One of the first cases filed by the U.S. Equal Employment Opportunity Commission (EEOC) following its 2012 updated guidance on the use of arrest and conviction records in employment decisions has been resolved. Last month, a federal court in South Carolina approved a settlement in which BMW Manufacturing Co., LLC (BMW) agreed to pay $1.6 million and offer jobs to aggrieved African-American former employees and applicants. BMW had already voluntarily changed its criminal conviction policy.

The EEOC filed suit against BMW in 2013 claiming that BMW’s criminal conviction policy was not job related and consistent with business necessity and disproportionately screened out African Americans from employment. BMW used a contractor to provide logistics services at its facility in South Carolina. The workers who provided services to BMW were subject to criminal background checks consistent with the contractor’s policy, which reviewed only convictions from the prior seven years. When BMW switched contractors, the workers were told that they would need to re-apply for employment with the new contractor, and BMW instructed the new contractor to perform criminal background checks on all workers under BMW’s policy. BMW’s criminal convictions policy had no time limitation, excluding from employment all applicants with convictions in certain categories of crimes without regard to whether the conviction was a misdemeanor or felony, the age of the conviction, or the nature or gravity of the individual crime. One hundred incumbent workers, eighty percent of whom were African American, did not pass BMW’s inflexible criminal background check, including many who had worked for BMW for a number of years. All of these workers were denied employment with the new contractor.

The EEOC argued that, because BMW’s criminal conviction policy disproportionately disqualified African Americans from employment, BMW should have evaluated whether the policy was job related and consistent with business necessity. According to the EEOC, BMW did not do so, and, as evidenced by the fact that many of those impacted by the policy had been working for BMW for years, the policy was not job related and consistent with business necessity. The policy, according to the EEOC, therefore had a discriminatory adverse impact on African Americans and was illegal.

This substantial settlement is a reminder to employers that using criminal background checks to screen applicants or to otherwise inform employment decisions remains a particularly risky proposition despite the Fourth Circuit’s decision earlier this year in EEOC v. Freeman. In Freeman, the Fourth Circuit upheld summary judgment in favor of the employer in a case brought by the EEOC challenging its criminal background screening policy. The court excoriated the EEOC for numerous deficiencies in its expert’s opinion regarding the adverse impact of the policy on minorities. That said, however, the Freeman court never actually reached the issue of whether the employer’s background screening policy was lawful. Accordingly, employers should still carefully review their background screening policies to ensure that their requirements are job related and consistent with business necessity. To the extent that the use of criminal background checks results in a disproportionate disqualification of minority applicants, employers must be prepared to demonstrate the existence of a legitimate business reason that justifies the policy.