There has been some discussion about conducting credit checks on all employees before they are hired at our company. Is this legal? Is there anything we need to be aware of before we proceed?
Question: There has been some discussion about conducting credit checks on all employees before they are hired. Is this legal? Is there anything we need to be aware of before we proceed?
Answer: Though seemingly innocuous, a request for a credit check can result in an employer running the risk of violating an employee’s right to privacy. Privacy commissioners have held that credit checks are an extremely invasive measure, due to the personal nature of the information being collected.
This aversion to across the board credit checks is evident in Personal Information and Protection of Electronic Documents Act case summary #40 (March 12, 2002), in which a bank required all customers to consent to credit checks before an account was opened, purportedly to reduce the risk of fraud. Though not an employment law decision, it demonstrates the stance against mandatory credit checks that privacy commissioners have taken.
The commissioner said he was opposed to such checks “as a matter of course,” and that such checks should be limited to persons actually seeking credit, where they could realistically help in determining the financial risk the bank would face in choosing to extend credit. In addition, even if credit checks were only conducted on those actually seeking credit, the commissioner found there was no evidence the checks actually reduced the risk of fraud.
The Alberta Privacy Commission has applied the same reasoning to an employment decision, finding in Investigation Report P2005-IR-008 (Aug. 24, 2005) that it was inappropriate to require a credit check when hiring an employee who would have access to petty cash and a company credit card, since the credit check itself would not be an indicator of her trustworthiness in these areas. In Investigation Report F2004-IR-003 (Dec. 10, 2004), the Alberta Commission noted that conducting credit checks leads to an increase in an employer’s responsibilities, and that employers must exercise great care in collecting and making use of this personal information.
An action alleging the common law tort of invasion of privacy has recently been allowed to proceed in Ontario (Somwar v. McDonald’s Restaurants (2006), 79 O.R. (3d) 172 (S.C.J.)).
The worker is claiming that the employer, by conducting an unauthorized credit check, has invaded his right to privacy. In the labour context, there is precedent for the granting of interim relief to stop an employer from unilaterally implementing a process of employee security checks and credit checks: see Ontario (Management Board Secretariat) and O.P.S.E.U. (Re) (2003), 117 L.A.C. (4th) 128 (Stewart).
A general policy of conducting credit checks at hiring is not a good idea for any employer, since it leaves the employer open to allegations of privacy violation. An employer would be more prudent to determine which positions would allow a prospective employee a real opportunity to engage in fraud, and whether knowledge of the credit history of the prospective employee would substantially reduce the risk of fraud occurring. The benefits of performing credit checks on all employees generally do not outweigh the potential risks associated with requiring these checks.
Finally, there may be statutory restrictions that ought to be taken into account depending on the jurisdiction. For example, in Saskatchewan, The Credit Reporting Act establishes a number of restrictions and requirements including that the individual must consent to the request for a credit report for employment purposes. It would be important to be aware of any statutory requirements in your jurisdiction in relation to this issue as well.
Brian Kenny is a partner with MacPherson Leslie and Tyerman LLP in Regina. He can be reached at (306) 347-8421 or [email protected].
Answer: Though seemingly innocuous, a request for a credit check can result in an employer running the risk of violating an employee’s right to privacy. Privacy commissioners have held that credit checks are an extremely invasive measure, due to the personal nature of the information being collected.
This aversion to across the board credit checks is evident in Personal Information and Protection of Electronic Documents Act case summary #40 (March 12, 2002), in which a bank required all customers to consent to credit checks before an account was opened, purportedly to reduce the risk of fraud. Though not an employment law decision, it demonstrates the stance against mandatory credit checks that privacy commissioners have taken.
The commissioner said he was opposed to such checks “as a matter of course,” and that such checks should be limited to persons actually seeking credit, where they could realistically help in determining the financial risk the bank would face in choosing to extend credit. In addition, even if credit checks were only conducted on those actually seeking credit, the commissioner found there was no evidence the checks actually reduced the risk of fraud.
The Alberta Privacy Commission has applied the same reasoning to an employment decision, finding in Investigation Report P2005-IR-008 (Aug. 24, 2005) that it was inappropriate to require a credit check when hiring an employee who would have access to petty cash and a company credit card, since the credit check itself would not be an indicator of her trustworthiness in these areas. In Investigation Report F2004-IR-003 (Dec. 10, 2004), the Alberta Commission noted that conducting credit checks leads to an increase in an employer’s responsibilities, and that employers must exercise great care in collecting and making use of this personal information.
An action alleging the common law tort of invasion of privacy has recently been allowed to proceed in Ontario (Somwar v. McDonald’s Restaurants (2006), 79 O.R. (3d) 172 (S.C.J.)).
The worker is claiming that the employer, by conducting an unauthorized credit check, has invaded his right to privacy. In the labour context, there is precedent for the granting of interim relief to stop an employer from unilaterally implementing a process of employee security checks and credit checks: see Ontario (Management Board Secretariat) and O.P.S.E.U. (Re) (2003), 117 L.A.C. (4th) 128 (Stewart).
A general policy of conducting credit checks at hiring is not a good idea for any employer, since it leaves the employer open to allegations of privacy violation. An employer would be more prudent to determine which positions would allow a prospective employee a real opportunity to engage in fraud, and whether knowledge of the credit history of the prospective employee would substantially reduce the risk of fraud occurring. The benefits of performing credit checks on all employees generally do not outweigh the potential risks associated with requiring these checks.
Finally, there may be statutory restrictions that ought to be taken into account depending on the jurisdiction. For example, in Saskatchewan, The Credit Reporting Act establishes a number of restrictions and requirements including that the individual must consent to the request for a credit report for employment purposes. It would be important to be aware of any statutory requirements in your jurisdiction in relation to this issue as well.
Brian Kenny is a partner with MacPherson Leslie and Tyerman LLP in Regina. He can be reached at (306) 347-8421 or [email protected].
