Seattle employers are about to become much more restricted in their ability to inquire into or act upon the criminal records of applicants and employees. On November 1st, the Seattle Job Assistance Ordinance, SMC 14.17, takes effect and will apply to positions that are based in Seattle at least half of the time. The Ordinance does not apply to governmental employers (with the exception of the City of Seattle) or to positions involving law enforcement, crime prevention, security, criminal justice, private investigation, or unsupervised access to children under the age of sixteen or to vulnerable or developmentally disabled adults.
The Ordinance imposes the following new restrictions on the hiring process:
- Advertisements for positions cannot state that applicants with criminal records will not be considered or otherwise categorically exclude such applicants;
- The employer cannot implement any policy or practice that automatically excludes all applicants with criminal histories;
- The employer must complete an initial screening process to weed out any unqualified candidates before the employer can question applicants about their criminal histories or run criminal background checks on applicants;
- The employer cannot refuse to hire an applicant solely because he or she has an arrest record (as opposed to a conviction record); and
- The employer cannot refuse to hire an applicant solely because of his or her conviction record, conduct underlying his or her arrest record, or pending criminal charges unless the employer has a legitimate business reason to do so.
In addition, the Ordinance provides that an employer cannot take tangible employment actions against a current employee - such as termination, discipline, demotion, or denial of a promotion -- solely because of that employee’s arrest record. Nor can the employer take tangible employment actions against a current employee solely because of that employee’s conviction record, conduct underlying his or her arrest record, or pending criminal charges unless the employer has a legitimate business reason for doing so.
A “legitimate business reason” is considered to be circumstances in which the employer believes, in good faith, that a conviction will negatively impact the individual’s fitness or ability to perform the job at issue or will be likely to result in harm to people, property, business reputation, or business assets. The employer is required to consider the following factors in making the determination that a legitimate business reason justifies the employment action:
- The seriousness of the underlying criminal conviction or pending criminal charge;
- The number and types of convictions or pending criminal charges;
- The time that has elapsed since the conviction or pending criminal charge;
- Any verifiable information related to the applicant’s or employee’s rehabilitation or good conduct;
- The specific duties and responsibilities of the job at issue; and
- The place and manner in which the position will be or is performed.
Once the employer reaches the determination that a legitimate business reason supports action on the basis of an applicant’s or employee’s criminal record, the employer is required to notify the individual of the specific records or information on which the decision is based and hold the position open for at least two business days in order to provide the individual with the opportunity to explain or correct that information.
Affected Seattle employers should evaluate and revise their policies, application materials, and hiring practices to ensure compliance with the new Ordinance.
Maryland Federal District Court's Dismissal of EEOC v. Freeman Provides Guidance for Employers on Background Check Rules
As we’ve blogged about before, the EEOC has become more aggressive over the past few years in scrutinizing employer use of criminal background and credit checks. While federal anti-discrimination laws do not expressly prohibit employers from performing background checks or similar screening methods on employees or applicants, their use can be unlawful where the practice has a “disparate impact” on protected classes of employees under Title VII. Recently, the EEOC has issued Guidance documents focusing on disparate impact cases involving criminal history and credit checks, all as part of its interest in “systemic” forms of discrimination. In addition to issuing guidance limiting when and how employers can use criminal and credit history background checks in employment, the EEOC has been actively investigating specific employers, as some readers of this blog are undoubtedly all too aware. In some cases, the EEOC has even initiated lawsuits challenging employers’ use of background checks. For example, the EEOC has filed suit just a few weeks ago against Dollar General (EEOC v. Dollar General, No. 1:13-cv-04307, Illinois) and BMW (EEOC v. BMW Manufacturing Co., LLC, No. 7:13-cv-01583-HMH-JDA, South Carolina).
Many employers and employment attorneys who have argued that appropriate use of background checks can be important and necessary believe the EEOC is going too far. Those employers have complained that the EEOC’s aggressive position presumes the use of criminal or credit background checks is per se unlawful and amounts to a de facto ban on their use under any circumstances, regardless of whether or not they result in an unlawful disparate impact. If you are one of those raising such concerns, federal judges may be listening. A few weeks ago, a federal judge in the U.S. District Court in Maryland issued an opinion granting summary judgment dismissal in another of the EEOC’s enforcement lawsuits, EEOC v. Freeman (No. 1:10-cv-2882, Maryland). The scathing opinion by U. S. District Court Judge Roger Titus held that the EEOC’s evidence was unreliable and failed to raise a question of fact or show Freeman’s background check policies created a disparate impact in violation of Title VII.
Court Holds Background Checks Can Be “Important” and “Essential” Tools for Employers
The court also went out of its way to note as a general matter that employer use of criminal and credit background checks, absent an actual unlawful disparate impact, was not only lawful but an “important” tool for employers. In so doing, the court cast doubt on the EEOC’s Guidance on this subject, which many believe presumes background checks are inherently discriminatory. Speaking specifically about the use of criminal background checks, the court noted:
“Because of the higher rate of incarceration of African-Americans than Caucasians, indiscriminate use of criminal history information might have the predictable result of excluding African-Americans at a higher rate than Caucasians. Indeed, the higher incarceration rate might cause one to fear that any use of criminal history information would be in violation of Title VII. However, this is simply not the case. Careful and appropriate use of criminal history information is an important, and in many cases essential, part of the employment process of employers throughout the United States * * *. Thus, it is not the mere use of any criminal history or credit information generally that is a matter of concern under Title VII, but rather what specific information is used and how it is used. Because of this, it is simply not enough to demonstrate that criminal history or credit information has been used. Rather, a disparate impact case must be carefully focused on a specific practice with an evidentiary foundation showing that it has a disparate impact because of a prohibited factor.”
The court went on to describe the important goals that properly applied background checks serve, such as reducing employee theft and protecting the company from negligent hiring lawsuits that could result if a known violent individual injured coworkers or customers. Indeed, Freeman was able to score easy points by showing that the EEOC itself requires passing criminal background checks as a condition of employment for over 90% of its positions! (Interesting side note: the tables were also turned on the EEOC in the Kaplan case, where a federal judge required the EEOC to disclose information about its policies in discovery. See EEOC v. Kaplan Higher Education Corp., No. 1:10-cv-2882, 2012 U.S. Dist. LEXIS 54949 (N.D. Ohio Apr. 18, 2012) (granting employers’ motion to compel discovery into EEOC’s background check policies, in part because the information was relevant to company’s defense that EEOC should be estopped from suing employers over practices that it condones itself).)
“Winning” a Pattern and Practice Case Against the EEOC Can Be a Pyrrhic Victory
Freeman is undoubtedly a stinging rebuke of the EEOC’s (over?)zealous enforcement of its Guidance regarding background checks. The opinion will certainly be cited liberally by employers involved in lawsuits alleging their use of background checks is discriminatory under Title VII. But employers should be cautioned about reading too much into Freeman. For example, the court did not hold that the EEOC could never succeed in such a case. And despite the court’s general approval of background checks, it did not even find that the EEOC’s Guidance was overbroad or otherwise invalid. The bulk of the court’s analysis focused instead on the inadequacies of the EEOC’s evidence and expert reports, which the court held were statistically unreliable and failed to show statistical evidence of disparate impact in that case. It is certainly possible that the EEOC could prevail in another case, with either different evidence or better expert testimony.
Further, defending against pattern and practice cases like this can be very expensive, even where, like Freeman, the employer “wins” by getting the case dismissed at summary judgment. The EEOC filed its lawsuit against Freeman in September 2009, and the company only just won summary judgment in August 2013. The trial court’s opinion detailed the “period of contentious discovery” and “flurry of motions activity” that occurred during the nearly four years of litigation that preceded this month’s dismissal of the case—code for what was undoubtedly time-consuming, costly, and stressful litigation. Indeed, pattern and practice cases by their nature entail extensive expert and class action-type discovery into many company policies and hiring practices. For example, the court in Freeman noted that the company had disclosed information related to nearly 59,000 applicants during the course of discovery!
Background Checks Still Need to Be Individualized and Narrowly Tailored
So obviously, despite the employer’s resounding victory in Freeman, most employers would still be best served by trying to avoid costly EEOC scrutiny over background check policies altogether, if possible. With that in mind, therefore, perhaps the most useful take-away from the Freeman case is the court’s detailed discussion of the specifics of Freeman’s policy. The court described that policy approvingly, stating that “[o]n its face, Defendant’s policy appears reasonable and suitably tailored to its purpose of ensuring an honest work force.” (See Freeman fn 3.)
Specifically, Freeman’s policy included the following:
- The application included an express disclaimer stating a conviction was not an automatic bar to employment, and that all the relevant circumstances would be considered, including the nature of the offense, the employee’s explanation, and how long ago the offense occurred.
- The only absolute bar to employment was if the applicant was untruthful or failed to disclose.
- Background checks were only performed once the employee received an offer of employment.
- Any decision to deny employment based on background check results had to be reviewed and approved by senior Human Resources officials.
- Criminal background checks were limited to convictions in the past seven years.
- Credit checks were limited only to specific “credit sensitive” positions where employees had access to company credit cards or the authority to enter into contracts with vendors. Of course, watch out for other potential restrictions on use of credit checks, such as under state law (see below).
Indeed, the Freeman criminal check policy seems to largely comply with the EEOC’s 2012 Guidance on that topic, which states that criminal checks should be job-related, consistent with business necessity, and involve an “individualized assessment” of each employee’s circumstances. The details of Freeman’s policy, which has the stamp of approval of at least one federal judge, should therefore be of particular interest to other employers wishing to craft their own background check policies. (Of course, the fact that Freeman’s policy closely tracked the EEOC Guidance was not enough for that employer to avoid a lawsuit, although presumably after the court’s dismissal, the EEOC may think twice before challenging similar policies in the future.)
Regarding credit checks, even though the EEOC’s Guidance simply says they should be avoided altogether, Freeman suggests they too can be valid, particularly where they are limited only to “credit sensitive” positions. Note, however, that employer use of credit checks may be limited by means other than Title VII, such as by state law. For example, an Oregon statute enacted in 2010, ORS 659A.320, prohibits the use of employee credit checks in all but the most narrow circumstances where employee credit history is “substantially job-related.” (emphasis added)
The debate regarding the appropriate use of employee criminal or credit background information in hiring decisions is far from over. While Freeman may give the EEOC pause, its other enforcement activities continue, including the ongoing litigation in the BMW and Dollar General cases. (The employer in the Kaplan case won summary judgment in early 2013 on the grounds, similar to Freeman, namely that the EEOC’s expert evidence failed to show a disparate impact See EEOC v. Kaplan Higher Learning Education Corp., No. 1:10 CV 2882, 2013 U.S. Dist. LEXIS 11722 (N.D. Ohio Jan. 28, 2013). Interestingly, the Kaplan case involved the same expert relied on by the EEOC in Freeman.)
As the law continues to develop in this area, employers should continue to review hiring practices to ensure they comply with applicable law, including applicable EEOC Guidance. And even when the policy is facially compliant, employers should nevertheless consider conducting regular audits of hiring data to ensure there are no statistical indicators of a disparate impact affecting a protected class under Title VII. As Freeman and other cases show, you want to be on solid ground and make sure the numbers back up your policy if the EEOC ever comes knocking.
Minnesota employers, take note: laws that impact you are changing this year. Not only did the Minnesota legislature recently expand the use of employee sick leave (as we blogged about here) and legalize same-sex marriage, but several other changes occurred this year that may directly impact your business. Here's a quick round up of some of the most important new laws enacted by the legislature affecting Minnesota employers.
Criminal Background Checks
Perhaps the most notable change is, beginning January 1, 2014, most Minnesota employers must change their standard employment applications and hiring practices related to use of a job applicant's criminal history. The new "ban the box" law, which refers to the check box on most employment applications asking about an applicant's criminal history, will bar private employers from asking about or considering an applicant's criminal history until (1) the applicant is selected for an interview or (2) if there is no interview, the applicant receives a conditional offer of employment. Employers who have a statutory duty to conduct criminal history investigations or otherwise consider criminal history in the employment process, such as school districts and many health and human services providers, are exempt from the new law.
When the law goes into effect, Minnesota employers who previously required all applicants to disclose criminal history will need to defer the inquiry until further into the interview process.
Deductions from Paychecks
The legislature also amended Minnesota Statutes Section 181.14 which applies to deductions from final wages of employees entrusted with money or property. The new language provides that "[n]o employer shall make any deduction, directly or indirectly, from the wages due or earned by any employee, who is not an independent contractor, for lost or stolen property, damage to property, or to recover any other claimed indebtedness running from employee to employer, except as permitted by section 181.79." The law went into effective on April 30, 2013.
Moreover, the Minnesota Supreme Court imposed another limitation on deduction from wages in the restaurant industry. In Karl v. Uptown Drink, LLC, No. A12–0166 (Minn. Aug. 14, 2013), the Court held that restaurants and bars may not deduct from employee's gratuities for bills of customers who left without paying or failed to sign credit card receipts. Bars and restaurants may also not deduct from employee's gratuities to cover register shortages.
These new laws highlight the very limited circumstances in which a Minnesota employer may make wage deductions. Employers are advised to review any wage deduction policies and seek the guidance of counsel to ensure legal compliance.
The Minnesota legislature also recently amended the Minnesota Whistleblower Act, which will increase the number of whistleblower claims while simultaneously making it more difficult for employers to defend against them. Generally, the Act prohibits an employer from penalizing an employee because the employee made a good faith report of a violation or suspected violation of federal or state law. Before the amendments, the Minnesota courts developed common law definitions of "good faith," "penalize," and "report," which were considered to be employer-friendly. The amended law, however, changes the meaning of these terms to make it easier to bring and prove a whistleblower claim:
- Good Faith. Under prior common law, to show that a report was made in "good faith," the employee needed to make the report with the intent to expose an illegality for the protection of a third party or the public in general. Chial v. Sprint, 569 F.3d 850, 854 (8th Cir. 2009); Freeman v. Ace Tel. Ass'n, 404 F. Supp. 2d 1127, 1140 (D. Minn. 2005). The amended statute, however, excludes the requirement that a "good faith" report be made for the benefit of someone other than the employee. To the contrary, now a "good faith" report is one that is not knowingly false or made in reckless disregard for the truth. This change will likely lead to more whistleblower claims because an employee is more likely to make a report about acts affecting him- or herself than to make a report of acts affecting others or the public at large.
- Report. Moreover, the amended statute greatly expands the definition of a statutorily-protected "report." Before the amendments, a report was protected if it brought forth a violation or suspected violation of the law. Now, under the amended statute, an employee may make a protected report of planned violations of the law, even if the act never takes place. Again, this change is likely to lead to more whistleblower claims because an employee may make a protected report of acts that never even occurred.
- Penalize. The Act has always prohibited an employer from penalizing an employee for making a protected report. Under the new amendments, however, the Minnesota legislature for the first time defines "penalize" to include "conduct that might dissuade a reasonable employee from making or supporting a report, including post-termination conduct by an employer or conduct by an employer for the benefit of a third party. Minn. Stat. 181.931 sec. 2, subd. 5. While it has always been clear that discipline or discharge could dissuade an employee from making a report, employers now need to carefully consider any planned action against a reporting employee, including changing job duties or altering any other term or condition of employment.
EEOC's Multifaceted Effort To Aggressively Target Employer Policies Potentially Having "Disparate Impact"
As many of you know, the Equal Employment Opportunity Commission (EEOC) has been on an aggressive tear of late on a broad range of issues. In addition to upping its investigations of charges of individual “disparate treatment” discrimination, it is undertaking a number of new initiatives that show a renewed focus on facially neutral employer policies that may have a (frequently unintentional) “disparate impact” on protected classes of employees. Because of the EEOC’s renewed interest in disparate impact, it is prudent for employers to be thoroughly reviewing and auditing their policies and practices to ensure they are not having an unintentional disparate impact on protected categories of employees.
Below is a quick run-down of the EEOC’s recent efforts on this front. These and other topics were covered recently in a Stoel Rives Labor & Employment Breakfast Briefing: "Back to School with ‘Hot Topics’ In Employment Law,” by Stoel Rives attorneys Brenda Baumgart and Ryan Gibson, on Sept. 11, 2012 in Portland, OR.
EEOC 2012-16 Strategic Enforcement Plan Targets “Systemic” And Other Forms of Disparate Impact Discrimination
On September 4, 2012, the EEOC issued an updated version of its Strategic Enforcement Plan (“SEP”) for 2012-2016, in which it highlighted its enforcement priorities now and in the coming years. In addition to highlighting education and outreach efforts, the SEP shows a strong focus on disparate impact concerns, including:
- Preventing “Systemic” Discrimination. The EEOC is targeting general practices, handbooks, online applications and similar policies that may have disparate impacts on protected classes of employees such as racial minorities, older workers, or disabled employees. Examples identified by the EEOC include “exclusionary policies and practices, the channeling/steering of individuals into specific jobs due to their status in a particular group, restrictive application processes, and the use of screening tools (e.g., pre-employment tests, background screens, date of birth screens in online applications) that adversely impact groups protected under the law.”
- Protecting “vulnerable workers.” The EEOC’s efforts here are focused on immigrant, migrant, or seasonal employees who, due to language or other barriers may be unaware of rights or are reluctant to pursue them. Again, the EEOC is focusing largely on systemic, disparate impact concerns, such as job segregation, pay disparities, and the unintended impact of English fluency requirements for particular jobs where language skills may not really be necessary.
- “Emerging issues.” A decade ago, the EEOC identified discrimination against Muslim and Arabic employees in the wake of the 9/11 attacks as an “emerging issue” in employment law. Now, EEOC has identified a number of new “emerging issues” where it has shifted its efforts. Those include enforcement of the 2009 amendments to the ADA (ADAAA) and related regulations, and the EEOC's recently recognized protections for gay or transgendered employees under Title VII. They also include another “disparate impact” concern: accommodation issues specific to pregnant employees who may be forced to take unpaid leave in lieu of (paid) accommodations—such as temporary job restructuring, reduced schedule, temporary job transfers, or light duty assignments—offered to non-pregnant employees with similar short-term health restrictions.
- Preserving Access to the Legal System. The EEOC is prioritizing investigation of retaliation charges, because they account for over 37% of all charges filed (the most common type), and because the EEOC believes retaliation amounts to a denial of justice by discouraging employees from exercising their rights. The EEOC also will focus on what it views as other “systemic” barriers to justice, including “overly broad waivers” and settlement agreements with releases that may unfairly discourage employees from exercising rights or pursuing claims.
EEOC Pilot Project To Directly Audit Employer Pay Practices Under Equal Pay Act
In mid-2012, the EEOC began a pilot program in three district offices (Phoenix, Chicago, and New York) pursuant to its authority to enforce the Equal Pay Act (“EPA”), a 1963 statute that prohibits paying female employees differently for the same work done by male employees. While gender-based pay discrepancies are also prohibited under Title VII, the EPA specifically empowers the EEOC to conduct “Directed Investigations,” or audits, of employer pay practices to search for gender-based pay disparities, without having to wait for a charge to be filed as is often required for it to investigate alleged Title VII violations. This has been characterized as a fairly “radical” departure for how the EEOC conducts enforcement, and it is. While the EEOC has provided few details about how the program will work, at the very least it may simply call or show up at an employer’s doorstep and request policies and information related to pay practices. If it finds that your pay practices may show a gender-based disparate impact, it may decide to take further enforcement action.
Yikes! These audits could essentially subject employers to a form of wage and hour class action against the EEOC. And who knows what else the EEOC may find as a result of its audit, including potential evidence of other “systemic” problems it may wish to investigate further.
Employers, especially in the regions where the pilot project has begun, are well advised to conduct internal audits of their pay practices to identify and remedy any unexplainable gender-based pay disparities that could be unlawful under the EPA. Practical pointer: it’s often a good idea to involve your in-house or outside counsel in these internal audits to maximize the chance that any (potentially bad) findings are resolved and the process for doing so is protected by the attorney client privilege.
EEOC Guidance Limits Employer Use of Criminal Background Checks
A few months ago, the EEOC issued its long-awaited “Enforcement Guidance” document on when using criminal background checks can be unlawful under Title VII. The guidance will likely require many employers to revise their hiring policies and requirements that rely heavily on criminal background checks to screen applicants.
The EEOC’s focus here is, again, the “disparate impact” that facially neutral policies may have on particular protected classes. With criminal background checks, the implicated protected class is usually race, particularly black and Hispanic men, who studies have shown are statistically and disproportionately more likely to have a criminal record than members of other races. While the EEOC recognizes that using criminal background screens are appropriate for some jobs, excessive use can have a disproportionate impact on members of certain race groups.
Under the new guidance, blanket policies barring employment because of any criminal conviction will be heavily disfavored. Instead, the EEOC directs employers to adopt “targeted screens” for particular types of jobs, and also conduct an “individualized assessment” for each applicant affected by a screen. In developing a targeted screen, the employer is to consider the actual requirements of each job and justify why convictions for specific types of offenses should bar employment in that job. Although the guidance offers few specifics, as an example it is probably appropriate to screen applicants for jobs working with children for child abuse or molestation convictions, for recent drunk or reckless driving convictions in jobs requiring operating vehicles, or for theft or embezzlement convictions in accounting positions or jobs requiring handling large amounts of cash.
In performing the individualized assessment, the employer is to look at the type, severity, date, and number of prior convictions, and any extenuating circumstances such as rehabilitation efforts or post-conviction work history, to determine whether an employee with a conviction could nevertheless be hired. Under this approach, an employer may have a difficult time justifying not hiring an applicant for a computer programming job who has worked successfully for a decade simply because he was convicted for being drunk and disorderly at a college frat party in the 1990s. Conversely, an employer may be more justified in denying employment to someone more recently convicted of violently assaulting a coworker, who violated parole, and had been fired from his last job after a short time for insubordination.
The EEOC’s new guidance is technically not a fundamental departure—the EEOC first articulated its position on criminal background checks in the 1980s, and courts have long held that the use of criminal history screens (or any facially neutral policy, for that matter) can be discriminatory under a disparate impact standard. But, consistent with its renewed focus on “systemic” discrimination, the EEOC now appears to take a stronger stand that employer policies that broadly rely on using criminal history to screen out applicants will be presumed to be discriminatory, and that employers have the burden to show the screen is justified.
Employers that use criminal history to screen applicants should review such policies, with a particular eye toward identifying any “blanket” screens (e.g., we don’t hire anyone with any criminal conviction ever). It may be prudent to then develop detailed written policies implementing the targeted screen and individualized assessment approach promulgated by the EEOC. Employers should also begin training managers and recruiters on the new standards.
In conclusion, it is important for employers to be aware of these areas of concern to the EEOC, and review policies or practices for potential "systemic" or "disparate impact" effects. And we will also be closely following any other new initiatives the EEOC may consider in the future.