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Arrest and Conviction History: As to Banks and Financial Institutions, Is the EEOC’s Guidance Built on An Erroneous Foundation?

Posted in Employee Privacy Rights, Labor Law

By: Chuck Post and Lizbeth West

The EEOC issued its “Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. § 2000e et seq.” on April 25, 2012. (“EEOC Enforcement Guidance No. 915.002”.)

According to the EEOC, an employer’s use of an individual’s criminal history in making employment decisions may, in some instances, violate the prohibition against employment discrimination under Title VII. Even an employer’s neutral policy (e.g., excluding applicants from employment based on certain criminal conduct) may disproportionately impact some individuals protected under Title VII, and may violate the law if the exclusion is not job related and consistent with business necessity. In order to establish that a criminal conduct exclusion that has a disparate impact on a protected class of individuals is job related and consistent with business necessity under Title VII, the EEOC says that the employer needs to show that the policy operates to effectively link specific criminal conduct, and its dangers, with the risks inherent in the duties of a particular position.

The Guidance recognizes that in some industries employers are subject to federal statutory and/or regulatory requirements that prohibit individuals with certain criminal records from holding particular positions or engaging in certain occupations. Compliance with federal laws and/or regulations is a defense to a charge of discrimination. However, the EEOC announced that it will continue to coordinate with other federal departments and agencies with the goal of maximizing federal regulatory consistency with respect to the use of criminal history information in employment decisions.

Federal laws and regulations govern the employment of individuals with specific convictions in certain industries. For example, two federal regulations that apply to Banks are: i) 12 U.S.C. section 1829 [“Section 19”] – which prohibits, with some exceptions, individuals with criminal convictions involving dishonesty or breach of trust from serving as a director, officer, or employee of an insured bank; and ii) 12 U.S.C. section 5104(b)(2) – the federal law governing mortgage loan originator licensing/registration which requires registration of mortgage loan originators) (“SAFE Act”).

The EEOC acknowledges that Title VII does not preempt these federally imposed restrictions. However, the EEOC has decided that federally imposed restrictions are not a complete defense – any aspect of an employment criminal background check that exceeds the scope of a federally imposed restriction, is subject to a Title VII analysis. The EEOC provides the following hypothetical of an over-reaching exclusion to illustrate this point:

Hypothetical: Bank-employer has a rule prohibiting anyone with convictions for any type of financial or fraud-related crimes within the last twenty years from working in positions with access to customer financial information, even though the federal ban is ten years for individuals who are convicted of any criminal offense involving dishonesty, breach of trust, or money laundering from serving in such positions.

Sam, who is Latino, applies to the Bank to work as a customer service representative. A background check reveals that Sam was convicted of a misdemeanor for misrepresenting his income on a loan application fifteen years earlier. The Bank therefore rejects Sam, and he files a Title VII charge with the EEOC, alleging that the Bank’s policy has a disparate impact based on national origin and is not job related and consistent with business necessity. The Bank asserts that its policy does not cause a disparate impact and that, even if it does, it is job related for the position in question because customer service representatives have regular access to financial information and depositors must have “100% confidence” that their funds are safe. However, the Bank does not offer evidence showing that there is an elevated likelihood of committing financial crimes for someone who has been crime-free for more than ten years. After establishing that the Bank’s policy has a disparate impact based on national origin, the EEOC finds that the policy is not job related for the position in question and consistent with business necessity. The Bank’s justification for adding ten years to the federally mandated exclusion is insufficient because it is only a generalized concern about security, without proof.

The EEOC’s statement in its hypothetical that “…the federal ban is ten years for individuals who are convicted of any criminal offense involving dishonesty, breach of trust, or money laundering from serving in such positions” appears to be incorrect. Neither Section 19 nor the SAFE Act place a ten year period on the respective prohibitions/requirements outlined in the respective law. Section 19’s prohibition on permitting a covered individual to work for an insured institution is absolute unless the FDIC provides consent. The only ten year period referred to in the law is the FDIC’s inability to consent to a waiver of the prohibition within the first ten years absent an order from the court. It does not say that the prohibition is only for ten years.

Likewise, while the SAFE Act regulations only ask for financial services-related employment history in connection with the registration of a mortgage loan originator for the 10 years prior to the date of registration or renewal, the questions asking about criminal convictions, civil judgments against an individual for dishonesty, breach of trust, or money laundering against an employee, and/or agency actions against an employee for violations of financial services-related laws, have no ten year limitation.

So Banks may be left wondering: While reliance on federal regulations (which prohibit employing persons with certain criminal convictions) is a defense to a Title VII claim, is reliance on EEOC Guidance a defense to a claimed violation of Section 19 or the SAFE Act?