Dallas Bar Association

Handcuffed: Laws Limit Employers’ Use of Background Reports

by Audrey Mross

Employers using criminal and credit history contained in background checks when making hiring and other employment decisions may be surprised to learn that legislators and regulatory agencies may have handcuffed their ability to do so. Rationales for these limits include data showing use of such criteria has a disproportionately negative impact on protected class members, the stark statistic that one in three adult Americans have an arrest or conviction record and the havoc wreaked on many individuals’ credit rating by a weak economy.

Limits on using arrest and conviction reports evolved over time. The Equal Employment Opportunity Commission (EEOC) opined in 1982, 1987 and 1990 that using arrest and conviction information to screen out applicants may form the basis of a Title VII race discrimination claim. The EEOC warned employers that blanket exclusions would be hard to defend and created a three-part test, telling employers to consider the nature of the offense, how it relates to the job being sought and how long ago it occurred, in order to prove use of the report was both job-related and consistent with business necessity.

Some states and cities went further, giving the force of law to what the EEOC was suggesting. For example, Massachusetts bans employers from inquiring or using information they obtain relating to arrests in which no conviction occurred, first convictions for minor misdemeanors (e.g., drunkenness, simple assault, speeding) or a misdemeanor conviction that is more than five years old. A more recent development is the “ban the box” movement, in which inquiries about convictions are prohibited until after a conditional offer of employment has been made. The first state to do this was Hawaii in 1998. In Texas, both Travis County and the City of Austin removed the conviction question from their employment applications in 2008. The federal Ban the Box Act (H.R. 6220) died in committee in 2012.

While the creep of regulation may have gone unnoticed by many employers, large dollar settlements had the opposite effect. In 2011, the EEOC negotiated a $3.13 million settlement over an employer’s practice of excluding applicants who had been arrested pending prosecution and those who were arrested or convicted of minor offenses. Perhaps emboldened by successful litigation, the EEOC issued a 30-page Consideration of Arrest and Conviction Records in April 2012. The Office of Federal Contract Compliance Programs, which governs certain federal contractors, issued similar guidance in its Directive 306, in January 2013. Both emphasized the need for employers to use the three-part test to be able to prove selection criteria are sufficiently job-related.

Unlike the slow development of limitations on use of criminal history, prohibitions on use of credit history began in 2007 and expanded quickly. Ten states (CA, CO, CT, HI, IL, MD, NV, OR, VT and WA) currently limit procurement or use of credit record information on applicants and employees. According to the National Conference of State Legislatures, there were 35 bills pending in 17 states and the District of Columbia in 2012 and in just the first half of 2013, there were 45 bills filed in 25 states and the District of Columbia. The federal Equal Employment for All Act (H.R. 645) was introduced in February 2013 but is stalled in committee with only 31 co-sponsors. With some variations, these bills and laws prohibit the use of a report bearing on an applicant’s or employee’s creditworthiness, credit standing or credit capacity when making adverse employment decisions, with exceptions allowed for jobs involving national security, FDIC clearance, managerial jobs at financial institutions or when otherwise required by law.

In light of these restrictions, determine what positions in your organization have a statutory requirement of performing a criminal and/or credit check on certain employees. Next, identify the state and local law regulating use of these reports in the jurisdictions where you have employees. Third, consider whether you want to forego use these criteria, even where allowed, to take advantage of tax credits or deductions such as the federal Work Opportunity Tax Credit (for hiring those who face barriers to being hired, including felons). There is also a federal bonding program which offers a no-cost bond to protect employers who hire ex-offenders. Fourth, remove questions about arrests from your hiring forms and processes entirely and remove inquiries about criminal convictions, if not allowed by law. If you can keep the conviction question on your employment application, add a statement that a “yes” answer is not an automatic bar to employment and that the nature, seriousness and timing of the offense will be considered.


Audrey Mross is chair of the Labor and Employment section at Munck Wilson Mandala LLP, and can be reached at amross@munckwilson.com.

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