Criminal background checks can't remain in the background anymore

BY LAURA LAPIDUS, ESQ.
April 1, 2013

Among the many client services they perform, accounting firms often handle client funds in the performance of various services provided to both individuals and businesses—bookkeeping, investment advisory, family office, and more. Imagine what might happen if a firm employee steals or otherwise misappropriates funds from a client: The firm would likely face a malpractice claim and have to deal with the damage to its reputation.

While historically only a small percentage of claims experienced by the AICPA Professional Liability Insurance Program have involved an allegation of theft or fraud perpetrated by an employee of an accounting firm, this is more prevalent in firms that provide bookkeeping services to small, closely held client businesses.

One step a firm can take to help mitigate the risk of a bad hiring decision is to conduct, or hire someone to conduct, a criminal background check on applicants for employment. These routine checks are valuable in decreasing the risk of negligent hiring claims—such as those that may result if, for example, it were later discovered that an individual who had recently been convicted of theft or fraud was hired to handle client funds, and subsequently stole from a client after being hired.

A firm may decide that an individual with a conviction for any criminal offense is ineligible for employment by the firm, in any position. However, not all crimes are considered equal in the eyes of the U.S. judicial system—some convicted criminals are penalized with fines, while others are punished with extended prison time. So, why should all offenders be equally unacceptable in the eyes of employers implementing policies against employing individuals with criminal conviction records? The Equal Employment Opportunity Commission (EEOC) says they should not.

EEOC ENFORCEMENT GUIDANCE

Issued in April 2012, EEOC Enforcement Guidance No. 915.002, Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. Sec. 2000e et seq., warns that blanket policies and practices that exclude from employment all individuals with any type of criminal conviction, regardless of the particular job duties of the position, may be discriminatory and violate Title VII.

When criminal background checks are combined with blanket policies that prevent employing individuals with criminal records, these checks can lead to unintended consequences. For example, a decades-old marijuana possession conviction could keep a perfectly capable, reformed, 40-year-old applicant from working as a staff accountant, a job in which he or she may excel.

EMPLOYMENT POLICIES AND THE SCREENING PROCESS

Blanket policies may result in what the EEOC calls “disparate impact discrimination,” when a facially neutral policy or practice has a discriminatory effect on a protected class or classes, even though no intent to discriminate exists. Notably, the EEOC references research indicating certain protected classes, such as African-American and Hispanic men, have higher rates of criminal convictions. Thus, disqualifying an individual based upon a criminal conviction could have a disparate impact on those protected classes and will violate Title VII unless an employer can prove that its policy is “job related and consistent with business necessity.”

Background checks remain legal and critical to the hiring process. Rather than a blanket policy against employing individuals with conviction records, the EEOC encourages employers to develop narrowly tailored policies and targeted screens based upon each particular job to ensure exclusions are job-related and consistent with business necessity. The screening process, according to the EEOC, should focus on:

  • The nature and dangers of the crime in question.
  • The time elapsed since the crime was committed.
  • The nature and risks of the particular job.


The EEOC further proposes that individuals with criminal records be offered individualized assessments that would allow the individual to provide information for employers to consider in determining whether the factors excluding those individuals from employment are, indeed, job-related and consistent with business necessity.

The guidance also indicates the EEOC will defer only to federal laws that prohibit individuals with certain criminal convictions from holding specific jobs. Any employer following state or local laws must still demonstrate that its policy is job-related and consistent with business necessity. An employer cannot rely solely on a state or local law to provide justification for exclusion from employment.

The EEOC also cautions that “convictions” and “arrests” are not the same. An arrest does not prove criminal conduct occurred, so excluding an individual from employment based solely upon an arrest record will not be job-related or consistent with business necessity, and therefore, the EEOC will presume that it is a violation of Title VII. However, an employer may make an employment decision based upon the conduct underlying the arrest if, after a factual inquiry, the employer determines the conduct that occurred renders an individual unfit for the position.

RISK CONTROL RECOMMENDATIONS

To mitigate some of the risks inherent in hiring, consider these recommendations:

  • Avoid across-the-board policies that automatically prohibit the employment of an individual based upon a criminal conviction.
  • Design policies and procedures to govern the use of criminal background checks.
  • Review job descriptions and determine which specific criminal convictions may render an individual unfit for a particular job.
  • Determine whether certain criminal conduct may be excused after a given time period, and if so, the number of years that should be relevant.
  • Document the justification for policy and procedures, including consultations and research considered in crafting policy and procedures.
  • Conduct individualized assessments of applicants with criminal backgrounds.
  • Consider removing questions regarding criminal arrests and convictions from employment applications. Those questions may be asked in another form once a criminal background check is completed.
  • Focus on the dangers of particular crimes and the risks in specific positions when discussing criminal records with applicants.
  • Train hiring officials, managers, and others involved in the recruitment and hiring process about the Title VII prohibitions against discrimination and how to implement the employer’s policy and procedures.


Since the EEOC guidance is not considered law, it remains unclear to what extent the courts will agree with the EEOC’s position, although courts have been known to defer to the EEOC’s interpretation of Title VII. What is clear is that a firm should consult with an employment attorney to review and revise its policies and practices regarding criminal convictions before such policies and practices are challenged by the EEOC.

Discrimination is against the law, and blanket policies that prohibit the employment of individuals with conviction records are likely to be viewed by the EEOC as discriminatory, exposing firms to potentially costly claims.

RESOURCES

EEOC guidance


Laura Lapidus
(specialtyriskcontrol@cna.com) is a risk control consulting director at CNA who focuses on employment matters.

Continental Casualty Co., one of the CNA insurance companies, is the underwriter of the AICPA Professional Liability Insurance Program. For more information, call Aon Insurance Services, the National Program Administrator for the AICPA Professional Liability Program, at 800-221-3023 or visit www.cpai.com .

This article provides information, rather than advice or opinion. It is accurate to the best of the author’s knowledge as of the article date. This article should not be viewed as a substitute for recommendations of a retained professional. Such consultation is recommended in applying this material in any particular factual situations.

Examples are for illustrative purposes only and not intended to establish any standards of care, serve as legal advice, or acknowledge any given factual situation is covered under any CNA insurance policy. The relevant insurance policy provides actual terms, coverages, amounts, conditions, and exclusions for an insured.

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