Can an Applicant With a Criminal History Buy a Franchise?

In establishing liability, courts would look to the guidelines of the U.S. Equal Employment Opportunity Commission (EEOC), which enforces Title VII of the Civil Rights Act of 1964 prohibiting employment discrimination based on race, color, religion, sex, or national origin. The EEOC recognized that there has been a significant increase in the number of Americans who have had contact with the criminal justice system and, concomitantly, a major increase in the number of people with criminal records in the working-age population. In 1991, only 1.8% of the adult population had served time in prison. After 10 years, in 2001, the percentage rose to 2.7% (one in 37 adults). By the end of 2007, 3.2% of all adults in the United States (one in every 31) were under some form of correctional control involving probation, parole, prison or jail.

The U.S. Department of Justice's (DOJ) Bureau of Justice Statistics has concluded that, if incarceration rates do not decrease, approximately 6.6% of all persons born in the United States in 2001 will serve time in state or federal prison during their lifetimes. Arrest and incarceration rates are particularly high for African-American and Hispanic men. These groups are arrested at a rate that is two to three times their proportion of the general population. Assuming that current incarceration rates remain unchanged, about one in 17 white men are expected to serve time in prison during their lifetime; by contrast, this rate climbs to one in six for Hispanic men, and to one in three for African-American men, according to the EEOC.

The commission, which has enforced Title VII since it became effective in 1965, has well-established guidance applying Title VII principles to employers' use of criminal records to screen for employment. This enforcement guidance builds on long-standing court decisions and policy documents that were issued over 20 years ago. In light of employers' increased access to criminal history information, more case law analyzing Title VII requirements for criminal record exclusions has developed.

Denial of a Franchise Can Be Unlawful

In Field v. Orkin Exterminating, No. Civ. A. 00-5913 (E.D. Pa. Feb. 21, 2002) (unpublished), the court held: “A blanket policy of denying employment to any person having a criminal conviction is a [per se] violation of Title VII.” In Field , an employee of 10 years was fired after a new company that acquired her former employer discovered her six-year-old felony conviction. The new company had a blanket policy of firing anyone with a felony conviction less than 10 years old. The court granted summary judgment for the employee because the employer's argument that her conviction was related to her job qualifications was “weak at best,” especially given her positive employment history with her former employer.

In 2007, the U.S. Court of Appeals for the Third Circuit in El v. Southeastern Pennsylvania Transportation Authority, 479 F.3d 232 (3d Cir. 2007), developed the Title VII analysis in greater depth. The Third Circuit expressed “reservations” about a policy such as the Southeastern Pennsylvania Transportation Authority's (exclusion for all violent crimes, no matter how long ago they were committed) “in the abstract.” Applying Supreme Court precedent, the El court observed that some level of risk is inevitable in all hiring, and that, “in a broad sense, hiring policies … ultimately concern the management of risk.” Recognizing that assessing such risk is at the heart of criminal record exclusions, the Third Circuit concluded that Title VII requires employers to justify criminal record exclusions by demonstrating that they “accurately distinguish between applicants [who] pose an unacceptable level of risk and those [who] do not.”

Best Practices in Hiring, Developed by the EEOC

The EEOC developed best practices for use of criminal convictions in the hiring process. The practices downplay the role criminal convictions have in the process, and avoid the possibility of discrimination through interview and discussion of employment history. The suggestions include:

• Eliminate policies or practices that exclude people from employment based on any criminal record.
• Train managers, hiring officials and decision-makers about Title VII and its prohibition on employment discrimination and on how to implement the policy and procedures consistent with Title VII.
• Develop a “narrowly tailored written policy and procedure” for screening applicants and employees for criminal conduct.
• Identify essential job requirements and determine the offenses that may demonstrate unfitness for performing such jobs.
• When asking questions about criminal records, limit inquiries to records for which exclusion would be job-related for the position in question.

Ban-the-Box Legislation

Many governmental entities have imposed what is widely known as “ban the box” so that employers consider a candidate's qualifications first, without the stigma of a conviction record. These initiatives provide applicants a fair chance by removing the conviction history question on the job application and delaying the background check inquiry until later in the hiring.

Momentum for the policy has grown exponentially, reinforced by the Obama administration's “My Brother's Keeper Task Force” initiative promoting fair chances in hiring. Statewide initiatives are in California, Colorado, Connecticut, Delaware, Georgia, Hawaii, Illinois, Maryland, Massachusetts, Minnesota, Nebraska, New Jersey, New Mexico, New York, Ohio, Oregon, Rhode Island, Vermont and Virginia. Seven states ' Hawaii, Illinois, Massachusetts, Minnesota, New Jersey, Oregon and Rhode Island ' have removed the conviction history question on job applications for private employers. Some cities, such as New York and Philadelphia, have gone further, and determined that stale convictions are irrelevant, and that adverse actions taken on criminal history need to be reasoned, documented and subject to governmental review.

Balancing the risk associated with asking and acting on the criminal history of a franchise applicant can be managed by having a sound policy and documentary support for asking and acting on such information. In some franchise systems, criminal histories are probably irrelevant and, in others, convictions for even violent crimes become stale reasons for denial. The nature of the system and the tasks to be performed must determine the relevance and weight of the criminal history.

Craig R. Tractenberg is a partner on the franchise team at Nixon Peabody and an adjunct professor of franchise law at Temple University's Beasley School of Law. This article also appeared in The Legal Intelligencer, an ALM sibling publication of this newsletter.