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You Wanna Background Check Me? Well, Be Careful Where You Look...by Cindy D. Hanson, Kali Wilson Beyah, Yendelela Neely, and John Jett With the economy in disarray, employers are finding themselves inundated with job applications. Increasingly, employers have turned to the use of background reports, such as criminal history and credit records, to assist in narrowing the applicant pool to a manageable level. According to one 2009 survey, 93 percent of the 1,411 employers questioned reported that they conduct criminal records checks on job applicants. Approximately half of those employers reported that they also check applicants' credit histories. And who can blame them? For the nominal fee of a comprehensive background check, an employer can get: (1) a glimpse of the person that is not revealed in the employment application (i.e. fiscal prowess, propensity for trouble, driving ability); (2) a potential shield from negligent hiring or retention suits; and, (3) hopefully, a significant decrease in their loss, fraud, and productivity issues. Unfortunately, these employers are also getting something they did not bargain for. In addition to finding out the nitty-gritty of job applicants' histories, employers are also finding themselves as defendants in large, unexpected discrimination lawsuits brought by the U.S. Equal Employment Opportunity Commission (EEOC) as well as groups of private litigants. Between 2003 and 2006, the number of background-check-based employment discrimination charges filed with the EEOC, the government agency charged with enforcing federal antidiscrimination laws, increased by more than a factor of four. In 2007 alone, 304 charges regarding employment selection procedures, including background checks and credit reports, were filed with the EEOC. Due to these record numbers, the EEOC has taken a "keen interest" in employers' use of background checks, particularly criminal reports and credit histories. Title VII of the Civil Rights Act of 1964 has been the primary tool for challenging the results of background checks. Title VII prohibits employers from hiring or refusing to hire individuals based on their race, gender, national origin, color, or religion. In addition to prohibiting disparate treatment, Title VII prohibits facially neutral tests and selection procedures that have the unintentional effect of disproportionately excluding (i.e., have a "disparate impact" on) applicants of a particular race, gender, national origin, color, or religion, unless such tests or selection procedures are "job related for the position in question and consistent with business necessity." The EEOC has long taken the position that, due to the disproportionate conviction and arrest numbers of African American and Hispanic people as compared to white people, blanket policies regarding and employment decisions based on arrest and conviction information are presumed to have a disparate discriminatory impact on African American and Hispanic applicants. Likewise, because of the racially correlated disparities in credit ratings, the EEOC has also indicated that credit-based background checks could have a disparate discriminatory impact on minority job applicants. In its justification for the E-RACE ("Eradicating Racism and Colorism from Employment") Initiative, a program launched by the EEOC in 2007 to increase race and color antidiscrimination enforcement efforts from 2008 through 2013, the agency explicitly stated that facially neutral employment criteria, such as arrest and conviction records and credit scores "are significantly disadvantaging applicants and employees on the basis of race and color." The EEOC's E-RACE initiative, and the specialized task force that the EEOC formed to investigate patterns of discrimination and litigate claims arising from those investigations, raises the possibility of group litigation. Indeed, the EEOC has filed two notable actions against employers based on their use of and reliance on criminal history and credit checks during the hiring process. In the first of these cases, filed against Peoplemark, Inc., in 2008 in the United States District Court for the Western District of Michigan, the EEOC claimed that Peoplemark's policy against hiring individuals with criminal records had a disparate impact on African-American applicants and thereby violated Title VII. Similarly, in September 2009, the EEOC brought an action against Freeman, a Texas-based convention and events planning company, alleging that the company violated Title VII by using "a selection criterion for hiring, namely, credit history information, that has had, and continues to have a significant disparate impact on Black job applicants." The complaint against Freeman also alleges that the company's use of "criminal justice history information" as a selection criterion in hiring unlawfully discriminates against male, black, and Hispanic job applicants. The merits of these lawsuits aside, it is clear that the EEOC has made good on the promises of the E-RACE Initiative and is targeting employer use of background checks. Whether or not the EEOC prevails in its cases, the employers named as defendants in these cases are now embroiled in significant litigation which will cost hundreds of thousands of dollars to defend and resolve, be it by trial or settlement. Moreover, under Title VII and its interpreting case law, individuals who prompted the EEOC's investigation as well as individuals whose interests are affected by the EEOC action may intervene in the EEOC's lawsuit against an employer. This will only increase the cost of settlement and trial, thereby exacerbating the employer's problems. A national pharmacy chain recently experienced this first-hand when it found itself the target of what amounted to a large class action when 13 employees, suing on behalf of themselves and similarly situated individuals, intervened in an EEOC action against the company. The lawsuit, which alleged widespread racial bias in the pharmacy's hiring and promotion practices with regard to thousands of African Americans, settled after almost three years of litigation. The terms of the settlement required the pharmacy chain to pay nearly $25 million in monetary relief and submit to considerable equitable relief. Despite the EEOC's targeted enforcement program, the recent Third Circuit Court of Appeals decision in El v. SEPTA (2007), offers some clarity for employers on how their policies will be interpreted. By the very terms of Title VII, facially neutral employment policies that happen to have a disparate impact on certain categories of job applicants are acceptable if they are "job related for the position in question and consistent with business necessity." In El, the Third Circuit noted that while "an employer with an extremely broad exclusionary policy that fails to offer any empirical justification for it is unable to make out a successful business necessity defense," the business necessity justification requires only "that discriminatory hiring policies accurately but not perfectly distinguish between applicants' ability to perform successfully the job question." EL v. SEPTA (2007). Based on this reasoning, the court declined to "hold that bright-line policies in the criminal conviction context are per se invalid." While providing direction for employers, the Third Circuit's opinion in El v. SEPTA is merely that of one court in one district. Given the evolving understanding of what constitutes disparate impact, as well as the EEOC's redoubled efforts to root out racial discrimination in the workplace, employers should, to the extent possible, avoid blanket exclusion policies (i.e. refusing to hire all applicants with convictions or refusing to hire applicants with poor credit history). Put simply, using background checks indiscriminately leaves an employer open to discrimination claims. Rather than implementing blanket practices, it is critical that an employer tailor the use of background checks to fit specific criteria relevant to the job position that the employer seeks to fill. This common sense approach to hiring will allow employers to avoid running into trouble when making employment decisions based on background checks. The single most important safeguard that an employer can implement is to develop specific criteria for different job classes based on the risks that the applicants pose to the organization, its customers, and its other employees. For example, positions with lightly supervised, private contact with children (such as school teachers) may pose different risks than positions without personal customer contact (such as a night security guard). The employer must then limit the employer's consideration to information relevant to fitting those criteria. Beyond that, an employer should apply testing criteria in the same way to all individuals-for example, an employer should test internal and external candidates in the same manner. In addition, employers are advised to routinely perform self-audits of applicant pools to ensure that the use of background checks is not having a disparate impact on applicants based on any impermissible category. If through one of these audits or otherwise, an employer learns that the use of a particular report screens out a protected group, the employer should consider whether there is an equally effective alternative selection procedure that would have less adverse impact on the protected group. Criminal history records should be limited to actual convictions unless regulation requires the employer to consider matters resolved short of conviction. Similarly, driving and credit reports should be used for decisions regarding a narrow class of employees-for example, using credit reports in making decisions pertaining to managers who exercise considerable authority over company financial resources. Employers may also find it worthwhile to document in writing the reasons that the employer is relying on a certain type of background check in making employment decisions for a particular position. The thought exercise of justifying in writing why a particular background report is helpful in making a hiring or retention decision may ultimately lead an employer to refine its approach. The bottom line is that a one-size-fits-all use of background checks is risky. Considering appropriately tailored background checks as part of a comprehensive evaluation of an individual's employment prospects, however, is a very prudent business practice. When used as a part of a holistic approach to evaluating whether an individual meets the criteria required to fill an employment position, background checks can help an employer make better decisions. But if not tailored to specific job positions and used as part of a plan designed to guard against disparate impact discrimination, background checks can lead an unwitting employer to violate federal antidiscrimination laws. In light of the EEOC's commitment to rooting out discriminatory use of background checks, it is very important that employers give significant thought to their use of background checks and have constructed job-related justifications for the practices and criteria used. Cindy D. Hanson and Kali Wilson Beyah are partners at Kilpatrick Stockton focusing on complex commercial litigation and class action defense. Yendelela Neely and John Jett are associates practicing in Kilpatrick Stockton's Litigation Department. |
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