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<The right to subject people applying for financial positions to credit checks >

The right to subject people applying for financial positions to credit checks

By Yosie Saint-Cyr, LL.B., Managing Editor, HRinfodesk.com---Canadian Payroll and Employment Law News, January 2011

Credit checks provide information on individuals' credit and financial histories. Many employers run credit checks on applicants during the selection and hiring process, especially for positions that involve financial responsibilities. However, this process has come under fire in recent months. For example, in 2006, Mark's Work Wearhouse in Alberta started running background credit checks on employees looking for work at the clothing store. The company wanted to assess how job applicants would handle the financial responsibilities and tasks of a sales associate in an attempt to avoid hiring sales associates it thought would be more likely to steal. However, after a complaint was filed with the Alberta Office of the Information and Privacy Commissioner, Mark's Work Wearhouse learned that such credit checks aren't permissible in the circumstances and agreed to stop conducting pre-hiring credit checks. The privacy commissioner found in 2010 that there was no reasonable connection between an individual's personal credit information and her or his ability to perform the duties of a sales associate. Mark's simply failed to provide a reasonable connection between its collection of the credit information and its purposes for collecting the information.

In another recent case, Alberta's privacy commissioner published an investigation report on a public body that performed credit checks on 25 employees, without their knowledge or consent, in order to determine whether any of them were involved in cashing fraudulent cheques. Twenty-five complaints to the privacy commissioner ensued. Upon review, the public body said performing the “credit checks was inappropriate and in error” and the privacy commissioner agreed, adding that since the public body was not authorized to collect the complainants' credit reports in the first place, it would not be authorized to use the information it collected from them. The commissioner believes that the public body has taken reasonable steps to address the issues of this investigation and to prevent a similar recurrence.

These and other cases are why we were curious to know what our readers think of credit checks. So we asked: Do you believe organizations should have the right to subject people applying for financial positions to credit checks? Out of 348 respondents, 201 (57.76%) versus 140 (40.23%) believe that organizations should have the right to subject people applying for financial positions to credit checks.

Many of you had comments that reflected the results of this poll. For example:

  • Absolutely on the right to request credit checks. We currently do it for financial positions only. If someone cannot manage their own assets properly, would we want them to manage ours with no accountability or loyalty? I don't think our owners would find that very responsible of us as a hiring department. Of course, we also include criminal checks and past employment references as part of the total process, and any credit information is shredded once a final hiring decision has been made and it doesn't become part of the permanent HR file.

However, some of you disagreed:

  • To assume that a person who is having financial difficulties would be more apt to be dishonest than one who is not is a form of profiling and discrimination. I'm sure if the stats were tallied it would show that the biggest white collar thieves were quite well to do, not to mention that in the current financial climate quite a substantial number of employees at all levels are finding themselves having to economize, which does not equate to being apt to steal.
  • I don't think credit checks should be allowed on people applying for a position whether it is financial or not. I work in the finance department, but for years I had very little work due to layoffs, etc., and as a result I probably don't have great credit, but that does not affect how I do my job. I feel I am a very efficient thorough employee who does the job to the best of my ability, but I probably wouldn't have this job if a credit check was done on me because of hard years prior to my obtaining this position. Now that I am employed I am getting my credit back on track, things are being paid on time because I have a full-time decent-paying job. Just because I had some very difficult financial years doesn't mean I won't be a model employee. People's private finances should not be allowed to enter into this hiring process.

The law

Employers obtain credit reports by paying a fee to a consumer reporting, credit reporting or employment background check agency.

In general, when employers hire new employees or evaluate employees for promotions, reassignments and retention, employers are allowed to use consumer reports/credit checks as long as an offer of employment is made, written consent is obtained, and where the need for such information is reasonably and genuinely related to the job. The need to obtain a person's credit history must be a bona fide occupational requirement.

Credit checks are often performed for positions that involve financial responsibilities. This is especially true if the position involves handling large sums of money or if the prospective employee will exercise financial discretion. If the position does not involve this type of responsibility, the employer must be very cautious. It is a good practice to limit the use of credit reports to situations where this type of information is necessary. Credit checks are also conducted in conjunction with employee bonding.

Before taking any adverse action related to employment, provide the individual with a copy of the consumer report and a description of the person's rights under the Consumer Reporting Act or similar legislation depending on the province or territory of employment. Employers must also give the employee/applicant the name, address and phone number of the agency that provided the report, so the individual can dispute inaccurate information.

If an applicant is denied employment for reasons relating to the credit report, the applicant must be informed of this fact and furnished with the name of the credit agency that issued the report.

However, as can be seen in the opening paragraph, in recent years, balancing privacy and security concerns has become an increasingly delicate issue when conducting credit checks on prospective employees.

It is important for employers to recognize that any decision to deny employment to a candidate who has been subjected to a background credit check may face a legal challenge if the individual alleges that the decision was improperly founded on a prohibited ground of discrimination, pursuant to information disclosed via the credit check. Remember, in each province and territory, human rights legislation prohibits employers from making employment-related decisions based on certain prescribed criteria (race, colour, national origin, ethnicity, disability, religion, etc.), unless those decisions are motivated by bona fide occupational requirements of the job that cannot be modified in accordance with the principle of “reasonable accommodation”.

Also, employers must keep the results of the credit report confidential and cannot include the information in personnel files.


Many employers have a justifiable interest in their employees' financial integrity and responsibility. However, many also harbour the conception or misconception that employees with large debts may have an incentive to steal, and employees who do not pay their bills may be unreliable in other ways—therefore, they will not meet their obligations on the job. On the other hand, credit reports are often perceived as inaccurate and thus their use may be perceived as unfair. Although a credit report is not necessarily a true judge of an employee's or applicant's character, employers still rely on them as an indication of the reliability of the individual on the job.

Unfortunately, credit reports don't explain the circumstances surrounding "why" individuals couldn't meet their financial obligations.

Avoid imposing blanket rules concerning employment of individuals with bad credit reports. Each case should be reviewed objectively and with only that specific individual's report and the position applied for in mind.