Update On Criminal Background Checks: Impact Of EEOC v. Freeman And Ongoing Challenges In A Continuously Changing Legal Environment

The latest chapter in the ongoing saga of employment-related criminal background checks in the United States has been written, and one of the authors had some particularly strong words for the Equal Employment Opportunity Commission.

On February 20, 2015, in Equal Employment Opportunity Commission v. Freeman,1 the U.S. Court of Appeals for the Fourth Circuit affirmed summary judgment in favor of the employer in a case involving a challenge to the employer's use of criminal background and credit history checks in the hiring process. The EEOC had alleged that the criminal checks had a disparate impact on African American and male applicants, and that the credit checks had a disparate impact on African American job applicants. In a unanimous decision by a three-judge panel, the Fourth Circuit affirmed the lower court's decision, which stemmed from the exclusion of the EEOC's expert reports, noting the "district court found a 'mind-boggling' number of errors and unexplained discrepancies."

A separate concurring opinion was written to address what one judge referred to as "disappointing litigation conduct" by the EEOC, including continued reliance on an expert whose testimony was "fatally flawed in multiple respects," who previously had been used by the EEOC despite a "record of slipshod work, faulty analysis, and statistical sleight of hand." The concurring opinion further cautioned: "The EEOC must be constantly vigilant that it does not abuse the power conferred upon it by Congress, as its 'significant resources, authority, and discretion' will affect all 'those outside parties they investigate or sue'...The Commission's conduct in this case suggests that its exercise of vigilance has been lacking. It would serve the agency well in the future to reconsider how it might better discharge the responsibilities delegated to it or face the consequences for failing to do so."2

While the Fourth Circuit's decision in EEOC v. Freeman offers some comfort to employers, the bottom line is that this is a constantly evolving area of the law, and an employer's reliance on criminal history records in the hiring or employment process continues to present significant risk, especially for employers with high attrition for hourly workers. This is aptly illustrated by two additional large-scale lawsuits filed by the EEOC on June 11, 2013, which are being vigorously litigated and most likely will continue in litigation throughout 2015.

Aside from Equal Employment Opportunity (EEO) issues, employers also continue to face additional legal hurdles based on various legislative developments at the state and even the local level (e.g., Seattle, Washington, and San Francisco, California), such as "ban the box" restrictions and related limits on the use of criminal history in hiring and employment decisions. Employers also have been battling against a massive surge in class action litigation under the Fair Credit Reporting Act (FCRA) based on gathering criminal history through third-party consumer reporting agencies when conducting background checks on applicants and/or employees.

This Insight provides important takeaways for employers regarding this evolving area of the law, and to put those takeaways in context, highlights key portions of the EEOC's Criminal History Guidance; reviews in detail the Freeman case and lessons learned based on EEOC systemic charges and litigation that challenge an employer's use of criminal history in the employment process; summarizes the EEOC's additional pending litigation on the topic; and reviews another key federal appellate court decision discussing criminal history.

EEOC Guidance on Criminal History

Eliminating hiring barriers is one of the EEOC's key priorities based on the agency's December 2012 Strategic Enforcement Plan (SEP). This priority includes challenges to policies and practices that exclude applicants based on criminal history. As a result, the EEOC will continue to closely scrutinize exclusions based on an applicant's criminal history as well as background checks that, although facially neutral, have a discriminatory effect on certain applicants or employees.

The EEOC's April 2012 Criminal History Guidance outlines in detail the EEOC's concerns regarding use of criminal history in the hiring process and factors that employers are expected to consider prior to excluding any applicant based on criminal history.3 The EEOC stresses that any reliance on criminal history records that have an adverse impact on protected groups must be job-related and consistent with business necessity. In relying on criminal history in making employment decisions, the EEOC's Guidance advises employers to consider: (1) the nature and gravity of the offense or conduct; (2) the time that has passed since the offense, conduct and/or completion of the sentence; and (3) the nature of the job held or sought. The Guidance further underscores the importance of an "individualized assessment" prior to excluding an applicant based on a criminal record, but also refers to permitting exclusions involving specific criminal conduct (i.e. "targeted exclusions") that are "narrowly tailored to identify criminal conduct with a demonstrably tight nexus to the position in question."4

Numerous questions remain unanswered despite issuance of the Guidance, including: (1) the level of specificity required in developing defensible policies and procedures; (2) whether an employer can develop general across-the-board exclusions of candidates based on certain offenses; and (3) what factors an employer needs to consider in setting time frames for potentially excluding applicants based on certain offenses.

Impact of Freeman Decision

While employers have been patiently awaiting the Fourth Circuit's decision in this case in hopes of gleaning some clarity on the topic, they may be disappointed to read that the court stopped short of analyzing whether the company's background check policy was lawful.5

Below we summarize the factual and procedural history of the case,6 as well as the Fourth Circuit's opinion. We also briefly discuss related background check cases initiated by the EEOC that are currently pending before other courts and other noteworthy developments before offering key takeaways for employers.

Initial EEOC Investigation

The Freeman case is illustrative of the potential expansive nature of EEOC investigations, particularly when dealing with failure-to-hire claims. The initial discrimination charge, filed on January 17, 2008, involved an individual race discrimination claim by an African American woman, who alleged that she was discriminated against based on her credit history.7 Nearly nine months later, in September 2008, the employer was notified that the EEOC had expanded its investigation to include the employer's use of criminal history information in the hiring process.8 The EEOC's complaint, which was filed on September 30, 2009 following a reasonable cause finding and failure to conciliate, dramatically expanded the scope of the initial charge and alleged the employer engaged 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.9

Lawsuit Filed Despite Comprehensive Background Check Procedures

A related concern is that the EEOC filed this lawsuit despite the fact that the employer in Freeman had developed a comprehensive policy and related procedures based on the use of criminal and credit history in the hiring and employment process.

The employer, a nationwide convention, exhibition, and corporate events marketing company, began performing background checks of applicants and employees after various work-related concerns that had arisen, including embezzlement, theft, drug use, and workplace violence. Based on the employer's policy, different types of background checks were ordered depending on the nature of the job sought. For some positions, the background check included only a criminal history investigation and Social Security number verification. For "credit sensitive" positions, the check also included a credit history review.10 Lastly, for positions such as general managers and department heads, the company added an education and certification verification.

The company inquired about convictions on its employment application and provided space on the application for the applicant to describe the date and circumstances surrounding any conviction. It specified that the applicant should "[g]ive all the facts, so that a fair decision can be made." The application also stated that a conviction would not automatically bar the applicant from being offered a job. The company limited its consideration of convictions to those that occurred within seven years of the application date and did not consider arrest records.

The company then used a multi-step evaluation process in considering criminal records and determining whether an applicant was qualified to work for the company. First, it considered whether the applicant was honest about his or her criminal convictions on the application and automatically disqualified those who made materially dishonest statements. Next, the company examined outstanding arrest warrants—applicants with pending warrants were given the opportunity to resolve the matter and have the warrant withdrawn. Last, the company considered criminal convictions for which the applicant was committed or released from confinement within the past seven years, and evaluated whether the conduct underlying a conviction made the applicant unsuitable for employment. The company generally disqualified applicants with convictions involving violence, destruction of private property, sexual misconduct, felony drug convictions, or job-related misdemeanors.11

From the EEOC's perspective, despite the detailed...

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