On May 13, 2013, Minnesota Governor Mark Dayton signed a new law prohibiting Minnesota’s private (nongovernmental) employers from inquiring into, considering or requiring an applicant for employment to disclose his/her criminal history until (1) after the applicant has been selected for an interview or (2) if there is no interview, after a conditional offer of employment has been made to the applicant. (Most public (governmental) employers have been subject to this requirement for some time.) This new law takes effect January 1, 2014 for private employers and is in keeping with Minnesota’s long stated public policy of encouraging and contributing to criminal offenders’ rehabilitation and return to the workforce. The new law means most Minnesota employers must remove all questions or “check-the-box” inquiries regarding an applicant’s criminal history from their employment applications. Importantly for bankers, however, the new law includes some exceptions allowing for earlier inquiry into an applicant’s criminal history, including employers who have a statutory duty to conduct a criminal background check or otherwise take into consideration an applicant’s criminal history during the hiring process.

Review of Section 19 of the Federal Deposit Insurance Act

As you know, banks routinely inquire about an applicant’s criminal history and run background checks. Section 19 of the Federal Deposit Insurance Act serves as the impetus for this initial background investigation in the banking employment context. As a reminder, Section 19 prohibits individuals previously convicted of crimes involving dishonesty, breach of trust, or money laundering (or those entering a pretrial diversion or similar program with respect to such crimes) from becoming or continuing as an institution affiliated party, owning or controlling an insured institution, or otherwise participating in the conductor affairs of the banking institution. Based on our experience, the FDIC takes Section 19 very seriously when it comes to these types of crimes and, per Section 19, cannot even consider a waiver within the first ten years following certain crimes specifically listed in Section 19. Further, Section 19 contains no statute of limitations. Bank employers must consider an applicant’s entire criminal history and request FDIC (and possibly other regulatory) permission to employ any individual with applicable offenses in his or her background.

Section 19 FDIC Guidance

The FDIC issued additional guidance regarding pre-employment background screening, discussing the importance of written applications in the screening process, particularly with respect to the disclosure or omission of criminal history in the application. The guidance recognizes that “[w]hile a conviction is not necessarily a valid reason for automatically rejecting a candidate, the omission or lying about a conviction may become the basis for disqualification.” To summarize, Section 19 and FDIC guidance issued thereunder impose a duty to conduct a criminal background check or otherwise take into consideration an applicant’s criminal history during the hiring process.

The Minnesota Statute as Applied to Minnesota Banks

Although we are not aware of any state opinions on this matter, based on our review of the recent Minnesota statute, it appears that banks fit within the exception permitting early inquiry into an applicant’s criminal history. Even if the Minnesota statute did not contain such exception, we believe Section 19 would still preempt (or trump) the Minnesota law, thus permitting early background checks.

Therefore, we do not foresee banks with Minnesota based employees altering their hiring practices with regard to such employees despite the recent Minnesota law generally prohibiting employers from inquiring about criminal history in their applications. However, we recommend that any inquiry into criminal history be uniformly applied, be limited to convictions or pretrial diversion or similar programs, and include a disclaimer that a conviction will not necessarily disqualify the applicant from employment. We also recommend that the written application state that lack of candor or material omissions in the application process are grounds for termination.

Finally, we recommend that banks operating in other states examine state employment laws as they pertain to Section 19 and ensure their practices are consistent with such laws, exempt from such laws or that Section 19 preempts such laws. For example, Wisconsin law prohibits discrimination on the basis of criminal history unless the offense is substantially related to the job.

Takeaway

Although we expect few implications for the hiring practices of Minnesota banks resulting from Minnesota’s recent law generally prohibiting employers from inquiring about criminal history in their applications, bankers should be cognizant of the law and draft employment applications with care.