seal.pngBy Pam Devata and Kendra Paul

The EEOC started its year with a bang. On January 11, 2012, the EEOC announced publically that it had entered into a conciliation agreement with Pepsi Beverages for $3.13 million based on allegations that Pepsi allegedly discriminated against African-American applicants based on use of their criminal histories in the hiring process.

It is the first such settlement by the EEOC ever in this context. What is equally significant is the fact that the settlement stems from a private conciliation agreement ending an EEOC administrative investigation, which is normally confidential (as opposed to a public consent decree approved by a federal district court upon the settlement of an EEOC lawsuit).

According to its press release, the EEOC’s investigation revealed that Pepsi had a policy of not hiring applicants with pending criminal charges that had not resulted in convictions, and failed to hire applicants with arrests or minor conviction records. Specifically, more than 300 African-American applicants were adversely affected when they were disproportionately denied permanent employment for failing Pepsi’s criminal background check. The EEOC’s argument is that people of certain races and colors are arrested and convicted more frequently than others outside of those groups; thus, employers using such information in hiring decisions may cause a disparate impact on those protected groups.

The conciliation agreement requires Pepsi to pay $3.13 million, provide job offers to qualified applicants who were negatively affected by the criminal history policy, and provide training on Title VII obligations for its hiring personnel and all of its managers. With rough math, that equates to approximately $10,333 per applicant, a tidy sum for an alleged failure-to-hire claim.

In its media statement, the EEOC commended Pepsi for reexamining and revising its criminal history policy. Presumably, the EEOC negotiated to make the conciliation agreement public in order to “send a message” relative to its enforcement focus in this area; one can surmise that part of the price of doing so was the “positive” statement about the settling employer.

The EEOC’s Perspective On Employer Use Of Criminal History Information

The EEOC has been focused on employer use of criminal history information for over twenty years. In 1987, the EEOC issued written policy guidance regarding the use of arrest and conviction records in employment whereby it presumed that any policy or practice that caused an adverse employment action to be taken solely because of an African-American or Hispanic person’s conviction record had a disparate impact on members of those protected classes because those groups were convicted at a rate disproportionately higher than the rest of the general population. The EEOC’s guidance provides that employers’ selection criteria regarding criminal history information must take into consideration the following factors to demonstrate business necessity:

    1. the nature and gravity of the offense or offenses;
    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 as related to the conviction.

The EEOC also issued a 1990 policy statement on employers’ use of arrest records stating that employers must consider the: (i) the likelihood that the individual engaged in the conduct arrested for; and (ii) job relatedness, before making a hiring decision. According to the EEOC, a blanket exclusion of individuals with arrest records (without convictions) would almost never withstand scrutiny.

The EEOC held public meetings in 2008 and most recently, on July 26, 2011, revisiting the use of arrest and conviction records in employment. Based on this meeting, we anticipate that the EEOC will likely be updating its policy guidance regarding the use of criminal records in employment in the very near future.

There has also been increased focus by the EEOC on employers’ use of criminal records as evidenced by recent litigation in EEOC v. PeopleMark, Case No. 08-CV-907 (W.D. Mich. 2008), and EEOC v. Freeman Companies, Case No. 09-CV-2573 (D. Md. 2009), as well as numerous Commissioner Charges and nationwide pattern and practice investigations into employers’ practices.

Implications For Employers

The EEOC has been and will continue to scrutinize employers’ use of criminal history in hiring decisions. Employers should review and revise their background screening/criminal history policies to ensure compliance with federal and state law as well as the factors set forth by the EEOC. Criminal history, when used, should be considered as related to a specific position and not an entire workforce. Finally, bright line rules relating to arrests or convictions will likely be deemed to have a disparate impact on certain minority groups and should be eliminated. Suffice it to say, this is a “white hot” area for the EEOC, and administrative enforcement is focused on these types of policies and practices.

We also expect the EEOC to cite this settlement in its other administrative investigations as a signal of what it is prepared to do in pursuing other employers. This is clearly an area of intense focus by the Commission.

We anticipate new guidance from the EEOC in the next few months, but for the time being it behooves employers to make sure their policies and procedures comport with the EEOC’s interpretation or risk being the next million dollar target.