Pepsi and Criminal Background Checks: Beyond the Buzz

Today we have a guest blogger at The Employer Handbook. It’s Janette Levey Frisch. Janette is In-House Counsel at Joule, Inc. where she provides comprehensive legal representation and support to a staffing company with five subsidiaries throughout the East Coast. You can connect with Janette on Twitter here and on LinkedIn here.

Janette’s post on criminal background checks, which includes some best practices for employers, follows after the jump…

(Want to guest blog at The Employer Handbook? Email me.)

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Some of you may have heard in the news that Pepsi Beverages recently agreed to pay $3.1 million to settle a racial discrimination case brought by the Equal Employment Opportunity Commission (EEOC) involving criminal background checks. It seems Pepsi used criminal background checks to screen out not only job applicants with criminal convictions, but also those arrested for or convicted of minor offenses. What does this case mean for employers? Do you conduct criminal background checks on your job applicants? Judging from the buzz in the media, the subject of criminal background checks for job applicants is a real hot button! Employers who do not screen candidates are vulnerable to negligent hiring suits if the employee either steals from the company or commits some other type of crime— especially if pre-employment screening could have prevented the situation.

So what exactly is the buzz about background checks? What did the EEOC find wrong with Pepsi Beverages’ background check policy? What do background checks of all job applicants have to do with discrimination against racial groups? If the employer refuses to hire anyone with any type of criminal history, how is that racial discrimination, and what business does the EEOC have getting involved in such a practice? Isn’t requiring all employees to submit to a criminal background check a neutral policy that applies to everyone, and not just ethnic or racial minorities? Isn’t an employer allowed to conduct background checks prior to hiring a candidate? For that matter, doesn’t an employer have an obligation to screen its candidates before hiring them? What did Pepsi Beverages really do wrong?

The US Supreme Court has ruled that policies that “on their face” are neutral can still have a discriminatory impact if they adversely impact a disproportionate number of members from one or more protected classes. Examples of protected classes would be women, racial minorities, certain religions, disabled people and the like. Many of us have heard oft-cited statistics showing that African Americans and Hispanics as a group tend to have a higher arrest and conviction rate than members of other ethnic or racial groups. Therefore, according to the EEOC and many federal courts, an across the board policy that bars applicants with any criminal history from employment may have a discriminatory impact on African Americans and Hispanics. In the Pepsi case, over 300 African American applicants, who may have otherwise been qualified, were denied jobs. So, what’s an employer to do? Can an employer run background checks on candidates or not? Can the EEOC really expect employers to stop screening candidates, given the very real threat of negligent hiring claims?

Perhaps we are asking the wrong question. Let me suggest that the proper question is not “Can the employer conduct a background check?” but rather “Can an employer use the information found on the background check to deny employment to the applicant or employee?” The short answer is “Yes, under the right circumstances.” So let’s see if we can get some help in determining when and how we can use background checks in the hiring process.
While the EEOC has not issued regulations, it has provided some guidelines. Employers are expected to consider the following factors:

1. The nature and gravity of the offense(s);
2. The time that has passed since the conviction and/or completion of the sentence; and
3. The nature of the job held or sought.

The federal courts have also stated that employers need to have a legitimate business justification, which can include, in addition to the above EEOC guidelines, safety and well being of others at the job site or in the immediate area. The policy must then be narrowly tailored to meet the stated justification.

Essentially, the EEOC, and the federal courts expect employers to weigh the type of offense and time passed since the offense against the nature of the job to determine if the employer has a justification for refusing to hire a candidate. For example, an applicant’s 15-year old DWI conviction is unlikely to be relevant if s/he is applying for a bookkeeping position. For that matter if s/he was arrested but not convicted for DWI, then denying him or her the job will also be inappropriate and perhaps illegal. If however, this same applicant for the bookkeeping position has a 3-year old embezzlement conviction, the employer could refuse to hire. When might a DWI conviction be relevant? In the Pepsi case if the applicant sought work for Pepsi as a driver, s/he should probably expect to be rejected. OK, how about one final example: suppose you have a male applicant with a sexual assault conviction and you employ mostly women, some of whom often stay late when the area may not be well-trafficked or well-lit? One would be hard-pressed to argue lack of business justification there!

So, here are some take-away’s for employers:

1. If you do not already have one, create a written policy that discusses your hiring criteria and how you will screen your applicants and hiring criteria. This policy should take into consideration the type of positions for which you are hiring and should allow you to make a determination on a case by case basis and take all relevant facts into consideration.
2. Be able to easily articulate a justification any time you deny a job to an applicant based on his/her background check results.
3. Make sure your policy is narrowly tailored to meet your business
4. justification(s). If your policy is broader than necessary to meet the justification(s) you have articulated (even if only to yourself) you will be vulnerable if an applicant files an EEOC complaint.

Finally, one more caveat: As of today, at least 25 states and at least one city have passed their own laws limiting the circumstances under which employers can inquire into an applicant’s criminal history. Check to see if your state (or city) has imposed any such limitations!

For a more in-depth analysis of this subject, ask for my article, Background Checks: Employer Beware! Co-authored with Donald Cayea, Esq., appearing in the most recent issue of EEO Insight.

Disclaimer: This article is not intended for informational purposes only. It is not intended to replace consultation with competent local counsel or to create an attorney-client relationship.