In the past few weeks there have several noteworthy decisions regarding employers’ use of criminal background information to make hiring decisions. In one case, EEOC v. Peoplemark (6th Cir., Oct. 7, 2013), the Sixth Circuit handed the Equal Employment Opportunity Commission (EEOC) a significant bill for attorneys’ and expert fees exceeding $750,000, when the court found that the EEOC pushed forward on a policy-based class action claim after discovery definitively established that no such policy existed. Another case, Smith v. USG Corp. (Pennsylvania Superior Court, Sept. 23, 2013), involved a Pennsylvania state court suit, which was revived to allow a plaintiff to re-plead a state law “violation of public policy” claim that her termination was based on her pre-hire disclosure of a criminal background history, causing the employer to claim it had hired her in error. Here are the key facts and takeaways from both cases, as employers attempt to navigate continuing background check litigation.

EEOC v. Peoplemark and Its Take-Away

EEOC v. Peoplemark is a case with origins back to 2005, when Peoplemark, a temporary staffing agency operating in multiple states, declined to refer a Michigan-based applicant for employment at Peoplemark’s clients due to her felony conviction. Peoplemark handled the EEOC investigation internally. During the investigation, Peoplemark initially advised the EEOC that it had a companywide policy of rejecting applicants with felonies. In 2008, after a 2-year investigation where 18,000 documents were provided to the EEOC, the EEOC sued Peoplemark on a class action claim. The 2008 lawsuit alleged that Peoplemark had a companywide policy that prohibited the hiring of any person with a criminal record, which the EEOC alleged had a disparate impact on African-American applicants.

In April 2009, Peoplemark’s attorneys advised the EEOC that Peoplemark did not in fact have a company-wide policy of rejecting all applicants with felonies. After extensive discovery and expert reports, by October 1, 2009, it was clear from the evidence that Peoplemark DID NOT have a company-wide policy prohibiting hiring of those with criminal records. The EEOC then sought to change its theory of the case, claiming that the applicant flow and current workforce data could be used to establish that African-Americans with felonies were disparately impacted by Peoplemark’s hiring process (e.g. a disproportionate number of African-American applicants were not hired). Five years after the litigation began, on March 24, 2010, the EEOC dismissed the case with prejudice, and agreed that Peoplemark was the prevailing party in the lawsuit, enabling Peoplemark to seek its fees and costs.

Peoplemark then sought and received $750,000 in attorneys’ fees, expert witness fees, and other expenses from the district court. On appeal by the EEOC, the 6th Circuit upheld the $750,000 award. It did so because there is a very high standard of reviewing attorneys’ fees awarded by a lower court – unless there is a clear error, or abuse of discretion on the part of a district court, fee awards will be upheld. According to the 6th Circuit, the EEOC pursued the lawsuit and continued to litigate after October 2009, when it was clear that Peoplemark did not have a company-wide policy of excluding felons/applicants. The 6th Circuit stated that as of October 2009, the EEOC should have either dismissed the case, or attempted to amend its complaint. Since the EEOC did neither, Peoplemark was awarded attorneys’ fees and costs incurred after October 2009 and all of its expert witness fees, even expert fees incurred prior to October 2009.

Despite the significant fee “win” by Peoplemark, employers are well advised to view EEOC v. Peoplemark as a cautionary tale. This eight-year ordeal began when Peoplemark provided information that led the EEOC to conclude that Peoplemark had a company-wide policy excluding applicants with felonies. Whether a case is handled internally or by outside counsel, employers should be extremely cautious about overstating policies, particularly when such policies are implemented and interpreted at a local vs. companywide level. Employers responding to EEOC Requests for Information should take pains to emphasize, where possible, the unique, fact-specific decisions made with respect to the charging party identified in the particular EEOC charge. This case was not without expense to Peoplemark – attorneys’ fees from 2008 to October 2009, when a large portion of the class-wide discovery occurred, were not awarded. These attorneys’ fees were likely significant, and potentially avoidable if Peoplemark had provided more limited, site-specific information at the beginning of the EEOC’s investigation.

Smith v. USG Corp. and Its Take-Away

Smith v. USG Corp. involved a Pennsylvania state law, which provides: “Felony and misdemeanor convictions may be considered by the employer only to the extent to which they relate to the applicant’s suitability for employment in the position for which he has applied.” 18 Pa.C.S.A. § 9125(b). Here, the employer (USG) hired an individual who had revealed a criminal background history during the application process. Shortly after the applicant was hired, USG allegedly claimed that the hiring had been in error given the criminal background history, and terminated the individual. All of this appears to have occurred within a few months. The trial court dismissed the employee’s claims that the termination of her at-will employment violated public policy, finding that the Pennsylvania law only applied to pre-employment process. In reversing the decision, the appellate court stated: “while Smith may have already begun her employment, her termination may have actually been a hiring decision error that could trigger the applicability of section 9125.” Plaintiff Smith was allowed to re-plead her lawsuit to allege that her employer’s use of criminal background history information as part of the hiring process violated public policy. While it remains to be seen whether Smith will be able to meet the necessary pleading requirements, the lawsuit is revived and pending. It is also important to note that this Pennsylvania law requires the employer to provide a notice in writing “if the decision not to hire the applicant is based in whole or in part on criminal history record information.”

The bigger lesson from Smith v. USG Corp. is that given ongoing litigation regarding employers’ use of criminal background history to make hiring decisions, it is always a good idea to be aware of the state laws regarding use of such information AND the written notice requirements if the information results in a non-hire decision. State law claims could provide a refuge to individual claimants who have not timely pursued EEOC Charges, or where EEOC class action efforts have proven unsuccessful. 

BakerHostetler will continue to follow these background check issues, as it has been doing (see post 1post 2post 3post 4post 5), and is available to assist employers in navigating these issues.