Washington Law on Use of Credit Reports in Employment

Washington restricts an employer's right to consider credit reports in making job decisions.

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The state of Washington was among the first in the nation to limit the circumstances in which employers may use credit reports in making employment decisions. Washington has adopted the notice and authorization requirements of the federal Fair Credit Practices Act, to make sure applicants and employees know when their credit reports are used and have an opportunity to correct errors in those reports. But Washington also goes a step further, to prohibit employers from using credit information in some situations.

Washington Notice and Disclosure Requirements

The federal Fair Credit Reporting Act (FCRA) requires employers to follow certain procedures if they wish to pull and use an employee’s credit report or consumer report (for example, a background check compiled by an outside agency). For example, the employer must get the subject’s written authorization before pulling a report. And, before making any decisions about employment based on the information in the report, the employer must give the person notice and information on how to correct erroneous data in the report. (For more information on what the FCRA requires, see our article Can Prospective Employers Check Your Credit Report?)

Washington has adopted similar procedural safeguards. An employer that wants to use an applicant’s consumer report in making a hiring decision must either get the applicant’s written authorization or provide a disclosure, in writing, that clearly and conspicuously informs applicants that their consumer reports may be obtained as part of the hiring process. (This disclosure can be part of the employer’s written application.) For current employees, the employer must provide written notice (for example, in an employee handbook) that consumer reports may be pulled and used for making employment decisions.

Like the FCRA, Washington law also requires employers to give notice before using a consumer report as the basis for an adverse employment decision. Among other things, this notice must provide the name and contact details of the reporting agency that provided the information. The employer must also give the employee or applicant a reasonable opportunity to dispute any information in the report.

Legal Limits on Employer Use of Credit Reports

The federal FCRA imposes notice requirements on employers. However, as long as the employer provides the necessary notices, federal law allows the employer to use an applicant’s or employee’s credit information as it sees fit.

Washington has taken a different approach. An employer is entitled to use a consumer report that includes information bearing on the subject’s creditworthiness, credit standing, or credit capacity only if the information is:

  • substantially related to the job and the employer’s reasons for using it are disclosed, in writing, or
  • required by law.

For example, an employer hiring for a high-level budgeting position might argue that an applicant’s inability to balance his or her own checkbook, as demonstrated by missed payments and collection actions on the person’s credit report, should disqualify that person from consideration for the job. However, an employer hiring a data entry clerk, IT expert, or marketing assistant might have trouble demonstrating that an applicant’s less-than-stellar credit report has a substantial relationship to his or her ability to do the job. 

by: , J.D.

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