On January 11, 2012, Pepsi Beverages Company agreed to pay more than $3 million to resolve race discrimination claims filed in 2006 by more than 300 African American job applicants. The claims alleged that the company’s criminal background check policy (1) disproportionately excluded African Americans from employment with Pepsi and (2) violated federal and state legal limits established by Title VII of the Civil Rights Act of 1964. The settlement sends a clear message to other employers: Be more proactive and conduct frequent and comprehensive reviews of criminal background check policies to minimize the likelihood of similar sanctions and fines by the Equal Employment Opportunity Commission (EEOC).
Legal Ramifications
Following an EEOC investigation, the commission ruled that Pepsi’s long- standing policy (which denied employment to job applicants who had been arrested) resulted in race discrimination. Statistics show that minorities tend to have higher arrest and conviction rates than whites. The investigation revealed that in this case, none of the applicants had been convicted of a crime and therefore should have been considered suitable for employment (provided they met the job requirements and qualifications).
Moreover, federal and state statutes prohibit the illegal use of arrest and conviction records to deny employment, particularly when the nature of the alleged crime is unrelated to the core job responsibilities. As part of the settlement, the company must provide the agency with regular reports on its hiring practices and offer antidiscrimination training to its hiring personnel and managers.
An Ounce of Prevention Works Wonders
Pepsi agreed to settle for a whopping $3.13 million, which will be divided among 300 African American applicants who claimed they were excluded during the company’s recruitment process. The company has since taken steps to reexamine its criminal background check policy and offer the victims of its old policy new job opportunities with the company. That begs the question: How could a company of Pepsi’s magnitude ― with more than 285,000 employees, $60 billion in net revenue, and a stellar reputation for its model HR practices and commitment to diversity ― have gotten its hiring policy so wrong?
Certainly, no business is perfect. At F&H Solutions Group, we recommend that our clients thoroughly review and update their HR policies and procedures at least once a year to ensure compliance with ever-changing laws. The review must be undertaken with as much objectivity as possible. Even a policy that wasn’t written with discriminatory intent can be problematic.
Lessons Learned
The discriminatory implication of improperly using criminal background checks (as opposed to using checks justified by a true business necessity) now resonates throughout the entire business community. The astounding settlement is nothing to ignore, either. A discriminatory practice coupled with a huge settlement can wreak havoc on a company’s reputation for its hiring practices, particularly world-renowned megacompanies like Pepsi. In business, as in life, perception often is reality.
So what can be gleaned from Pepsi’s costly mistake? First, be rigorous in ensuring that your hiring policies and procedures coincide with your organization’s actual business needs. Second, if your hiring manager determines that a criminal background check is absolutely necessary, confirm that the information obtained is job-related to avoid running the risk of the check being misconstrued as a “fishing expedition” to disproportionately screen out certain groups of individuals.
Finally, be cognizant of the warning signs. Train your hiring managers to examine candidate pools to ensure they are composed of qualified and diverse applicants who have been selected in a nondiscriminatory manner. Taking these proactive steps will help send the right message, contribute to sound and compliant overall hiring practices, and ultimately save your organization valuable time and resources.