Last week, it was reported that Pepsi Beverages agreed to pay $3.13 million and provide job offers and training to resolve a charge of race discrimination filed in the Minneapolis Area Office of the U.S. Equal Employment Opportunity Commission (“EEOC”).  News of the lawsuit should not be surprising because, as we previously reported, the EEOC is in the process of more carefully scrutinizing employers’ use of criminal background checks and credit checks as part of its E-RACE Initiative (Eradicating Racism and Colorism from Employment).

Under Pepsi’s former policy, job applicants who had been arrested pending prosecution were not hired for a permanent job even if they had never been convicted of any offense.  Pepsi’s former policy also denied employment to applicants who had been arrested or convicted of certain offenses that were relatively minor.  The EEOC claims that more than 300 African Americans were adversely affected when Pepsi applied their criminal background check policy that disproportionately excluded African American applicants from permanent employment.

It has long been recognized that a blanket policy of denying employment to any person having a criminal conviction violates Title VII as such policies have an adverse impact on minorities. Courts are particularly skeptical of adverse employment decisions based solely on arrest records because statistics show that minorities are arrested at a higher rate, and many arrests never lead to convictions.  Given Pepsi’s reliance on arrest records, they made a good decision to settle the case.

As part of the settlement, Pepsi agreed to amend its background check policy, offer employment opportunities to victims of the former criminal background check policy, provide Title VII training for its hiring personnel and all of its managers, and supply the EEOC with regular reports on its hiring practices under its new criminal background check policy.

Bottom Line

The first lesson of the Pepsi case is that employers must avoid the use of arrest records as part of a background check.  They don’t really tell you if the applicant committed the crime or is likely to do so in the future.  Since statistics still tell us that people of color are arrested on a disproportionate basis, using this non-job related criterion in hiring decisions will eventually result in a disparate impact.

The second lesson is that, rather than implementing a blanket policy, employers are better served by utilizing a more “tailored approach,” screening out only those candidates convicted of an offense that would render them particularly inappropriate for the position in question.  For instance, candidates with poor driving records may be barred from positions involving a great deal of driving.  Likewise, where the position requires an employee to handle money, a candidate convicted of theft or embezzlement could be excluded.