Background checks, particularly those that exclude applicants based on criminal history, are at the forefront of the EEOC’s priority to eliminate barriers in recruitment and hiring. Despite suffering a recent embarrassing defeat in the U.S. Court of Appeals for the Fourth Circuit, the EEOC likely will continue to closely scrutinize policies and practices that exclude applicants based on criminal and credit history, even if such policies are facially neutral.

In April 2012, the EEOC updated its enforcement guidance on the consideration of arrest and conviction history in employment decisions. The EEOC emphasizes that the exclusions based on criminal history should be job-related for the position in question and consistent with business necessity. In making this assessment, employers are advised to consider: (1) the nature and gravity of the offense or conduct; (2) the time that has passed since the offense, conduct, and/or completion of the sentence; and (3) the nature of the job held or sought. The EEOC also instructs employers to make an “individualized assessment” prior to excluding an applicant based on criminal history. However, the EEOC’s guidance also permits employers to use a targeted criminal records screen to exclude applicants with a history of specific criminal conduct, provided that the criminal conduct screened has a “demonstrably tight nexus to the position in question.”

Last year, the EEOC jointly published guidance with the Federal Trade Commission (“FTC”) regarding employers’ use of background checks in the hiring process. In that publication, the EEOC and the FTC provided general guidelines for gathering and using background information. Among the guidelines, the publication urges employers to treat everyone equally, comply with the procedures of the Fair Credit Reporting Act (“FCRA”), and take care when taking adverse actions based on information received during a background check.

Prior to issuing these guidelines, the EEOC instituted a background check lawsuit against an integrated services provider. EEOC v. Freeman, No. 13-2365 (4th Cir. Feb. 20, 2015). In Freeman, the EEOC alleged that the company’s policy of conducting criminal and credit background checks had a disparate impact on African American, Hispanic, and male job applicants. The case began when an African American woman filed a charge with the EEOC alleging she had been discriminated against based on her credit history. Consistent with another enforcement priority to pursue systemic discrimination claims, the EEOC expanded its investigation to include the employer’s use of criminal history in hiring and sought information about the treatment of African Americans, Hispanics, and males in the hiring process. The EEOC then filed a lawsuit alleging that the company had engaged in a “pattern or practice” of discrimination against (1) African American applicants by using credit history as a hiring criterion, and (2) African American, Hispanic, and male applicants by using criminal history as a hiring criterion.

The Fourth Circuit affirmed the district court’s dismissal of the lawsuit on summary judgment. The EEOC had attempted to prove its claims of disparate impact discrimination through hiring statistics. But the court found that the EEOC’s expert analysis contained an “alarming number of errors and fallacies” that precluded reliance on its conclusions. Thus, the Fourth Circuit held that the district court appropriately excluded the EEOC’s expert report and granted summary judgment in favor of the employer.

Despite the strong rebuke issued by the Fourth Circuit to the EEOC, employers should not expect the EEOC to pare back its pursuit of background check investigations and litigation. Indeed, in June 2013, the EEOC filed similar lawsuits against Dollar General and BMW Manufacturing Co., and those suits remain pending.

Employers also should be aware of state legislative efforts to curb the use of background checks in the hiring process. “Ban the box” legislation, which typically prohibits the consideration of criminal history before extending a conditional offer of employment, has now been passed and made applicable to private employers in six states—Hawaii, Illinois, Massachusetts, Minnesota, New Jersey, and Rhode Island—the District of Columbia, and over 100 cities and counties—including Baltimore, Montgomery County, Philadelphia, Prince George’s County, San Francisco, and Seattle. Other jurisdictions, such as New York City, have passed or considered related legislation that would further restrict the use of criminal history or consumer credit history for employment purposes.

With the EEOC continuing to advance its position that background checks should rarely, if ever, be used in employment decision-making processes, and state and local jurisdictions increasingly passing legislation to restrict their use, employers should consider the following when implementing background checks:

• Know the applicable state and local laws regarding reliance on criminal history, consumer credit, or other background checks, and monitor these laws for any changes.

• Treat all applicants or employees equally when deciding whether to gather background information.

• Where criminal history is obtained, use that history as the basis for an adverse employment action only if it is job-related and consistent with business necessity.

• Prior to refusing to hire or rescinding a job offer based on criminal history, conduct an individualized assessment, including providing an opportunity for the person to explain any criminal arrests, convictions, or other criminal records, and use any criminal history as the bases for an adverse decision only if it is job-related and consistent with business necessity.

• If an individualized assessment of criminal history is not feasible, automatically exclude applicants for a job only for specific criminal offenses that bear a nexus to that job.

• Avoid making arrest record inquiries because they are prohibited in some jurisdictions and come with increased scrutiny by the EEOC. If you do seek arrest records, then carefully consider their import, as they are prone to error and are not final. Additionally, further investigate any arrests to determine whether and how they were resolved.

• Review the specific criminal history inquiries currently made to ensure that language is included that indicates that any disclosures will not automatically result in disqualification of an applicant, and provide an opportunity for an applicant to further explain any criminal convictions and/or criminal records disclosed.

• Ensure any background checks are compliant with the FCRA.

Despite the Fourth Circuit’s favorable decision in Freeman, employers must remember that the court’s decision had more to do with the EEOC’s flawed expert analysis than with the viability of background checks in the application process. Significant risks remain when using background checks in the hiring process, particularly where the background checks bear little indicia of job-relatedness or business necessity. Thus, employers should proceed with caution when making ultimate employment decisions based on the results of background checks.