Author: Beth P. Zoller, XpertHR Legal Editor

August 22, 2013

A recent federal court decision, Equal Employment Opportunity Commission v. Freeman, Case No. RWT 09cv2573 (D. Md. Aug. 9, 2013), will likely have significant implications for retail and other employers who routinely use criminal background and credit checks to screen and evaluate job applicants prior to hiring them. The decision suggests that employers should continue to use these background checks so long as they are conducted properly and for an appropriate purpose. However, this seems to go against the Equal Employment Opportunity Commission's (EEOC) current position on this issue. Specifically, the EEOC has been reprimanding employers, such as retailer Dollar General, whose use of criminal background checks could potentially have a disparate impact on minorities, and result in race discrimination. In addition, the EEOC's Strategic Enforcement Plan appears to be heavily focused on criminal background checks. Perhaps the tide is changing.

In the case, the EEOC claimed that Freeman engaged in hiring discrimination by improperly using criminal and credit background checks, which had a disparate impact on African-American and Hispanic male applicants and prevented them from being hired. Freeman defended that the background checks were necessary because it had previously hired employees who had committed crimes involving embezzlement and theft, used drugs and engaged in workplace violence. Therefore, the background checks helped it evaluate "the trustworthiness, reliability and effectiveness of prospective employees." Freeman further maintained that its background checks were not discriminatory because they were tailored to the particular jobs sought and were used as part of a multi-step evaluation process to review the information received. This made them fair and consistent with Freeman's business needs.

The federal district court in Maryland dismissed the EEOC's lawsuit and recognized that while some criminal and credit background checks may be discriminatory, in violation of Title VII, the EEOC did not prove that Freeman's background checks had a disparate impact on job applicants. Specifically, the EEOC failed to highlight a particular employment practice that resulted in a disparate impact. Instead, the court said, it chose to view the variety of Freeman's background checks as a whole to make a broad sweeping statement that they were discriminatory.

The court concluded that Freeman's use of background checks appeared "reasonable and suitably tailored to its purpose of ensuring an honest workforce" for three reasons: (1) they did not intrude into applicants' personal information; (2) Freeman's review of the information gleaned was limited to convictions in the past seven years; and (3) they did not penalize applicants for arrests that did not result in convictions or guilty pleas.

The court also noted that careful and proper use of criminal history information is an essential part of the employment process. Employers who use background checks have a clear incentive to avoid hiring employees who have a tendency to defraud or steal from their employers, engage in workplace violence or who otherwise appear untrustworthy and unreliable.

The court issued a harsh warning to the EEOC, however, stating that by challenging the background check process, and bringing actions of this nature against employers such as Freeman, as well as retailers like Dollar General, the EEOC has essentially placed employers between a rock and a hard place. It essentially forces employers to ignore "criminal history and credit backgrounds, causing them to be exposed to potential liability from criminal and fraudulent acts committed by employees, while, at the same time, exposes them to "the wrath of the EEOC for having utilized information deemed fundamental by most employers."

Based on this case, an employer's best practice is to strike a balance between protecting its legitimate business interests in hiring trustworthy employees and protecting employees' private and personal information. This can be achieved by evaluating each candidate's criminal record on a case-by-case basis rather than conducting blanket criminal and credit background checks. In the process, the checks should take into account the nature and seriousness of any discovered crimes, how much time has passed since an offense was committed, whether an arrest resulted in a conviction or guilty plea, and the nature of the position sought in relation to the need for a background check. This is the approach suggested by the EEOC in its most recent enforcement guidance.