criminal conviction history

By Pamela Q. Devata , Robert T. Szyba, and Stacey L. Blecher

Seyfarth Synopsis: Over the past few years, restrictions regarding the use of credit checks by employers on applicants and employees have been passed at various state and municipal levels, and the federal government has indicated its own concerns of potential discriminatory impact of the use of credit checks. The nuanced differences in obligations and requirements that may govern in any particular jurisdiction have created a legal mine-field for employers who utilize credit checks.

Jurisdictions Limiting Use of Employment Credit Checks

In recent years, ten states (California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont and Washington), the District of Columbia, and the cities of Chicago, New York City and Philadelphia have passed laws restricting the use of credit reports used by employers for employment purposes, with several more jurisdictions poised to join the trend. In addition, Representative Maxine Waters (D-CA) and Senator Elizabeth Warren (D-MA) have proposed bills in both the U.S. House of Representatives and the Senate that would restrict the ways in which consumer credit information could be used for employment purposes.

The Benefit—and Risks—of Credit Checking

“Credit checks are useful to employers generally because they provide a variety of information not able to be confirmed by other sources and because they are viewed as a valid indicator of a person’s judgment and potential risk to the company . . . the vast majority of employers . . . use credit reports for a very limited number of positions such as jobs dealing with company finances, positions in accounting departments, high level executives or positions dealing with sensitive personal data of customers or employees.” Statement of Pamela Quiqley Devata, Esq., Seyfarth Shaw LLP, before the Equal Employment Opportunity Commission (“EEOC”), October 20, 2010, “Employer Use of Credit History as a Screening Tool.” The EEOC, on the other hand, has taken on greater scrutiny of background checks in employment decisions because of their potential adverse impact on classes of applicants under Title VII of the Civil Rights Act (“Title VII”).

The EEOC has taken issue with employers who utilize criminal history screening in their hiring decisions, and also has broadened their scrutiny to include credit checks for the same reason: the belief that credit checks create a disparate impact on certain minority groups. See for instance EEOC Enforcement Guidance, Number 915.002, issued April 25, 2012, entitled, “Consideration of Arrest and Conviction Records in Employment Decision under Title VII. See also EEOC v. BMW Manufacturing Co., 2015 WL 5719928 (Verdict and Settlement Summary) (Sept. 8, 2015) (EEOC claimed that automobile manufacturer excluded black logistic workers from employment at a disproportionate rate after BMW implemented a criminal background check policy, which had statistically disparate impact on black employees; the case settled for $1,600,000). EEOC v. Kaplan Higher Learning Educ. Corp., 2014 WL 1378197 (N.D. Ohio 2014) (EEOC failed to demonstrate that Kaplan’s use of credit reports had an adverse impact on African American applicants where “race rating” methodology was discredited).

Federal and State Laws Also Govern the Use of Credit Reports

The Fair Credit Reporting Act (“FCRA”) does not expressly preclude employers from using credit reports when making employment decisions, but other applicable laws may impact an employer’s use of credit reports of its applicants or employees. The FCRA disclosure form must expressly state that a credit check will be procured, however, it is illegal in certain jurisdictions to refer to credit at all if there is no lawful reason for the credit check. See Stop Credit Discrimination in Employment Act, N.Y.C. §§ 8-102(29), 8-107(9)(d), (24) (2015); D.C. “Fair Credit in Employment Amendment Act of 2016,” Act 21-673 (2016).

The jurisdictions that have enacted laws prohibiting the use of credit history for employment decisions have largely based the legislation on the premise that credit generally is not a relevant factor in employment decision-making. Thus, these prohibitions typically prevent use of a credit report in the context of employment when the report is not sufficiently related to the nature of the position.

These prohibitions, however, are only subject to certain narrow exceptions. For example:

  • Banks and financial institutions (Chicago, Colorado, Connecticut, DC, Hawaii, Maryland, Oregon, Philadelphia, and Vermont);
  • Managerial positions (as defined by the particular state/city legislation) (California, Colorado, Hawaii, Illinois, and Philadelphia)
  • Positions with access to specified personal information (other than routine transactions and as defined by the particular state legislation) (California and Maryland)
  • Positions with access to confidential/proprietary information, security data, or trade secrets (California, Connecticut, Illinois, Maryland, New York City, Philadelphia, and Vermont)
  • Positions in law enforcement (California, DC, New York City, Oregon, Philadelphia, and Vermont)
  • Positions involving access to assets of above a certain amount or with signatory authority to enter transactions on behalf of the employer (California, Connecticut, Illinois, Maryland, New York City, Philadelphia, and Vermont)
  • Positions with regular access to more than a certain amount in cash (California – $10,000 and Illinois – $2,500)
  • Positions with access to expense accounts or corporate cards (Connecticut and Maryland)

Importantly, no state or city prohibits use of credit report information when such use is specifically permissible under federal or state law.

Penalties range from $100 per day to $250,000, depending upon the jurisdiction.

Overall Trends

Given the increase in state and local laws passing credit check laws, as well as the EEOC’s stance on the use of credit checks (namely, that credit checks create a disparate impact on certain minority groups), there appears to be a trend of all employers decreasing the number of credit checks that they conduct. Given the potential exposure, even financial organizations are no longer running credit checks on all of their workforce unless they are either specifically required to do so by law or those employees are in positions of trust—specifically, those positions with signatory authority over third party assets of $10,000 or more, and positions that have a fiduciary responsibility to enter financial agreements on the employer’s behalf.

Employer Outlook

Given the incredible breadth, and potential damages of the numerous (and growing) credit report laws and the recent upsurge of private litigation on this issue, employers should not directly or indirectly request credit information and/or conduct credit checks unless required to do so under state or federal law or unless an exemption is met. Employers who seek credit information for positions that fall into jurisdictional exemptions also should review the requirements for compliance and additional process guidance. Most significantly, employers should review their applications, FCRA forms, and other employment-related documents to ensure that there are no references to the procurement and/or use of credit information. Employers in multi-state jurisdictions should also ensure compliance with the laws of all other applicable jurisdictions that regulate employers’ use of credit information.

Pamela Q. Devata is a partner in Seyfarth Shaw’s Chicago office. Robert T. Szyba is an associate and Stacey L. Blecher is counsel in the firm’s New York office. If you would like further information, please contact your Seyfarth Shaw LLP attorney, Pamela Q. Devata at pdevata@seyfarth.com, Robert T. Szyba at rszyba@seyfarth.com or Stacey L. Blecher at sblecher@seyfarth.com.

By Pamela Q. Devata and Jennifer L. Mora

Seyfarth Synopsis: In the last three years, employers have seen a sharp increase in the number of employment class actions under the Fair Credit Reporting Act (FCRA). Most of the reported cases involve challenges to the employer’s procedures before ordering a background report. More recently, however, we are seeing more cases against employers alleging a failure to follow the FCRA’s adverse action requirements, which must be followed any time an employer intends to take “adverse action” (revoking a job offer or terminating employment) against a job applicant or a current employee based, in whole or in part, on information contained in their background report.

A recent federal court decision demonstrates the importance of employers following these highly technical requirements when using background reports for hiring and other employment decisions. In Wright v. Lincoln Prop. Co., a judge in the Eastern District of Pennsylvania considered how an employer can comply with the adverse action process if it relies on an initial background report before revoking a job offer, but then receives a subsequent, corrected report. In Wright, the plaintiff received an employment offer that was contingent upon successful completion of a background check. The first background report, dated June 6, was a partial, in-progress report that revealed a misdemeanor conviction for driving under the influence and two separate drug-related felony convictions. A week later, on June 13, a more comprehensive, final report was provided to the employer, but it included the same substantive criminal information. The employer sent the partial June 6 report to the plaintiff but did not send the final, completed June 13 report.

Both parties moved for summary judgment. In alleging the employer violated the FCRA, the plaintiff raised two arguments. First, he argued he never “received” a copy of the June 6 report. The court summarily rejected this argument, concluding the FCRA does not explicitly require an employer “to ensure that the consumer to whom the report relates actually received the notice.” Instead, the FCRA merely requires the employer to “provide” a copy of the report. Thus, the court concluded that a jury had to decide whether the employer satisfied its obligations under the FCRA based on its evidence that it did, in fact, “provide” him with a copy of the report.

The plaintiff then argued the June 6 report did not satisfy the FCRA because it did “not contain the required information, including a summary of rights and advance notice of [the employer’s] intention to withdraw its job offer based on the report.” He also argued the employer relied on the June 13 report (which was never provided to him) and, thus, sending the June 6 report did not satisfy the FCRA. On the other hand, the employer argued in its motion that dismissal of the claim was appropriate because (a) it provided the plaintiff with a copy of the report and the FCRA summary of rights and (2) the convictions, which were listed in both reports, were not erroneous and, in fact, the plaintiff to admitted to them.

The court concluded that a jury should resolve the dispute. In so doing, the court noted that the employer revoked the offer because of the convictions listed in both reports and that while there were no material differences between the criminal history included in the two reports, the final, June 13 report “contain[ed] a more thorough summary of other types of searches run by [the background check company], such as credit report” and the plaintiff “remained unable to contest the full information upon which [the employer] relied even if he indeed received the June 6th transmittal, given that it only included his criminal history.” Because a copy of the final report was not sent to the plaintiff, the court denied the employer’s motion for summary judgment.

The court’s ruling does not equate to a blanket requirement that an employer provide all copies of background reports to rejected job applicants or terminated employees. It is possible the jury will find that, under these facts, a second pre-adverse action notice was not required. That said, employers that receive corrected or more comprehensive reports after sending the initial report should assess the new report to determine whether to send a subsequent pre-adverse action notice. As this case reflects, that both reports contained the same conviction information that caused the employer to revoke the offer did not spare the employer from the expense and burden of a jury trial.

Now more than ever, employers that conduct background checks, whether pre-hire or during employment, should consider taking steps to ensure they are complying with the FCRA’s notice requirements, including a privileged review of their background check process documents and notices and the procedures used when ordering background reports and relying on them when making employment decisions. Employers also should be mindful of other laws impacting their use of criminal history information, including the “ban-the-box” laws sweeping the nation and the Equal Employment Opportunity Commission’s interest in background screening policies that may have a disparate impact on minority workers.

Those with questions about these issues or topics are encouraged to reach out to the authors, your Seyfarth attorney, or any member of the Background Screening Compliance & Litigation Team.

By Pamela Q. Devata , Robert T. Szyba, and Stacey L. Blecher

Seyfarth Synopsis: On May 4, 2017, New York’s highest court, the Court of Appeals, held that the New York State Human Rights Law (NYSHRL) prohibits employers from discriminating on the basis of criminal conviction history. Entities that are not direct employers may also be liable, however only for aiding and abetting a violation of the NYSHRL.

In Griffin v. Sirva, Inc., the U.S. Court of Appeals for the Second Circuit (Second Circuit) posed three questions to the New York Court of Appeals (Court of Appeals), New York’s highest court, regarding the appropriate interpretation of New York state law, the NYSHRL. Specifically, the Court of Appeals was asked to determine whether (1) Section 296(15) of the NYSHRL, which prohibits discrimination against individuals with prior criminal convictions, is limited to a party’s “employer”; (2) if so, is an “employer” only a “direct employer,” or can the coverage extend to other related entities; and (3) does Section 296(6), which provides for aiding and abetting liability, apply to Section 296(15) to impose liability on out-of-state entities that may have a connection to an in-state employer?

As background, the direct employer in the case was Astro Moving and Storage Co., who was a contractor for Allied Van Lines. Plaintiffs had convictions for sex crimes with minors, which disqualified them from working for Allied, and Astro terminated their employment because they could not perform services for Allied.  Plaintiffs sued Astro, Allied, and Sirva, Inc. (Allied’s parent).  Among other claims, Plaintiffs alleged discrimination due to their criminal conviction histories, as prohibited by Section 296(15) of the NYSHRL.  As is most relevant here, they sued Allied (which was not their direct employer).  Thus, since the interpretation of the NYSHRL had not been resolved on this point, the Second Circuit certified its questions to the Court of Appeals.

In its response, the Court of Appeals held definitively that Section 296(15) of the NYSHRL is limited to direct employers. Although the statutory text states that “any person” is prohibited from discriminating, the Court nevertheless found that this language was contextually designed to target direct employers.

With respect to the second question, the Court of Appeals clarified who the NYSHRL considers an “employer.” To make the determination, the Court of Appeals turned to the common law test for determining the employer-employee relationship, as enunciated by New York’s Appellate Division, Fourth Department, in State Div. of Human Rights v. GTE Corp., 109 A.D.2d 1082 (4th Dept. 1985).  The test consists of four factors: “(1) the selection and engagement of the servant; (2) the payment of salary or wages; (3) the power of dismissal; and (4) the power of control of the servant’s conduct.”  The primary focus on this test, the Court of Appeals quoted the Fourth Department, is the “right of control, that is, the right of one person, the master, to order and control another, the servant, in the performance of work by the latter.”  This pronouncement is noteworthy in that it clarifies the definition of “employer” for NYSHRL claims.

Last, the Court of Appeals turned to the breadth of liability for aiding and abetting, under Section 296(6). The Court noted that one does not need to be a direct employer, or have any employment connection to the plaintiff. The Court pointed out, for example, that in National Org. for Women v. State Div. of Human Rights, 34 N.Y.2d 416 (1974), a newspaper company had no employment relationship with the plaintiff, but was nevertheless found to have aided and abetted discrimination by running two sets of help wanted ads: a separate list of jobs for men, and a separate list of jobs for women, despite the fact that the newspaper did not employ anyone from these ads. The Court also noted that the NYSHRL has an extraterritoriality provision that captures out-of-state actors when their acts have an impact within the state. Thus, an out-of-state entity can be liable for acts that constitute discrimination, or aiding and abetting, that have an impact in New York.  This interpretation is not a change in the lower court’s opinions, but an affirmation that  third party entities should understand that if they have control over hiring decisions, they could be at risk.

Outlook and Potential Ramifications

The Court of Appeals has made certain clarifications that have a potential impact on any employer, as well as any entity who works with another entity that is an employer, where questions surrounding criminal background checks come up that have an impact on employees in New York. Beyond direct employers, who are directly covered by Section 296(15), non-employers, even those outside New York, may nevertheless find themselves ensnared in a claim under the NYSHRL for aiding and abetting. Thus, the ramifications of this decision extend beyond the universe of direct employers, and beyond New York’s state lines. Employers within New York would be well-served to revisit their compliance requirements with Section 296(15). Further, any companies who does business with a New York employer, regardless of whether the company is located in or outside of New York, would likewise be well-served to review their business practices for any “impact in New York” that might run afoul of the NYSHRL.

Those with questions about these issues or topics are encouraged to reach out to the authors, your Seyfarth attorney, or any member of the Background Screening Compliance & Litigation Team.