contractors by December 8, 2021
28 September 2021
Legal News: Government Solutions & Government Procurement
Foley Weekly Automotive Report
28 September 2021
Coronavirus Resource Center:Back to Business
Podcast Episode 65: Justin Talbot, Senior Patent Agent
28 September 2021
Foley Career Perspectives
17th Annual IP Conference
12 November 2021
Chicago, IL
HLTH Conference 2021
17-20 October 2021
Boston, MA
Supply Chain and Sustainability Summit
12 October 2021
30th Annual Law of Product Distribution & Franchise Seminar
7 & 20 October | 3 November 2021