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In January, Pepsi Beverages entered into a pre-litigation settlement of $3.13 million to resolve race discrimination charges that were filed with the Minneapolis EEOC. Through its investigation, the EEOC found reasonable cause that the criminal background check policy previously utilized by Pepsi had an adverse impact African Americans based on their race, in violation of Title VII.

According to the EEOC, their investigation revealed that in excess of 300 African Americans were denied employment as the result of a background check policy that disproportionately affected African American applicants. Under the broad policy, which took into account both arrest and conviction record, Pepsi denied employment to applicants who had been arrested or convicted of certain minor offenses and even those who had been arrested pending prosecution, even if they were not ultimately convicted.

Although arrest and conviction record discrimination themselves are not claims recognized by federal law, they are prohibited under the Wisconsin Fair Employment Act, the use of arrest and conviction records can be illegal under Title VII when it is not relevant for the job. This is because it can have the adverse effect seen here: it can limit the employment opportunities of applicants based on their race or ethnicity.

The EEOC offered some guidance to employers:

“When employers contemplate a background check policy, the EEOC recommends that they take into consideration the nature and gravity of the offense, the time that has passed since the conviction and/or completion of the sentence, and the nature of the job sought in order to be sure that the exclusion is important for the particular position. Such exclusions can create an adverse impact based on race in violation of Title VII.” In essence, the EEOC is asking employers to weigh the nature of the offense and the time that has passed since the offense against the specific job at issue to determine if the employer has a legitimate justification for refusing to hire an applicant.

In addition to the $3.13 million paid out by Pepsi, as part of the settlement, Pepsi agreed to offer employment opportunities to those adversely impacted by its former policy (which it subsequently amended), will conduct Title VII training for its manager and hiring personnel, and will regularly provide reports to the EEOC regarding its hiring practices under its amended policy.

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