Companies often use criminal background checks and credit checks when considering an individual for employment.  This practice should be used with caution.  The Equal Employment Opportunity Commission considers it illegal to make an employment decision based on a person’s criminal record or credit history, except in certain circumstances.

In the past few years, the EEOC has brought at least five lawsuits against employers that used criminal background checks and credit histories to make hiring decisions.   In addition, the EEOC, when investigating charges of individual discrimination, has been routinely asking for information about the employer’s policies and practices regarding criminal background checks.

The principal Federal law that prohibits discrimination is Title VII of the Civil Rights Act of 1964.   Under this law, employment practices, including hiring decisions, may constitute unlawful discrimination if they have a disparate impact on a protected group, unless the employer can demonstrate that the practice is both job related and consistent with business necessity.  The EEOC takes the position that a practice of refusing to hire someone merely because he or she has a criminal record will have a disparate impact on African-Americans and Hispanics.  The EEOC defines “disparate impact” as a “substantially different rate of selection in hiring, promotion, or other employment decision which works to the disadvantage of members of a race, sex, or ethnic group.”   This does not prevent an employer from using criminal background checks in all circumstances, but, according to the EEOC, an employer must apply three criteria when using such background checks:  (1) the nature and gravity of the offense; (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 is often when case when governmental agencies provide a list of factors, they is no way of knowing the relative weight of each factor or what combination of factors is sufficient to meet the EEOC threshold for a permitted use of the criminal history.

Similarly, the EEOC considers the use of credit checks as discriminatory. The EEOC has stated:

“Inquiry into an applicant’s current or past assets, liabilities, or credit rating, including bankruptcy or garnishment, refusal or cancellation of bonding, car ownership, rental or ownership of a house, length of residence at an address, charge accounts, furniture ownership, or bank accounts generally should be avoided because they tend to impact more adversely on minorities and females. Exceptions exist if the employer can show that such information is essential to the particular job in question.”

An employer who decides that a background check for criminal history or credit problems is job related and consistent with business necessity must also meet the requirements with the Fair Credit Reporting Act.  FCRA requires that an employer do the following:

• Advise the applicant in writing that a background check will be conducted;
• Obtain the applicant’s written authorization to obtain the records; and
• Notify the applicant that a poor credit history or conviction will not automatically result in disqualification from employment.

Finally, in addition to the Federal laws mentioned above, several states have laws relating to the use of an applicant’s criminal or credit records when making employment decisions.  For example, some states allow employers to consider only criminal convictions, not arrests.

This discussion raises several questions.  What exactly is “business necessity” and how does it relate to a particular type of criminal conviction?   What about registered sex offenders?  What kinds of jobs can be denied to them?   Is there a difference between crimes that suggest psychological aberration (arson) and crimes that require mental acumen (computer fraud)?  What if the criminal convictions are for DUI and the applicant admits to having an alcohol problem?  Can the applicant be denied employment as, say, a forklift operator?  Is the risk of risk of lawsuits against the employer by third parties who may be injured a legitimate consideration?  The list of questions is endless.

All regulations and agency interpretations of statutes serve a legitimate public purpose.  Unfortunately, regulations are often ambiguous or difficult to interpret in particular circumstances, and the interpretation given by a regulator as part of an examination of investigation might be quite outside the logic applied by a practical, profit-oriented business owner.  Worse, agency enforcement personnel today seem more zealous and less inclined to issue warnings than was the case in the past.  This means the hapless business owner is likely to be faced with the unhappy choice of either paying a fine, possible a substantial fine, or paying high legal fees to fight what seems like unfair treatment by a governmental agency.

In terms of the hiring practices discussed above, an employer should have written policies describing when and how background checks will be used in the application process, those policies should be adhered to, and, if a background check is run and the applicant is denied employment, a written record should made to show that either a specific “business necessity” resulted in the denial or that the denial was based on factors other than the results of the background check.   If these decisions are not put in writing and preserved, it can be very hard to convince a government inspector, months or years later, that an applicant was lawfully rejected.  Any explanation given “after the fact” and in the course of an investigation is likely to be viewed as self-serving and therefore unreliable.  Similarly, if advice is sought from an attorney in a particular situation, the advice should be put in writing and retained.   An employer who acts on the advice of counsel (and can show what the advice was) has a much better defense than an employer who made what seemed at the time to be a reasonable interpretation of the regulations, only to learn later that a government examiner completely disagrees.

The Corporation Secretary