Background Checks: Not Over until It’s Over!

by Pessin Katz Law, P.A.

In all the hoopla over the victory of the employer in EEOC v. Freeman (USDC, MD, Case No. RWT 09-cv-2573) it may have escaped some people that on November 7, 2013 the U.S. Equal Employment Opportunity Commission (“EEOC”) appealed its loss at the hands of U.S. District Court Judge Roger Titus to the United States Court of Appeals, Fourth Circuit (Case No. 13-2365).  The EEOC argued in this (and other similar cases) that background checks resulted in “disparate treatment” of protected classes of minorities under Title VII of the Civil Rights Act.  In his 32 page Memorandum Opinion Judge Titus authored the memorable line which he characterized the position of the EEOC as: “…a theory in search of facts to support it.”

In summary, the EEOC ruled that the background checks for all of Freeman’s employees violated Title VII of the Civil Rights Act because the policy prevented a larger number of male, black and Hispanic job applicants from becoming employed.  The rationale of the EEOC was that since more of those categories of applicants had a greater tendency to be convicted that the background checks disproportionately impacted them and thereby caused “disparate treatment” under Title VII.

Freeman is a corporation which is a nationwide event planner.  A prospective employee filed an EEOC complaint stating that she was refused employment after her credit report was accessed by Freeman.  The EEOC filed suit against other companies as well:  BMW Manufacturing Co., LLC and Dolgencorp, LLC (Dollar General).  The touchstone of the litigation was the EEOC’s prior “informal guidance” asserting a presumption of violations of Title VII based upon background checks resulting in the application rejection of protected minorities at higher rates than other job applicants.  The EEOC sought to enjoin Freeman from using background checks as well as back pay and prejudgment interest for two classes of potential hires:  the “credit class” and the “criminal class”.

Judge Titus was highly critical of the EEOC’s expert in the case.  In addition, even if the expert’s testimony had been more reliable, he found that the EEOC failed to “…separate out and identify the specific employment practice that is allegedly responsible for the disparate impact”, as required under Title VII.  Merely because the rejected applicants were in a class that might have a higher incarceration rate and, therefore, fail a background check, that did not mean that they received disparate treatment, according to Judge Titus.  Consequently, he granted Freeman’s Motion for Summary Judgment in the case.

The opinion was so critical of the EEOC that Freeman decided to seek attorneys’ fees for the continued pursuit of the case by the government.  In October 2013, the United States Court of Appeals, Sixth Circuit awarded attorneys’ fees and expert witness fees to the defendant in EEOC v. Peoplemark, another failed quest by the EEOC to use valid-purpose background checks as demonstrating disparate treatment under Title VII of the Civil Rights Act.

Below are some interesting points from Judge Titus’ decision which should offer some guidance to employers on the use of background checks. 

As to criminal background checks which were generally run after the applicant was offered and accepted a position but before the applicant commenced employment, Judge Titus’ opinion states:

  • Freeman’s standard employment application form asked: “Have you ever pleaded guilty to, or been convicted of, a criminal offense.”  If the applicant responded in the affirmative, the applicant was provided space in which to describe the date and circumstances.
  • The form contained the following advisement: A conviction does not automatically mean you will not be offered a job. What you were convicted of, the circumstances surrounding the conviction and how long ago the conviction occurred are important considerations in determining your eligibility. Give all the facts, so that a fair decision can be made.
  • Applicants were also required to sign a form authorizing a vendor, PreScreen America (PSA), to conduct the background investigation. The authorization form contained the same questions as the employment application regarding prior criminal offenses.
  • PSA collected information on convictions and their equivalents and active criminal warrants, but not arrests.
  • Freeman limited its consideration of convictions to those that occurred within seven years of the application date.
  • Freeman used a multi-step evaluation process to review the information obtained by PSA and determine whether an applicant was qualified to begin work:
    • First, Freeman considered whether the applicant was truthful about his or her criminal convictions on the application and authorization forms. Under one of the few bright-line rules in Freeman’s policy, an applicant who failed to disclose a conviction, seriously misrepresented the circumstances of a criminal offense, or made any other materially dishonest statement on the application, was automatically disqualified.
    • Second, Freeman examined any outstanding arrest warrants. Applicants with pending warrants were given a reasonable opportunity to resolve the matter and have the warrant withdrawn; failure to do so made it unlikely, but not impossible, for the applicant to be hired.
    • Third, Freeman considered the existence of any criminal convictions which the applicant committed, or was released from confinement for, within the past seven years.
    • Finally, Freeman evaluated whether the criminal conduct underlying a particular conviction made an applicant unsuitable for employment. Types of convictions that were of particular concern to Freeman, and would generally disqualify an applicant, included those involving violence, destruction of private property, sexual misconduct, felony drug convictions, or job-related misdemeanors.
    • In general, initial decisions by Freeman’s office manager not to hire an applicant because of a particular conviction were reviewed and approved by the company’s senior vice president for human resources or vice president of benefits and compliance

The foregoing is taken almost verbatim from the Judge Titus’ Memorandum Opinion.  However, he concludes his summary of the criminal background investigation process of a Freeman applicant by stating:

 “On its face, [Freeman]’s policy appears reasonable and suitably tailored to its purpose of ensuring an honest work force. [Freeman] does not unnecessarily intrude into applicants’ prior brushes with the law, looking only seven years back for possible convictions, and ignoring any arrests that did not result in a conviction or guilty plea. By contrast, the Federal Rules of Evidence permit a witness’s character for truthfulness to be impeached by evidence of criminal convictions that occurred up to ten years prior.”

As to credit background checks, Judge Titus stated:

“For credit checks during the relevant time period covered by the EEOC’s complaint, [Freeman]’s policy consisted of a list of hiring criteria.  Applicants whose credit histories revealed any of the following issues were excluded from employment for a credit-sensitive position:

1) More than two accounts of $300 or more that were 90 days past due;

2) More than three collection accounts that were not medically related;

3) More than two paid charge-offs in the prior 12 months;

4) Any unpaid charge-offs in the prior 12 months;

5) A car repossessed in the prior three years;

6) A house foreclosure in the prior three years;

7) Filed for bankruptcy in the prior seven years;

8) A judgment in the prior seven years;

9) A default on student loans;

10) Any unsatisfied liens;

11) Any satisfied liens in the prior three years;

12) Any delinquency in paying child support.

The EEOC has not challenged any of the specific criteria or procedures described above, but it has merely alleged that [Freeman]’s policy of conducting criminal and credit background checks, as a whole, produces a disparate impact on protected classes.”

So, Judge Titus’ opinion has laid out “guideposts” so to speak in dealing with the substance of background checks in light of an EEOC investigation and subsequent litigation. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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