The Iowa Supreme Court has ruled that Iowa state law preempts the City of Waterloo’s restriction on employers’ use of applicants’ criminal record history when making hiring decisions.  Other aspects of the ordinance, however, remain legal and enforceable.  The case is Iowa Ass’n of Bus. & Indus. v. City of Waterloo, Case No. 20-0575, 961 N.W.2d 465 (Iowa 2021).

In 2019, the City of Waterloo, Iowa passed Ordinance 5522, a “ban the box” law that prescribes when an employer may legally inquire into an applicant’s criminal record history during the hiring process, and restricts an employer’s use of an applicant’s criminal record history in hiring decisions.  The Iowa Association of Business and Industry (ABI) challenged Ordinance 5522 in court, seeking injunctive and declaratory relief on the grounds that the ordinance violates state law, namely Iowa Code section 364.3(12)(a).   Section 364.3(12)(a) prohibits cities from adopting ordinances that provide for terms or conditions of employment that exceed or conflict with federal or state law.

The trial court upheld the legality of Ordinance 5522 and ABI appealed.

On appeal, the Iowa Supreme Court focused on Iowa Code section 364.3(12)(a) and whether Ordinance 5522’s restrictions: (1) exceed or conflict with federal or state law; and (2) amount to terms and conditions of employment.  The Court first determined that the ordinance’s restrictions exceed the requirements of both Title VII of the Civil Rights Act of 1964 and the Iowa Civil Rights Act.  In reaching this decision, the Court considered the U.S. Equal Employment Opportunity Commission’s guidance that an employer could be liable under Title VII if its use of a criminal background check had a “disparate impact” on job applicants of a particular race and if the background check was not “job related and consistent with business necessity.”

Having satisfied the first prong of the analysis, the Court next concluded that Ordinance 5522’s restrictions on an employer’s use of an applicant’s criminal history in making employment decisions amounts to a term and condition of employment, and therefore satisfies the second prong.  However, the Court only extended its ruling to the employer’s “use” of the criminal history, not the employer’s “inquiry.”  The Court then severed the ordinance’s preempted “use” restriction and upheld the legality of the ordinance’s remaining limitation on “inquiries.”

This case offers three important takeaways for employers.  First, Iowa courts will sever all or parts of county or municipal statutes deemed to exceed or conflict with federal or state law. Second, businesses operating in Waterloo should be aware of Ordinance 5522, and its scope in light of the Iowa Supreme Court ruling. Third, periodically check the laws for the city/county in which your business is based.  Do not assume that only state and federal law apply.