As reported in previous Alerts,  the Equal Employment Opportunity Commission (EEOC) has recently filed suits against several employers including Dollar General and BMW Manufacturing Co. claiming that they improperly used criminal background checks in hiring decisions, resulting in a disparate impact on African-American applicants.  In EEOC v. Freeman, a putative class action filed in Maryland, the EEOC challenged an employer’s use of criminal histories and credit reports, claiming that the employer implemented a hiring policy that, though facially neutral, had a discriminatory effect on African-American and male applicants.  The United States District Court recently dismissed the Freeman case, holding that the EEOC failed to demonstrate facts to support its theory of disparate impact resulting from any identified, specific practice of the employer.  

The Freeman opinion highlights the benefit of adopting carefully crafted, multi-faceted hiring policies governing the use of criminal and credit histories.  The court dismissed the putative class action against Freeman due to the EEOC’s failure to adequately attack the company’s detailed background investigation policy.  Specifically, the court noted that the EEOC failed to establish an element of its case when it made no effort to break down Freeman’s multi-step background investigation policy to identify the specific policies and practices that caused the alleged disparate impact. 

As noted by the court, Freeman’s background investigation policies were not “simple, one-step processes.”  Rather, the company’s background investigation policy involved different types of checks depending on the specific job the individual sought and consideration of both subjective and objective criteria.  Additionally, the company examined a long list of factors, any one of which might control the ultimate employment decision.  For its criminal history checks, Freeman utilized a multi-step evaluation process to review the information obtained to determine whether an applicant was qualified to begin work.  This multi-step process included considering whether the applicant was truthful about his or her convictions, examining any outstanding arrest warrants and giving applicants a reasonable opportunity to have the warrant withdrawn, and finally evaluating whether the criminal conduct underlying a particular conviction made an applicant unsuitable for employment.

With respect to credit history, Freeman conducted credit checks only on employees with “credit sensitive” positions, which included positions that provided employees with access to client or company credit card information, involved the handling of money, checks or similar valuable items, gave the employee budgetary authority or the authority to make agreements with respect to customer invoices, or required the employee to make purchases from vendors.  In total, Freeman ran credit checks for 44 job titles and had approximately 109 other positions that did not require a credit check.  Both the criminal history and credit checks were completed after the applicant was offered and accepted a position, but before the employee began work. 

While recent decisions such as that in the Freeman case have not squarely addressed what it takes for employers to show that their background investigation policies and practices are justified by business necessity, it is important that employers carefully analyze positions to ensure that standards based on credit histories are rationally related to the applicable positions.  In addition, employers should be able to demonstrate that they individually scrutinize each candidate’s criminal history to determine if a particular conviction makes the candidate unsuitable for a specific position.  Employers should also consider adopting written policies governing the use of criminal and credit histories to ensure they are used uniformly and appropriately by all managers involved in the hiring process.