Eighth Circuit Backs Bank’s Policy of Termination for Disqualifying Convictions

Financial Services Law

A bank did not engage in age bias when it terminated an employee after learning that he had a prior conviction that disqualified him from employment, the U.S. Court of Appeals, Eighth Circuit has affirmed.

In a second decision, the same panel doubled down on its holding in a separate case involving African-Americans and Latinos who sued the bank after the same rescreening process. The court held that the bank’s policy of terminating or withdrawing offers of employment to individuals with disqualifying convictions did not violate Title VII because the policy was a business necessity.

What happened

When Richard Eggers applied to work at a national bank in 2005, he answered “no” to an application question about whether he had ever been convicted of any crime involving dishonesty or breach of trust. The bank hired Eggers for its Home Mortgage division.

In 2010, the bank switched to a more sophisticated system of background checks using fingerprint-based screening. The Home Mortgage division, among others, was required to undergo rescreening. Eggers signed off on the review and again indicated that he had no prior convictions for crimes involving dishonesty or breach of trust. However, the new background check revealed that Eggers had a fraud conviction from 1963 and that he had served two days in jail.

Under federal law, the conviction barred Eggers from working for the bank. Referred to as “Section 19,” 12 U.S.C. Section 1829(a)(1)(A) prohibits “any person who has been convicted of any criminal offense involving dishonesty or a breach of trust” from becoming or continuing as an employee of any institution insured by the Federal Deposit Insurance Corporation (FDIC). The statute provides harsh penalties for violators, including fines of up to $1 million per day and/or five years’ imprisonment.

Individuals with prior disqualifying convictions under Section 19 may apply for employment waivers with the FDIC, and banks wishing to hire—or continue to employ—Section 19-disqualified individuals also may sponsor waiver applications.

When the bank learned of Eggers’ disqualification, it offered him leave time to obtain a waiver. Eggers refused, and the bank terminated his employment. Eggers applied to the FDIC for a Section 19 waiver. But when he obtained it, he refused the bank’s offer of reinstatement and instead filed suit.

He alleged the bank violated the Age Discrimination in Employment Act (ADEA) by refusing to sponsor Section 19 waivers and by failing to provide job applicants and employees with prescreening notice of the opportunity to obtain waivers. These two practices resulted in a disparate impact against older workers, Eggers claimed.

The bank moved for summary judgment. The district court granted the motion and the plaintiff (with Eggers’ widow substituted as his representative) appealed. The U.S. Court of Appeals, Sixth Circuit affirmed.

Federal law—not company policy—triggered the plaintiff’s disqualification from employment, the court noted, rejecting Eggers’ argument that establishing a job qualification is not a requirement in an ADEA disparate impact case.

“[E]ven assuming that the Section 19 disqualification does not bar Eggers’s claim, Eggers failed to present statistical evidence of any kind that the two challenged policies created a disparate impact among [bank] employees older than 40,” the court wrote.

To avoid summary judgment, the plaintiff was required to make a showing sufficient to establish the existence of an element essential to the case, but Eggers failed to do so, the court said. “Because Eggers failed to present any statistical evidence of a disparate impact … summary judgment for [the bank] is appropriate for lack of a prima facie case.”

Just a few weeks later, the same panel considered a different lawsuit based on similar facts. There, ten African Americans and Latinos sued the same financial institution, alleging race-based employment discrimination under Title VII and state law based on the bank’s policy of terminating or withdrawing offers of employment to any individuals with a Section 19 disqualification.

Between December 2011 and March 2013, the bank terminated at least 136 African-American, 56 Latino and 28 white employees because of Section 19, according to the plaintiffs; between February 2013 and November 2015, at least 1,350 conditional job offers to African-Americans and Latinos were withdrawn, compared with 354 withdrawn from nonminorities.

But the Eighth Circuit affirmed summary judgment in favor of the bank. “Here, African American and Latino employees were terminated (or potential employees were not hired) at rates at least twice those of non-minorities,” the court said. “But even assuming that the disparate impact was caused by [the bank’s] policy of uniformly applying Section 19, the district court correctly recognized that the bank’s ‘sound business decision was to terminate regardless of race or age or ethnicity.’”

Noncompliance with Section 19 could place the bank at risk of daily fines, the panel noted, and any financial institution would prefer for customers to be served by individuals who have not been convicted of crimes of dishonesty.

“In our view, [the bank’s] policy of summary employment exclusion following a Section 19 disqualification is a business necessity,” the court said.

Nor was the court persuaded by the argument that the bank could have ameliorated the disparate impact by giving advance notice of the need for a Section 19 waiver and/or sponsoring a waiver, finding that the statistics provided by the plaintiff were insufficient to support the inference that the alternative practices would result in proportionally more nonwhite employees receiving waivers, thereby reducing the disparate impact.

To read the opinion in the ADEA case, click here.

To read the opinion in the Title VII case, click here.