Mark Pestronk
Q: Several apparently experienced agents have expressed interest in working with our agency as independent contractors (ICs). On the one hand, we could certainly use the additional volume. On the other hand, I am leery of potential fraud by ICs that I don't know. To prevent fraud, you have recommended that we check the credit of potential ICs, which seems like a good idea. Is it legal to refuse to retain an IC because of his or her bad credit? Do we need to get the potential IC's permission to make that check? Do we have to tell the applicant why we refused? Is there a specific notice that we have to give after we turn down an applicant?
A: Keep in mind that the relationship between an agency and an IC is a business-to-business (B2B) relationship. If you do that, my answers to most of your questions will be very clear.
You know that you can check the credit of potential corporate clients by getting a Dun & Bradstreet report, and you know that you can refuse to extend credit to the client based on what you find in the report. You can do the same with potential ICs, free of any anti-discrimination laws.
One big caveat here is that the relationship must not be an employment relationship in disguise. Under the laws of 15 states, you cannot base employment decisions on credit reports, and under federal civil rights laws, you cannot make credit-report-based decisions if doing so discriminates against a protected class.
Assuming that the relationship would not be reclassified as one of employment, then you don't need to give the applicant any advance notice that you are going to check his or her credit, and you don't need the applicant's permission to check. However, it is a good idea to give advance notice anyway, as it will deter some potential fraudsters with bad credit from pursuing the relationship with your agency.
If the applicant is a corporation, partnership or limited liability company, you don't even need to tell the applicant that you made a decision based on a credit report. On the other hand, if the applicant is an individual, the federal Fair Credit Reporting Act (FCRA) requires a particular form of notice.
The distinction between legal entities, on the one hand, and individuals, on the other hand, seems odd in a B2B relationship. It exists because the FCRA applies to "consumers," and the law defines consumer as an individual, with no B2B exception.
Therefore, if you base a decision (in whole or in part) not to retain (or to terminate) an individual IC based on a credit report, you must provide a notice. The notice, which may be "oral, written or electronic," must contain:
- The name, address and phone number of the credit bureau (including a toll-free number for nationwide credit bureaus) that supplied the report.
- A statement that the credit bureau did not make the adverse decision and cannot explain why the decision was made.
- A statement that the person has the right to a free copy of their report from the credit bureau if requested within 60 days.
- A statement that the person has the right to dispute the accuracy or completeness of any information provided.
Mark Pestronk is a Washington-based lawyer specializing in travel law. To submit a question for Legal Briefs, email him at [email protected].