When Are Background Checks Not Allowed?

The Equal Employment Opportunity Commission (EEOC) has been quite active in challenging employers' use of criminal background and credit history checks during hiring. There is still significant uncertainty as to the current standards and law about the checks of criminal and credit history. The lack solid guidance makes it difficult for employers to determine how to evaluate their current use of this information, as well as to understand the legal pitfalls and hurdles that the EEOC has placed in front of them. EEOC Directives The recent activity emanates from the EEOC’s recent directive and key priority (as per its December 2012 Strategic Enforcement Plan (SEP)) to eliminate hiring barriers. This priority includes challenges to policies and practices that exclude applicants based on criminal history or credit check. The EEOC has a keen interest in this area, as it believes that criminal/credit checks have a disparate impact on African American and Hispanic applicants. As the EEOC pursues the directive, expect the EEOC to scrutinize failure-to-hire claims where a criminal history or background check was conducted. Even if the background check was “facially neutral” and was uniformly given to all applicants, the EEOC may investigate to determine if the check had a “discriminatory effect” on certain applicant(s). The EEOC asserts that criminal background checks must be “job-related” and “consistent with business necessity.” Employers are advised to consider: (1) the nature and gravity of the offense or conduct; (2) the time that has passed since the offense, conduct or completion of the sentence; and (3) the nature of the job held or sought. The EEOC stresses the need for an "individualized assessment" before excluding an applicant based on a criminal or credit record. Local/State/Federal Laws Employers face additional legal hurdles regarding hiring practices because of recent local and state legislative developments. These laws are commonly referred to as "ban the box" (i.e., restrictions on the use of criminal history in hiring and employment decisions). Making matters even more difficult, employers have also been subject to a surge in class action litigation under the Fair Credit Reporting Act (FCRA). The FCRA regulates the use of and gathering of criminal histories through third-party consumer reporting agencies with respect to conducting background checks on applicants or employees. Legal Actions In pursuit of its directive, the EEOC has filed several large-scale lawsuits against employers. We expect that the EEOC will continue to file similar lawsuits throughout 2015 and beyond. Most have been brought as failure-to-hire claims. For example, an African-American woman brought a claim alleging that she was discriminated against based on her credit history. This claim started out as a single plaintiff action, but, after the EEOC conducted its initial investigation, the EEOC dramatically expanded the scope of the initial charge, alleging that the employer was engaging in a “pattern and practice of unlawful discrimination” against: (1) African-American applicants by using poor credit history as a hiring criterion and (2) African-American, Hispanic and white male applicants by using criminal history as a hiring criterion. Reasonable employers complain that the EEOC has placed employers in a Catch 22. Employers have to choose between ignoring criminal history and credit background, exposing themselves to potential liability for criminal and fraudulent acts committed by employees or to an EEOC lawsuit for having used this information in a discriminatory way. Takeaway for Employers Claims involving criminal background checks and credit checks are an EEOC priority. At this time, employers have little guidance from the courts or the EEOC as to exactly what "job-related” and “consistent with business necessity" mean and just how closely a past criminal conviction has to correspond with the duties of a particular job for an employer to legally deny employment to an applicant. Moreover, employers continue to witness expanding restrictions dealing with criminal history at the state and local level based on ban-the-box legislation, as well as with an increasing number of class action lawsuits involving background checks as required under the Fair Credit Reporting Act. Employers are encouraged to work closely with legal counsel as to what they should and should not ask on applicants as well as how and when they can use background information they obtain. Based on this evolving area of the law, we additionally recommend that employers purchase a robust EPL policy that will defend them in the event that the EEOC or a well-skilled plaintiff’s counsel pursues a claim against them for discrimination, or for failure to hire based on criminal or credit background checks.