Tread carefully with credit checks: Privacy commissioner

‘Reasonable’ connection with job must be shown
By Shannon Klie
|Canadian HR Reporter|Last Updated: 03/23/2010

An investigative report by Alberta’s privacy commissioner — which banned Mark’s Work Wearhouse from performing credit checks during pre-employment screening for sales associate positions — is a reminder to employers to carefully consider when and how to collect personal information.

“It’s another confirmation, really, that people who are in charge of hiring really need to think about what types of requirements they have and what types of information they’re going to request,” said Stuart Rudner, a partner in Miller Thomson’s labour and employment group in Toronto.

Alberta’s Office of the Information and Privacy Commissioner investigated Mark’s Work Wearhouse after a sales associate applicant filed a complaint following a pre-employment credit check.

The retailer told the investigator it conducted pre-employment credit checks because the information demonstrates how job applicants will handle financial responsibilities and whether they are at risk for committing in-store theft or fraud.

But the personal credit information collected by the retailer was not reasonably required to assess the complainant’s ability to perform the duties of a sales associate or to assess whether he might have a tendency towards committing in-store theft, found the investigator.

“Companies need to make sure they can really tie the responsibilities for the position that they’re hiring for to the need for collecting the various pieces of information, in particular credit information,” said Dan Fallows, managing director of pre-employment screening, records and research at Garda in Toronto.

Even though a sales associate would handle cash, which would usually be a reasonable requirement for a credit check to prevent in-store theft or fraud, Mark’s Work Wearhouse had several other controls in place to prevent such illegal actions, said Fallows.

“Not only do you have to look at what the responsibilities are but what other controls are in place that could achieve the same ends,” he said.

However, when hiring for a manager who is above those controls, a credit check would be more reasonable, said Fallows.

The controls, as identified by the investigator, included security cameras in 68 per cent of corporate stores, a requirement all employee purchases and returns be completed by a manager and a minimal amount of cash be kept in a cash register (with excess cash removed every two-and-a-half to four hours).

When the privacy complaint was first filed, the retailer “ceased collecting personal credit information of sales associate applicants in July 2008,” said Amy Cole, a spokesperson for Canadian Tire, which owns Mark’s Work Wearhouse. “We strive to honour the spirit and letter of provincial and federal privacy requirements,” she added.

Too often, employers don’t spend enough time on interviews and reference checks when it comes to hiring lower-level employees, so they rely heavily on credit checks to make the hiring decisions, said Mark Rowbotham, general counsel for Canada at Hewitt in Toronto.

“They will have to link credit checking, if they still want to do it, to a particular job function and link it to a specific concern that they have around that job function,” said Rowbotham.

Alternatively, employers will need to get more creative and look to other hiring methods, such as broad interviews, he said. And employers always need to ensure the types of requirements they have don’t put them offside on any privacy or human rights laws, said Rudner.

“We’ve always recommended that companies, unless it is entirely appropriate and relevant to the job, that they not use credit information to make a hiring adjudication,” said Dave Dinesen, CEO of Vancouver-based pre-employment screening company BackCheck.

For example, a director of a company cannot legally have a bankruptcy on his record, said Dinesen. It is also appropriate to do checks for many positions in banks and casinos.

Credit checks are also the easiest, and most reliable, method to verify identification, added Dinesen.

This case is an opportunity for employers to not only review background checking policies in the context of privacy requirements but also determine whether the policies are limiting the potential labour pool, said Rowbotham.

“Especially given the economy, the way it’s been in recent years, credit problems will be more prominent,” he said.

Recent graduates with student loans, new Canadians who haven’t built up credit in Canada and people hit hard by layoffs are all excellent sources of labour but could be eliminated from consideration by certain credit-checking policies, he said.

“This decision, if HR professionals take a look at it, will allow them take a look at some of their policies around credit checking and ask if a blanket credit check is really beneficial,” said Rowbotham.


United States laws

Banning credit checks

Legislators in at least 16 states across the United States have proposed banning most pre-employment credit checks because the practice prevents many people with past financial problems from finding work, effectively trapping them in debt.

Most of the bills now before state legislatures are similar to laws in Hawaii and Washington that prevent employers from using credit reports for most positions but contain exceptions for jobs where the information could be relevant — such as a bank or accounts payable office.

There is also a similar bill before Congress, which would change the federal laws, but it has been in committee since last summer.

The proportion of employers running credit checks on at least some applicants has increased from 42 to 60 per cent in the past three years, according to surveys from the Society for Human Resources Management.

Employers say credit checks give them valuable information about how an applicant will handle responsibility and his predisposition to theft or fraud.

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