Employers’ evolving use of background and credit checks

published in Oklahoma Employment Law Letter | October 1, 2013

Many employers run some sort of background or credit check on potential employees. Because Oklahoma law is not very restrictive in this area, some employers have been asking potentially problematic questions and running these checks without spending a lot of time developing a system for use of the information.

However, statistics show that without proper consideration, the use of background and credit checks can disproportionately affect members of groups protected by employment discrimination laws. Over the last few years, the Equal Employment Opportunity Commission has ramped up its scrutiny on the use of these screening tools, and late last year it issued its “Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions,” which outlines very distinct steps that must be taken by employers when using background and credit checks. This increased scrutiny might make you leery about utilizing these screening tools; however, background and credit checks, if used correctly, can be very beneficial and, in some cases, necessary.

On August 9, 2013 in EEOC v. Freeman, a Maryland judge dismissed a class action brought by the EEOC against an employer for its use of background and credit checks for employment purposes. In the decision, the judge discussed the legitimate reasons and benefits of background and credit checks, and pointed out some of the characteristics of the employer’s program that made it legal. Ultimately, the judge dismissed the case because the EEOC failed to provide adequate proof that any specific practice of the employer disparately impacted minorities, or that the program overall had any discriminatory impact.

The Employer’s Program

Freeman provided integrated services for expositions, conventions, corporate events, meetings and exhibit programs, and employed more than 3,500 full-time workers and 25,000 part-time and seasonal workers. It had experienced problems with theft, embezzlement, drug use and workplace violence by its employees. As a result, it started conducting background checks to help minimize those issues. The evidence established that the employer’s program was designed with five goals in mind: “(1) avoid exposure to negligent hiring/retention lawsuits; (2) increase the security of defendant’s assets and employees; (3) reduce liability from inconsistent hiring or screening practices; (4) proactively reduce the risk of employee-related loss; and (5) mitigate the likelihood of an adverse incident occurring on company property that could jeopardize customer or employee confidence.”

Depending on the nature of the job sought, Freeman’s program applied different levels of background checks. For instance, “general employees” (not credit-sensitive jobs) were only subject to a criminal check and Social Security verification; whereas “credit sensitive” positions included a credit history review. Higher-level employees (company officers, general managers and department heads) were subject to an education verification and additional certifications. The employment applications asked if the applicant had “ever pleaded guilty to, or been convicted of, a criminal offence,” but explained that a conviction was not an absolute bar to employment. Applicants were asked to use the space provided for an explanation, which Freeman would consider. The checks were conducted by outside parties. While criminal convictions and active criminal warrants were included, arrests were not, and any convictions older than seven years were disregarded. Additionally, the employer had a multi-step process to review the information from the checks, including consideration of the employee’s truthfulness in completing the application (allowing applicants with outstanding warrants the ability to clear them up), and the type of crime the employee had been convicted of (e.g., theft, violence, etc.). Last, with respect to credit issues, the employer had specific criteria it used in making hiring determinations.

The Lawsuit

The EEOC claimed the employer’s use of background and credit checks, as a whole, caused a discriminatory impact on applicants who belonged to protected classes. Significantly, however, the EEOC did not, and could not, point to any specific criteria or method being used by the employer that created a discriminatory effect.

The court recognized the reasons for, and benefits of, using background and credit checks when making employment decisions, although it also acknowledged the risks. To avoid having the case dismissed, the EEOC had the burden to show the court that specific practices by Freeman adversely impacted applicants based upon their race, color, religion, sex or national origin. In order to do this the EEOC had to show more than “general” or “collective” statistics of disparate impact, but rather had to “demonstrate that each particular challenged employment practice cause[d] a disparate impact.” The EEOC and its experts could not do this, and the court dismissed the case.

The Takeaway

One size does not fit all. Think about why you want to conduct background and/or credit checks, and then tailor your plan to the specific positions to be filled. Develop a plan that specifies what information you are requesting, how it is related to the particular job, and how you will (or will not) be using it. Implement a multi-level system for decision-making. You don’t necessarily need to have decisions go through several people, but like the employer discussed above, at least an additional level of approval is a good idea. Putting together a legitimate and specific needs-based plan on using background and credit information in hiring helps guard you against attack if somehow your employment numbers are statistically uneven overall.