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Pepsi Settles Race Discrimination Claims Based on Criminal Background Checks for $3 Million

    Client Alerts
  • January 27, 2012

Earlier this month, the Equal Employment Opportunity Commission announced its settlement of a class action race discrimination claim against Pepsi Beverages. The dispute was based on the EEOC's claims that Pepsi's criminal background checks had a statistically adverse impact against African American applicants for employment. As part of the settlement, Pepsi agreed to pay $3 million, and to offer jobs to up to 300 class members.

The EEOC claimed that Pepsi's background check policy excluded applicants who had been arrested but never convicted of the alleged crime. The agency took the position that Pepsi could not demonstrate that the resulting disparate impact against minority applicants was justified by business necessity.
The EEOC has long taken the position that as a matter of company policy, arrests alone cannot form the basis for legitimate, non-discriminatory hiring decisions. Some federal courts have recognized employers' ability to exclude persons based on arrests for major crimes, or those criminal offenses that have a particular connection to the job to be performed. However, broad exclusions for arrests, especially for minor offenses is generally prohibited.

In recent years, the EEOC has also expressed its position that broad exclusions from employment based on criminal convictions may have the same legal flaws as policies based on arrests. If the policy has a disparate impact on a protected class of applicants, the employer bears the burden of demonstrating the business reasons why such convictions relate to the applicant's ability to perform the work in question. When the convictions are old, or involve minor crimes, drawing this connection can be difficult.

Employers should be prepared to justify any exclusionary criteria used in hiring. If the criteria exclude minorities or women on a statistically significant basis, the employer must be able to demonstrate the link between the selection criteria and the job to be performed.