Use of Background Checks in Employment Decisions

By Christopher Haan, Ph.D. and Andrew Cook, Ph.D.


Criminal Background Checks


On January 11, 2012, the EEOC announced that it had entered into a conciliation agreement with Pepsi Beverages for $3.13 million.  This agreement settled allegations that Pepsi discriminated against African-American applicants based on the use of their criminal histories during the hiring process.[1]  Six months earlier, July 26, 2011, the EEOC had held a meeting to examine the possibility that arrest and conviction records may present a hiring barrier for minorities.[2]  Given this meeting and the subsequent agreement with Pepsi Beverages, it is clear that the EEOC continues to prioritize regulating the use of criminal background check records by employers.[3]


According to the EEOC Compliance Manual, it is unlawful to disqualify a person of one race for possessing a conviction or arrest record while not disqualifying a person of another race with a similar record.[4] For example, an employer cannot reject African American applicants who have conviction records when it does not reject similarly situated White applicants.[5]  Federal policy prevents companies from using criminal background checks to screen out job applicants unless the criminal conduct is job related.[6]  The EEOC and other anti-discrimination advocates argue that because African Americans and Hispanics have higher arrest and convictions rates than Whites, they could suffer discrimination should companies perform blanket criminal background checks that eliminate minority applicants from employment consideration.[7]  Civil rights groups and some EEOC members argue that background checks do not necessarily prevent individuals from being hired, but rather provide employers with supplemental information that is unavailable through standard employment applications.[8]


Historically, the EEOC has taken the position that in addition to avoiding disparate treatment in rejecting persons based on conviction or arrest records, upon a showing of disparate impact, employers also must be able to justify such criteria as job related and consistent with business necessity.[9]  This means that, with respect to conviction records, the employer must show that it considered the following three factors: (1) the nature and gravity of the offense(s); (2) the time that has passed since the conviction and/or completion of the sentence; and (3) the nature of the job held or sought.[10]  Thus, a blanket exclusion of persons convicted of any crime would likely not be job-related or consistent with business necessity.  Instead, the above factors must be applied to each circumstance. Generally, employers will be able to justify their decision when the conduct on which the conviction was based is related to the position, or if the conduct was particularly egregious.[11]


Arrest records are treated slightly different. While a conviction record constitutes reliable evidence that a person engaged in the conduct alleged (i.e., convictions require proof “beyond a reasonable doubt”), an arrest without a conviction does not establish that a person actually engaged in misconduct.  Thus, when a policy or practice of rejecting applicants based on arrest records has a disparate impact on a protected class, the arrest records must not only be related to the job at issue, but the employer must also evaluate whether the applicant or employee actually engaged in the misconduct. It can do this by: (1) providing the individual with the opportunity to explain the situation; and (2) making follow-up inquiries necessary to evaluate his/her credibility.[12]


The EEOC's interest in employer's use of criminal background checks is of concern given the large percentage of companies that utilize this type of check.  A January 22, 2010 Society for Human Resource Management (SHRM) survey found that 73% of organizations conduct criminal background checks for all job candidates.[13]  Given this large percentage, it is critical for organizations to evaluate their screening policies based on the use of criminal background checks. 



Credit Background Checks – New To California


Joining Connecticut, Hawaii, Illinois, Maryland, Oregon and Washington as U.S. states that currently limit the use of credit checks by employers, California Governor Jerry Brown recently signed Assembly Bill 22 (AB 22) into law restricting employers or prospective employers in the state, with the exception of certain financial institutions, from obtaining consumer credit reports to use for employment purposes.[14]  AB 22 took effect on January 1, 2012.  AB 22 bans the use of pre-employment credit checks for many employers and prohibits employers or prospective employers from obtaining consumer credit reports for employment purposes unless the position of the person for whom the report is sought is one of the following:


  • A managerial position;
  • A position in the state Department of Justice;
  • A sworn peace officer or other law enforcement position;
  • A position for which the information contained in the report is required by law to be disclosed or obtained;
  • A position that involves regular access to specified personal information for any purpose other than the routine solicitation and processing of credit card applications in a retail establishment;
  • A position in which the person is or would be named signatory on the employer's bank or credit card account, or authorized to transfer money or enter into financial contracts on the employer's behalf;
  • A position that involves access to confidential or proprietary information; or
  • A position that involves regular access to $10,000 or more of cash.



In addition, AB 22 requires written notice informing the person for whom a consumer credit report is sought for employment purposes to be informed of the specific reason for obtaining the report.  Given California AB 22, it is apparent that the laws governing the use of credit background checks for employment decisions are in flux.

The 2010 Society for Human Resource Management (SHRM) Background Checking Survey discussed above also found that 60% of organizations conduct credit background checks for at least some of their job candidates.[15]  Again, given this large percentage, it is critical for organizations to evaluate their screening policies based on the use of credit background checks.  Employers should exercise caution when using credit background checks and be aware of federal and states laws.


Resolution Economics LLC


Resolution Economics LLC has considerable experience working on disparate impact cases alleging improper use of criminal and credit background checks for employment decisions.  Our professionals are credentialed and experienced experts in their fields, many holding advanced degrees such as PhDs, MBAs, MAs, and CPAs.  We provide sophisticated economic, statistical, and financial analyses, business operations advice, and specialized software solutions to leading law firms, Fortune 500 companies, and government agencies.


[1] See by Pam Devata and Kendra Paul from Seyfarth Shaw LLP, dated January 12, 2012.

[3] See

[4] See the EEOC Compliance Manual at

[5] Ibid.

[6] Fourteen states have legal standards governing public employers’ consideration of an applicant’s criminal record that require an individualized assessment of the applicant’s qualifications and ability to do the job.  See

[7] See

[8] Ibid.

[9] See the EEOC Compliance Manual at

[10] Ibid.

[11] Ibid.

[12] Ibid.

[13] See


[15] See


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