financial risks of using criminal & credit history in employment decisions blake a. bailey...

Financial Risks of Using Criminal & Credit History in Employment Decisions

Blake A. Bailey817.488.3134

[email protected]

Louisiana │ Mississippi │ Texas │ Florida │ Alabama │ North Carolina | London

OVERVIEW

• Majority of employers run pre-employment background checks for criminal and/or credit history

• Purpose and use of background checks• Credit Reporting Agencies claim that credit reports:

• Reveal applicant’s character• Identify applicant’s propensity to steal• Protect against workplace violence• Avoid negligent hiring

• However:• No empirical evidence to support correlation exists• Many credit reports contain errors (FTC Study - 20%)


OVERVIEW

Although federal law permits employers to run background checks (with some restrictions), there is a financial risk• EEOC has opposed background checks for years and

has issued new guidelines which are gaining traction:• Background checks may result in discrimination• Risk: possible discrimination lawsuit by applicants or EEOC

• Many states have tougher restrictions on how background checks are performed and used

• Risk: liability for misuse of information/improper procedures


CURRENT LAW

• Federal Law and Texas Law do not CURRENTLY Prohibit Employers From Refusing to Hire Persons with Poor Credit or Past Criminal Convictions

• They do not authorize it in all instances either• There are restrictions in place• EEOC Guidelines presume it is a discriminatory practice

• 10 States CURRENTLY DO Restrict Use • 3 other states have laws pending


If You Check Histories, There are Limitations

• Obtain the Information Properly• Use the Information Properly• Adopt and Follow Appropriate Policies


Compliance with Current Federal Law

• Fair Credit Reporting Act• Applies to reports prepared by third parties• Obtain Written Consent• Notice to Employee – separate from job application• Certify FCRA Compliance to Reporting Agency• If you make an adverse decision:

• Notify Employee of Intent to Make Adverse Decision• Provide Employee Opportunity to Make Corrections

• Risks for Violating FCRA• Damages – actual, attorneys’ fees, punitive damages (willful)


EEOC’s Position on Background Checks

• EEOC Policy Guidance issued in 1987 and 1990• Presumed disparate impact

• Civil Rights Act of 1991 amended Title VII to codify disparate impact 42 USC §2000e-2(k)• Presumption of disparate impact not allowed;

plaintiff bears burden of proof to show impact• 2007 3d Circuit case—El v. SEPTA

• Refused to consider EEOC guidance in analyzing use of criminal records in disparate impact case

• Convict advocacy groups pushed for individual consideration of applicants’ circumstances


EEOC Issued New Guidance in 2012

• “Eliminate policies or practices that exclude people from employment based on any criminal record”

• Addresses disparate impact of considering criminal and credit history in hiring and other employment decisions:

• Rate of arrests and convictions for African American and Hispanic males is higher than for others in population

• Women and minorities are more likely to have credit problems

• Concludes that policies which exclude individuals based on credit or criminal histories can create illegal disparate impact on women and racial minorities if not

• Job related• Consistent with business necessity


What is Standard for Disparate Impact?

Title VII standard: • Plaintiff/EEOC must show that (1) a “particular

employment practice” (2) causes disparate impact based on race, etc.

• If shown, employer must show that policy is job related for position in question and consistent with business necessity

• Plaintiff can still win if shows less discriminatory alternative, but employer refused to use it.

42 U.S.C. § 2000e-2(k)


What Constitutes Disparate Impact?

• Identify specific policy (or practice)• Significant disparity affecting a group based on the

policy or practice• EEOC presumes disparate impact for criminal history

• in criminal history investigations: “National data . . . supports a finding that criminal record exclusions have a disparate impact on race and national origin.”

• EEOC has been less aggressive on credit history• Credit inquiry “generally should be avoided because they tend

to impact more adversely on minorities and females.”


What is Business Necessity?

• Business Necessity is not defined in Title VII• Supreme Court has been unclear

• EEOC adopts strictest potential formulation: “necessary to safe and efficient job performance.” Dothard v. Rawlinson, 433 US 321 (1977)

• Another formulation: “significantly serve . . . employer’s legitimate business interests.” Watson v. Ft. Worth Bank & Trust, 487 U.S. 977 (1988)

• Generally, a policy or practice is not a “business necessity” unless it is related to the nature of the work


Business Necessity in Criminal Records Context

Arrests• EEOC says arrest records are irrelevant• An arrest does not show that criminal conduct occurred• Presumption of innocence• “Exclusion based on arrest, in itself, is not job related and

consistent with business necessity.”

Convictions• Can presume conduct occurred because of conviction• Broad based exclusions based on any conviction are improper• Traditionally, looked at Green factors to determine whether

exclusion based on a particular offense is a business necessity• Now, EEOC wants you to use Green factors, PLUS individual

inquiry



Green factors: Green v. Mo. Pac. R.R., 549 F.2d 1290 (8th Cir. 1975):

• Nature and gravity of offense or conduct• Criminal acts involved and harm caused

• Time passed since offense or release• Likelihood of repeat occurrence lessens over time• FCRA limits credit reports to 7 years

• Nature of job held or sought• Essential job functions – written job description



• Business necessity means employer must justify exclusion policies by “accurately distinguish[ing] between applicants that pose an unacceptable level of risk and those who do not.”

• Bad facts make bad law: El v. SEPTA, 479 F.3d 232 (3d Cir. 2007)• Employer terminated 55-year old bus driver with 40-year old

conviction for 2d degree murder from gang fight

• EEOC has relied on El to amplify what it says is required for business necessity:

“[E]ffectively link specific criminal conduct, and its dangers, with the risks inherent in the duties of a particular position.”


How Does Employer Show Business Necessity?

One method: validate policy under Uniform Guidelines on Employee Selection Procedures (UGESP) for potentially disparate impact

• EEOC says such validation studies are “rare”• Unintended consequence: Endorse Watson, 487

U.S. at 997 (O’Connor, J., concurring) (recognizing that validation studies are not always required, particularly in “subjective or discretionary employment decisions”)


How Does Employer Show Business Necessity?

• Second method: Apply Green factors AND give the individual a chance to explain

• EEOC’s real goal is individualized inquiries• EEOC will allow you to rely on just Green factors in a few

narrow circumstances


Green Factors

• Nature and gravity of offense or conduct• Criminal acts involved and harm caused

• Time passed since offense or release• Likelihood of repeat occurrence lessens over time• FCRA and Texas law limit credit reports to the past 7 years

• Nature of job held or sought• Essential job functions – written job description


What are the Individual Factors?

• Criminal record is inaccurate or inapplicable• Circumstances surrounding offense• Number of convictions• Age at time of conviction/release, whichever is later• Evidence of working in same job after conviction or

release without additional crimes• Employment history before and after conviction• Rehabilitation efforts (education or training)• References• Whether individual is bonded• No need to consider if individual won’t provide info.


EEOC v. Freeman – Best Practices

• Written policy designed to:• Avoid negligent hiring suits• Increase security of assets and employees• Reduce inconsistent hiring practices• Reduce risk of employee related loss• Eliminate incidents which jeopardize customer confidence

• Multi-tiered pre-screening procedure depending on job• General employees without credit sensitive job, screened for

criminal and social security violations• Credit sensitive positions also screened for credit background• Officers further screened to verify education and certifications



• Pre-employment• Asked if employee pled guilty or was convicted of crime• Provided space to describe date and circumstances• Included a statement that it would not automatically exclude

applicant

• After Conditional Offer was Extended• Run criminal background check

• Verify accuracy of representations in application• Evaluate Green criteria: nature of crime, job, and timing

• Credit histories evaluated on similar criteria• Applicant rejected if application inaccurate, certain

automatically disqualifying crimes, or based on Green criteria

• Decision not to hire reviewed by senior VP of HR• Please add a lawyer to this evaluation team


Court Rejected EEOC’s Claim

• EEOC filed suit• Claimed use of credit and criminal history created disparate

impact on race and gender• Sought injunction to prohibit any use of criminal/credit

histories

• Court rejected EEOC claim:• EEOC failed to isolate specific employment practice that

caused disparate impact• National statistics alone could not prove policy had disparate

impact• Required statistical proof of disparities in employer’s

workforce• If provided, burden shifts to employer to show business

necessity



Key take-aways from Freeman Decision:• Multi-tiered inquiry based on the needs/responsibilities

of types of positions• Opportunity for employee to explain• Exclusion for offenses/credit problems that were recent

and related to the job duties of the particular position• Additional compliance review


“Ban the Box” Bandwagon has Wheels

• EEOC supports “ban the box”• Similar to ADA no-medical inquiry rule• Limits number of individuals excluded without chance to explain• Removes “chilling” effect of individuals who do not apply because

of inquiries at pre-hire stage

• Ban the Box Act (HR 6220)• Equal Employment for All Act (HB645/SB 18737.IS)• 8 states restrict use of criminal histories, 3 are pending• 10 states restrict use of credit histories


Best Practices

• Policies based on arrests, or Blanket Policies based on all convictions: sitting duck

• Adopt policy specific to job requirements• Consider the crimes covered• Consider the time period covered • Consider the jobs covered (vulnerable customer population,

customer service, loading dock, handling sensitive company assets)

• Provide opportunity to explain

• Provide higher level of review for negative decision• Document Process


Questions

Blake A. Bailey

Phelps Dunbar LLP

Direct 817.305.0332

[email protected]

financial risks of using criminal & credit history in employment decisions blake a. bailey...

Documents

texas law

criminal credit history

credit reports

poor credit

eeoc guidance

financial risk eeoc

use of criminal records

punitive damages willful