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

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.