Mortgage loan officer compensation has traditionally been a commission-based system that provides the right person the opportunity to make a six-figure salary. Yet, it can also mean that an individual is left with little or no income or stability when she is unable to successfully close a minimum number of loans a month. Perhaps the uncertainty these commission-based compensation systems create coupled with the economy explains the renewed focus on how banks classify loan officers under the Fair Labor Standards Act (“FLSA”) and its minimum wage and overtime requirements.

Across the nation and in Oklahoma there has been an increase in collective action litigation against banks for minimum wage and overtime violations under the FLSA. Over the past 20 years, the Department of Labor has adopted regulations and issued opinion letters that have provided inconsistent or directly contradictory standards for the treatment of mortgage loan officers. The changing landscape makes it hard for financial institutions and banks to respond to and to ensure compliance with the FLSA.

For instance, many banks have treated mortgage loan officers as exempt based on either the outside sales or highly compensated exemptions without fully understanding or adhering to the requirements of the exemptions. In particular, the outside sales exemption only applies when an individual spends significant work time outside of a fixed location. Moreover, the highly compensated exemption requires an exempt individual to receive a regular base salary, instead of only being compensated based on commission. Without strict adherence to the current requirements and application of these exemptions, banks have found themselves vulnerable to these suits that create exposure for significant money damages in the amount of the difference between what was paid and what should have been paid for up to three years, the possibility of the damage amount being doubled, and liability for litigation costs and attorneys fees. The exposure to such potentially high damage awards and liability has led many defendant banks to settling these suits.

Banks in Oklahoma and nationwide would be wise to carefully review the status and compensation structure for its mortgage loan officer positions to ensure compliance with the FLSA and/or any relevant exemption. Undertaking such a proactive review with the assistance of counsel is likely to prove cost-effective in the long run. Particularly given the rise in successful collective action lawsuits that take advantage of the confusion caused by the ever changing regulation of this industry.

Within 30 days of receiving the plaintiff’s discovery responses, the defendant removed the case to federal court on diversity grounds, claiming that the amount in controversy exceeded $75,000. The defendant asserted that the damages the plaintiff specified in his discovery responses of approximately $60,000, when combined with the annual cost to the defendant to reinstate the plaintiff to his former position (approximately $39,000), caused the amount in controversy to exceed the $75,000 threshold for diversity jurisdiction purposes.

The plaintiff moved to remand on two grounds. First, the plaintiff claimed that the defendant could not use the potential cost of reinstatement to establish the amount in controversy. The court rejected this argument, finding that the value of “nonmonetary relief” is an appropriate consideration in determining the amount in controversy and that the cost of reinstatement was properly considered as nonmonetary relief. Second, the plaintiff claimed that the defendant’s removal notice was untimely, as it was filed more than 30 days after the plaintiff filed his petition in state court. The court also rejected this argument, finding that the petition did not set forth the amount of damages or relief sought with any specificity. Accordingly, the defendant had no basis to determine that the amount in controversy reached $75,000 at that time.

The court found that it was only after the plaintiff responded to discovery and identified specific items and amounts of damages, and set forth his request for reinstatement, that the defendant had sufficient information to allow it to determine the amount in controversy. Within 30 days after receipt of those responses, the defendant filed its notice of removal, and provided an affidavit establishing the cost of reinstatement, thus demonstrating that the amount in controversy exceeded $75,000. Accordingly, removal was timely.

The takeaway is that in considering removal of a diversity case, the initial pleading may not provide a sufficient basis for removal. However, the defendant should serve discovery requests promptly to seek specific information on damages and other relief sought, and if necessary should take other steps to establish the full measure of relief sought (including seeking a settlement demand or taking the plaintiff’s deposition). Once the information is obtained, it may provide a basis for removal even if the initial pleading did not establish such a basis.

In Robert v. Board of County Com’rs. of Brown Cnty., Kansas, 691 F.3d 1211 (10th Cir. 2012), the employee, Catherine Robert, worked as a supervisor of released adult offenders for ten years. Her job entailed performing drug screenings, coordinating with service providers, testifying in court, and visiting offenders in their homes.

In January 2004, she experienced severe back and hip pain which was remedied by surgery in the spring of that year. Ms. Roberts returned to work and performed all of her work activities until November 2005 when she fell down a flight of stairs in the Brown County Courthouse. Her previous symptoms returned which required another surgery in April 2006. In the five-month span between the fall and the second surgery, Ms. Robert was accommodated by her employer, Brown County, who allowed Ms. Robert to work from home and had Ms. Robert’s co-workers cover the on-site requirements of her job.

Ms. Robert had a second surgery and subsequently used all available FMLA leave, which expired July 5, 2006. On July 17, Ms. Robert attended a follow-up appointment and was told by her doctor that she would need several weeks to begin walking with a cane, and several more before she might be able to walk unassisted. Ultimately, it was unclear when – or if – Mr. Robert would be able to return and perform all of her previous duties. On July 31, the Brown County Board of Commissioners elected to terminate Ms. Robert’s employment because she was unable to return to work at full capacity after her leave ended.

Ms. Robert sued under the ADA, alleging discrimination because of her disability. Ms. Robert claimed that the in-home visits were not essential to her job, or alternatively, that it would be a reasonable accommodation to permit Ms. Roberts to take a temporary leave of absence until she could continue those duties.

To state a prima facie case for discrimination under the ADA, a plaintiff must establish (1) she is disabled; (2) she was qualified, with or without reasonable accommodation, to perform the essential function of her job; and (3) her employer discriminated against her because of her disability. Taylor v. Pepsi-Cola, 196 F.3d 1106, 1109 (10th Cir. 1999). Here, the district court resolved this case on summary judgment in favor of the County. The Court, relying on the second prong, stated that because Ms. Robert was not able to supervise offenders in person or perform in-home (or in-office) visits with the offenders, she was no longer “qualified” for the position. The Court noted that in determining whether Ms. Robert was qualified, it would look at two criteria – (1) did the impairment prevent her from performing the essential functions of her job, and (2) if so, could she have been able to perform those functions if the County provided a reasonable accommodation? Davidson v. Am. Online, Inc., 337 F.3d 1179, 1190 (10th Cir. 2003). The Court, relying on the employer’s testimony, found that the in-home visits were an essential function of Ms. Robert’s employment, and that the temporary accommodation provided by the employer which allowed Ms. Robert to work from home and avoid such visits did not render them “non-essential.” Moreover, the Court held that permitting Ms. Robert to take a leave of absence was not a “reasonable accommodation.”

This decision is important for two reasons. First, although a leave of absence for medical treatment or recovery can be a reasonable accommodation, the Court found that it is subject to two limits. First, the employee must provide the employer with an estimated date when she can resume her essential duties. Without such a date, an employer is unable to determine whether the temporary exemption is a reasonable one. The second limitation is durational. The Court noted that “[a] leave request must assure an employer that an employee can perform the essential functions of her position in the ‘“near future.”’ Robert, 691 F.3d at 1218. Here, Ms. Robert was unable to provide a timeline for her return to work. An employer is not required to “wait and see” when an employee returns.

Second, the employer’s tolerance of Ms. Robert’s inability to perform in-home visits and to supervise offenders for a period of five months did not render those duties “non-essential,” nor did such tolerance render those accommodations “reasonable” if applied on a permanent basis. The Court correctly reasoned that employers should not be punished for temporarily accommodating employees. It would be counterproductive to punish employers who help employees by creating temporary accommodations if those actions could later be the lynchpin in forming the employee’s ADA discrimination claim.

The Robert case is a beacon for employers confronted with employee disability concerns, and can act as a guidepost to help employers address whether certain accommodations requested by an employee are in fact “reasonable.”

On November 26, 2012, the US Supreme Court reversed the Oklahoma Supreme Court’s decision and found in Nitro-Lift Technologies, Inc. v. Howard, 568 U.S. ___ (2012), that under the Federal Arbitration Act, 9 U.S.C. Sec. 1 et. seq. (“FAA”), it was for an arbitrator to determine whether the covenant not to compete was valid, not a court. The Supreme Court reasoned that under the FAA, once a court finds a valid arbitration agreement to exist, all other questions, including questions concerning the validity of the underlying contract, are for the arbitrator.  The Supreme Court noted that the trial court had found that a valid arbitration clause existed, and so resolution of that threshold issue in favor of arbitration required that the matter be referred to and decided in arbitration.

The US Supreme Court found the Oklahoma Court’s view that “the underlying contract’s validity is purely a matter of state law for state-court determination” ignored controlling decisions from the US Supreme Court that required application of substantive federal law under the FAA.  The Court stated, “it is a mainstay of the [FAA’s] substantive law that attacks on the validity of the contract, as distinct from attacks on the validity of the arbitration clause, are to be resolved” by the arbitrator in the first instance.  The Court also rejected the Oklahoma Court’s conclusion that the specific state statute addressing validity of covenants not to compete, 15 Okla. Stat. § 219 A, governed over the “general” law relating to arbitration, finding it was in derogation of the Supremacy Clause of the US Constitution, under which state law is displaced by federal law in the event of a conflict.

This decision reaffirms that in instances where the FAA applies, federal law under the FAA trumps conflicting state law, and that in either state or federal court, the FAA requires that once the court finds a valid arbitration clause exists, it must compel arbitration even if the court believes the underlying contract may be unenforceable.  At that point, it is for the arbitrator to determine the enforceability of the contract. It also corrects Oklahoma’s longstanding view that Oklahoma courts have the power to determine the validity of the underlying contract on public policy grounds, even where a valid arbitration clause exists.

Probably not.

The federal Employee Polygraph Protect Act, codified at 29 U.S.C. § 2001 et seq., (the “EPPA”), prohibits virtually all employers from disciplining employees either on the basis of the results of a polygraph test or refusing to submit to such a test, with a few limited exceptions.  And, if an employer violates the EPPA, he or she may be subject to civil penalties of up to $10,000 and may also face civil liability in a private suit by the employee.

One of those exceptions is for an ongoing investigation into suspected theft, misappropriation or embezzlement.  “But that’s exactly what I want to use it for!” you say.  Not so fast.

While the EPPA ostensibly allows for such use, there are many restrictions and potential pitfalls for the unwary.  Most importantly, the “investigation exception” applies only to the particular employee suspected of theft or misappropriation, who must have had access to the property in question.  In addition, a polygraph may be administered lawfully only if:

the employer executes a statement, provided to the examinee before the test, that—

(A)  sets forth with particularity the specific incident or activity being investigated and the basis for testing particular employees,

(B)  is signed by a person (other than a polygraph examiner) authorized to legally bind the employer,

(C)  is retained by the employer for at least 3 years, and

(D)  contains at a minimum—

(i)  an identification of the specific economic loss or injury to the business of the employer,

(ii)  a statement indicating that the employee had access to the property that is the subject of the investigation, and

(iii)  a statement describing the basis of the employer’s reasonable suspicion that the employee was involved in the incident or activity under investigation.

29 U.S.C. § 2006 (d).  If the employer does not have a “reasonable suspicion” and additional supporting evidence of theft or embezzlement (which means more than the evidence supplied by the polygraph test), the employer can still be subject to civil liability or penalties for administering the polygraph test.

 As if this were not enough, the EPPA also requires that the employer provide the employee who is being subjected to the test with a litany of rights throughout all phases of the testing, a complete listing of which can be found at 29 U.S.C. § 2007(b).  The rights that must be afforded include (but are not limited to): (1) allowing the examinee to terminate the test at any time; (2) not asking questions about his or her beliefs concerning race, politics or religion; (3) providing the examinee with advance written notice of the date, place and time of the examination, the questions to be asked and of his or her rights under the EPPA.

Given the complexity of the above-stated restrictions and the potential exposure to liability associated with administering a polygraph test and violating any of such restrictions, it is generally advisable for an employer to use alternative methods for investigating suspected dishonest behavior.

Does this mean that business owners, employers, places of worship and other entities will be required to allow the open carrying of firearms on their premises?  In a word, no.

The Act preserves the rights of business and property owners to prohibit the carrying of weapons (concealed or unconcealed), so long as the prohibition does not prevent a person from keeping a firearm in a locked vehicle.   See 21 Okla. Stat. 1290.22 (The Oklahoma legislature has also endeavored to limit civil liability for businesses and property owners for incidents arising out of the storage of firearms in locked vehicles.  See 21 Okla. Sta. § 1289.7a(B).)

It is advisable for employers, places of worship and businesses to have and communicate a no-firearms policy (allowing for the locked vehicle exception), so there is no confusion among employees or patrons as to whether firearms are permitted on the premises.

The facts of the Picture People are as follows.  The affected employee was employed by a photo studio as a “performer,” and was responsible for “customer intake, sales, portrait photography and laboratory duties.” According to the Court, the employee was “a congenitally and profoundly deaf individual who communicate[d] with hearing individuals by writing notes, gesturing, pointing and miming.”  She was also able to use American Sign Language (“ASL”).  However, she was not able to effectively read lips and could speak only a few words.

The employer asserted that the employee could not effectively perform her job duties, especially photographing and selling photo packages, primarily due to her inability to quickly and effectively communicate with photo shoot subjects, most of whom were children, or to effectively communicate with customers in selling photo packages.  As a result, the employee was relegated primarily to lab duties. During her employment, as a result of post-holiday scheduling, the employee was given reduced hours, as were other employees.  After that, the employee threatened to bring a “grievance” against the employer when her hours were not increased. The employer, in the employee’s performance review, noted this threat as part of the reason for a low evaluation. Several months later she was terminated.

The main issue as to the employee’s ADA claim for unlawful termination was whether the employee could in fact perform the essential functions of the job, as the employer contended that strong verbal communication skills were essential to the employee’s job. In assessing this issue, the Court looked at whether the employer actually required all employees in the position to satisfy the same requirement, and whether the requirement was fundamental to the position. The Court noted several factors to consider in making this determination, but cautioned that the analysis is not intended to second guess the employer or to require a lowering of the employer’s work standards.

The Court found that verbal communication skills were indeed an essential job function, since the employee was required to verbally communicate with customers, many of whom were children.  The Court found that using written notes, gestures and pointing in place of the fast, efficient use of verbal cuing was impractical, especially given the short attention span of most subjects and the short duration of the photo shoots. The Court also noted that the job description listed strong verbal skills as an essential job function.  While the EEOC argued that verbal skills were not essential, as evidenced by the fact that another hearing-impaired employee had performed the job, the Court found significant differences between the two employees, including that the other employee could speak and effectively read lips, while the affected employee could do neither.

After concluding that strong verbal skills were essential to the job, the Court considered whether the employee could perform these essential functions with reasonable accommodation.  Although the EEOC argued that a modification to allow the employee to perform the job using non-verbal communication was a reasonable accommodation, the Court found it was not, as an employer is not required to accommodate an employee by eliminating an essential job function.   The EEOC next argued that the employer was required to provide an ASL interpreter at meetings and training sessions as a reasonable accommodation, citing several cases that had so found.  The Court distinguished those other cases, because the ASL interpreter in those cases assisted the employee in meetings and training, while in the present case the ASL interpreter would have been necessary to enable the employee to perform the essential job functions.  Accordingly, the Court affirmed summary judgment on the ADA termination claim.

The Court then addressed the employee’s retaliation claim, affirming summary judgment on that claim also.  The Court found that the employee established a prima facie case of retaliation, and so the employer was required to articulate a legitimate, non-retaliatory reason for its actions. The Court found that the employer did articulate a non-retaliatory reason, including the employee’s inability to perform the essential job functions, and its counseling of the employee for policy infractions.

The Court then considered whether the EEOC presented evidence of pretext, which required it to bring evidence of “temporal proximity plus circumstantial evidence of retaliatory motive.”  The Court found that the EEOC failed to bring such evidence. While the EEOC alleged that similarly situated employees were treated differently with respect to the reduction in hours, the Court found no specific evidence to support that allegation. Instead, the Court found that other employees also received reduced hours after the holidays.  Also, the Court reiterated its prior finding that the employee was not able to perform the essential functions of the job. Thus, the Court concluded, there was no evidence that the employer’s reasons for its actions were pretextual.

A strong dissent was made by Judge Holloway, who asserted that the Court had misapplied proper summary judgment standards, and that the EEOC had brought “direct” evidence of retaliation, thus rendering the Court’s analysis of the circumstantial evidence to be in error.  The dissent claimed that under proper summary judgment standards, the evidence must be evaluated in a light most favorable to the non-moving party, and that evidence a jury would have been allowed to disbelieve should have been disregarded.  Thus, the dissent argued, the testimony of other employees about the inability of the affected employee to perform her job duties, and her unsatisfactory performance, should have been disregarded in ruling on summary judgment.  The Court rejected this view, finding that in employment discrimination cases the employer’s agents frequently provide testimony, and that such testimony is not disregarded on summary judgment.

The Court also addressed the dissent’s assertion that the EEOC had produced direct evidence of retaliatory conduct, consisting of evidence that the employee had complained about receiving reduced working hours and threatened to submit a grievance against the employer.  After this threat, the employer had counseled the employee about her complaint as well as other issues.  The dissent argued that the employer’s discipline of the employee for threatening a grievance constituted direct evidence of retaliation.  The Court rejected this view, finding that the employer’s counseling of the employee was the consequence of a “chain of events” relating to the employee’s performance that included various performance concerns.  Accordingly, to conclude the comments were in retaliation for protected activity required an “inference” to be drawn from the various facts. Because an inference was required to link the employer’s response to the employee’s threat to bring a grievance, it could not be considered direct evidence of retaliation.

A few lessons may be learned from Picture People.  First, an employer’s job descriptions are an important part of determining whether job functions are essential under the ADA.  The Court found it significant that the employer included strong verbal communication skills as an essential job function.  Employers should therefore carefully craft their job descriptions to identify each essential job function.  Second, an employer’s treatment of similarly situated employees is important, since if the employer treats similarly situated employees more favorably than the affected employee without good reason, it may raise an inference of discrimination. This is true whether the claim involves the ADA or other forms of alleged discrimination. Accordingly, employers must be diligent in ensuring that they enforce rules and policies, discipline employees and take other actions with respect to employees in a consistent and fair manner, and provide clear reasons if they treat similarly situated employees differently.

Finally, when an employee makes a complaint, or threatens to do so, the employer must be careful to understand the nature of the complaint, and be particularly sensitive to whether the complaint raises any issues related to a protected class or category, e.g., race, age, disability, sex, national origin.  Any adverse action after the complaint is made could be perceived as retaliatory.  This does not preclude an employer from disciplining employees who have made a complaint; however, the employer should clearly articulate the reason for the discipline and ensure that it is not initiated because of a good faith complaint by the employee.

The federal courts have long struggled with the issue of whether private settlements of claims under the FLSA are valid, and, if so, under what circumstances.  The Supreme Court has held that a party may not waive or release a claim for liquidated damages under the FLSA where there is no bona fide dispute as to coverage or wages owed under the FLSA.  Brooklyn Sav. Bank v. O’Neal, 324 U.S. 697 (1945).  In D.A. Schulte, Inc. v. Gangi, 328 U.S. 108 (1946), the Supreme Court went further and held that a release of a liquidated damages claim under the FLSA is not valid even where there is a bona fide dispute as to coverage under the FLSA.  In D.A. Schulte, the Supreme Court allowed the plaintiffs to go forward in a suit to recover liquidated damages under the FLSA, despite the fact that the parties had signed releases in connection with their employer’s payment of the overtime wages they claimed were due.  In Barrentine v. Arkansas-Best Freight Sys., Inc., 450 U.S. 728, 745, (1981), the Supreme Court held that a party could file an FSLA claim in federal court even though the same claim had been submitted to arbitration pursuant to a collective bargaining agreement.

The Eleventh Circuit, in Lynn’s Food Stores, Inc. v. United States, 679 F.2d 1350, 1352-53 (11th Cir.1982), ruled that “[t]here are only two ways in which back wage claims arising under the FLSA can be settled or compromised by employees.”  First, under § 216(c) of the FLSA, the Secretary of Labor can supervise the payment of unpaid wages owed to employees.  See Lynn’s Food Stores, 679 F.2d at 1353.  Second, “[w]hen employees bring a private action for back wages under the FLSA, and present to the district court a proposed settlement, the district court may enter a stipulated judgment after scrutinizing the settlement for fairness.”  Id.  While other courts have discussed this issue, the circuit courts are not in agreement as to the validity of privately negotiated settlements.

THE FIFTH CIRCUIT’S RULING IN MARTIN

In Martin v. Unidentified Parties, No. 11-30671 (July 24, 2012), the Fifth Circuit held that a private settlement of FLSA wage claims by a union on behalf of represented employees against an employer was enforceable even though it was not approved by a court or by the US Department of Labor, refusing to follow Lynn. .

In Martin, individual union employees challenged a settlement agreement that their union entered into with their employer to resolve claims for unpaid compensation on the grounds that (i) the union had no authority to bind them individually as to their FLSA claims, and (ii) even if the union had such authority, the settlement agreement was invalid because it had not been approved by a court or by the US Department of Labor.

The court first considered whether the employees were bound by the union’s agreement to settle their claims. The court found that the union was the employees’ exclusive bargaining representative, had brought a grievance against the employer relating to the disputed wages, and had negotiated a resolution of the disputed claims with the employer, representing that it was the sole and exclusive representative for such employees. Also, upon completion of the settlement, the employees had accepted and cashed their individual settlement checks.  The court found that as the employees exclusive bargaining representative, the union had discretion to negotiate a resolution of the employees’ claims, and that the employees had in fact accepted the benefits of the settlement. Accordingly, the employees were bound by the agreement.

The court next considered whether the agreement was enforceable, or whether it was invalid because it was not approved by a court or by the Department of Labor, as other courts have found.  The court found that because a bona fide dispute existed as to the employees’ claims,  the private settlement was enforceable without such approval, relying in part upon Martinez v. Bohls Bearing Equip. Co., 361 F. Supp. 2d 608 (W.D. Tex. 2005).  In Martinez, the court found that “a private compromise of claims under the FLSA is permissible where there exists a bona fide dispute as to liability.”  Thus, the Martinez court concluded, where there is a dispute as to the hours worked or the compensation due an employee, an unsupervised, private settlement may be accomplished.

The Martin court found under the facts before it that there was a bona fide dispute over these issues.  In fact, the court found, the union representative assigned to investigate the employees’ claims had concluded that it was impossible to confirm whether the employees actually worked the days for which they claimed overtime compensation in their grievance.  Because the settlement did not serve as a compromise of “guaranteed FLSA substantive rights themselves,” but was rather a resolution of a bona fide dispute over the number of hours actually worked, the court had no trouble finding that the employees’ claims could be validly released.

Finally, the court distinguished the Supreme Court opinion in Barrentine, which held that resolution of bargaining unit employees’ claims for overtime under a collective bargaining agreement’s dispute resolution process did not preclude a subsequent suit by the employees.  The Martin court found that the facts of Barrentine differed, in that in Barrentine the plaintiffs’ substantive rights were affected because the claims were rejected entirely and not settled during the grievance process, while in the case before the court the plaintiffs received and accepted the settlement proceeds to resolve disputed claims.

Martin may provide some comfort to employers who wish to negotiate voluntary settlements with employees concerning FLSA claims for unpaid wages without seeking approval from a court or the Department of Labor. However, not all courts agree, and so employers should still be extremely careful when addressing these types of claims. And, even if a court might adopt the Fifth Circuit’s reasoning, the specific facts will determine whether such a settlement would be valid.

This new guidance updates EEOC guidance on the topic issued over a 20 year period.  According to the EEOC, an update was necessary because “there have been important legal and social changes. In 1991, Congress amended the Civil Rights Act to add Title VII disparate impact analysis, among other things. Since the 1990s, technology has made criminal history information much more accessible to employers. The number of working-aged individuals with criminal records in the population significantly increased during this period, especially in the African American and Hispanic communities.”  The EEOC believes that use of criminal records has resulted in exclusion of minorities, particularly blacks and Hispanics, from employment.

The Need for Background Checks and Information About Criminal Conduct

Employers routinely include questions about criminal history in the employment application process and often conduct background checks on prospective employees. These types of inquiries are necessary for a number of reasons, as employers have legitimate interests to protect.  For example, this type of information may help prevent employee theft, such as where a prospective employee has a prior conviction for a crime or crimes relating to theft of property, embezzlement, or the like. Similarly, information that a prospective employee was convicted of a violent crime in the past, such as armed robbery, rape or assault, may help protect against potential workplace violence, and may also protect the public, customers and others with whom the individual may come in contact as an employee.  Other valid reasons exist for such background checks.

As noted above, the focus of the EEOC’s guidance is on Title VII’s prohibition against discrimination on the basis of race and national origin.  Neither Title VII nor other federal laws provide per se protection to individuals with arrests or conviction records. However, individuals may be subject to discrimination because of race or national origin based upon criminal records under one of two theories. First, an employer may look at two individuals who have the same or similar criminal histories and yet treat the two differently based upon race or national origin. Second, an employer may have a policy or practice that appears to be neutral on its face, yet may have a “disparate impact” on individuals of a particular race or national origin because they are more frequently excluded based upon the policy.

The New Guidance

The new guidance does a number of things. First, it emphasizes that employment should be denied by reason of a criminal record only after an “individualized assessment,”  considering the individual and how his or her history relates to the particular job.  The guidance points to the following factors an employer should consider in evaluating criminal records: (1) the nature and gravity of the offense or conduct, (2) the time that has elapsed since the offense and completion of any sentence or probation, and (3) the nature of the job at issue. As part of this assessment, the guidance indicates that an employer should notify the individual that he or she may be denied employment because of criminal history, provide the individual with an opportunity to show why he or she should not be excluded and to provide any additional information for the employer to consider, and then determine whether exclusion based upon the criminal record is justified as job-related and consistent with business necessity.

The guidance also states that an employer should consider the specific facts and circumstances of the conduct at issue, the number of offenses for which the individual was convicted, the applicant’s age at the time of conviction or release, evidence that the individual performed the same type of work, post conviction, with no known incidents of criminal conduct, the length and consistency of employment history before and after the offense or conduct, rehabilitation efforts, including education or training, employment or character references, and any information regarding fitness for the particular position.  The guidance is lengthy and includes a number of examples of fact scenarios showing when it would and would not be appropriate to exclude individuals from employment based upon past criminal records.

The steps and factors identified by the EEOC could turn “individualized assessments” into complicated processes that could impose significant burdens on employers. In addition, some of the information may be difficult to verify or discover, such as how well the applicant performed at a prior job or why the applicant may have left a prior job (since few former employers give out such detailed information about former employees), or details about the applicant’s incarceration and release.  In many instances, the employer may be asked to rely almost exclusively upon the prospective employee’s account of the facts in making its decision.

The guidance does not identify a minimum standard an employer must meet in conducting this “individualized assessment,” but merely notes that that some assessments will not require as much effort as others.  In some instances, such as where the applicant has a recent conviction for stealing prescription drugs, and is seeking a job at a medical clinic or pharmacy, the process should not be problematic.  However, in other cases, the process may raise more questions than it answers.

The EEOC’s proposed best practices

The guidance identifies a number of “best practices” that the EEOC encourages employers to implement in dealing with criminal records.  Among other things, the guidance advises employers to, “Eliminate policies or practices that exclude people from employment based on any criminal record.”  In other words, the EEOC advises that employers should not have a blanket prohibition against hiring individuals with past criminal records. The guidance also provides that employers should:

• Develop a narrowly tailored written policy and procedure for screening applicants and employees for criminal conduct.

Identify essential job requirements and the actual circumstances under which the jobs are performed.

Determine the specific offenses that may demonstrate unfitness for performing such jobs.

•     Identify the criminal offenses based on all available evidence.

Determine the duration of exclusions for criminal conduct based on all available evidence.

•     Include an individualized assessment.

Record the justification for the policy and procedures.

Note and keep a record of consultations and research considered in crafting the policy and procedures.

• Train managers, hiring officials, and decision-makers on how to implement the policy and procedures consistent with Title VII.
•  When asking questions about criminal records, limit inquiries to records for which exclusion would be job related for the position in question and consistent with business necessity.

Some of these “best practices” may be difficult to implement, as it may, for example, be difficult to identify the specific types of criminal offenses that may disqualify an individual from a particular position, and it may also be difficult to limit inquiries concerning criminal records to offenses that may be job related for the position and consistent with business necessity.

State and Local Laws

Employers should also be aware of state and local laws when dealing with the criminal history of applicants. Some states, such as California, prohibit asking about an arrest or considering any charge that did not result in conviction. Massachusetts prohibits asking about criminal history on an initial application. In Hawaii, employers may inquire about criminal history only after making a conditional job offer. Some states, such as Pennsylvania and Wisconsin, allow an employer to consider convictions only to the extent they are job-related.

Takeaways for Employers

Given the EEOC’s obvious interest in this area, employers should take a look at their employment applications, and policies and procedures for screening applicants, to ensure that they take into account the EEOC guidance. Although the EEOC guidance does not have the force of law, and is not legally binding on employers, it may persuasive to courts in deciding claims of discrimination and so employers should make appropriate business judgments about whether and to what extent to implement the EEOC’s proposed practices.   The bottom line is that the EEOC believes a criminal background should not disqualify any individual from employment unless it is “job-related and consistent with a business necessity.”  Even if an employer is generally uncomfortable hiring an individual who has been convicted of a crime-even a serious one-the EEOC position is that the employer needs to conduct a fairly detailed and specific inquiry into the facts before making an employment decision.  Accordingly, employers should be cautious when excluding individuals from employment on such grounds.