Pepsi Settles Invented Discrimination Claim

Over the last few weeks, I have been warning employers that the Equal Employment Opportunity Commission has invented a new form of discrimination that may place companies at risk of federal lawsuits.  Through an informal guidance letter, the EEOC recently suggested that having a high school diploma requirement for certain job openings might be illegal discrimination under the Americans with Disabilities Act.

Discrimination: Whatever the EEOC says it is.

iStock_000018447670XSmall(Click here to listen to my January 19th interview with syndicated talk radio host Jim Bohannon about this EEOC guidance.)

Some have expressed skepticism that the guidance won’t mean much because it does not carry the weight of law.  While technically true, a major American company just learned the hard way that EEOC guidance carries significant power.

Earlier this month, the EEOC announced that Pepsi Beverages Company would pay $3.13 million to settle a discrimination complaint.  Following similar informal guidance, the EEOC said Pepsi illegally discriminated against black job applicants because it conducted criminal background checks for potential employees.  According to the EEOC:

The EEOC’s investigation revealed that more than 300 African Americans were adversely affected when Pepsi applied a criminal background check policy that disproportionately excluded black applicants from permanent employment

“Adversely affected” means they likely didn’t get the job because of a prior arrest.  So how is this discrimination under the 1964 Civil Rights Act?  Well, since a higher percentage of black and Hispanic Americans have criminal records than the population at large, employers who use criminal background checks can be guilty of illegal discrimination, so dictates the EEOC’s guidance.

While the informal guidance does not carry the full weight of a law or regulation, in this case, it signals how the EEOC would interpret the Civil Rights Act.  If they went to court, Pepsi would need to argue that the EEOC’s interpretation is wrong.  This is not an easy burden.  Under Supreme Court precedent (Chevron v. NRDC), courts provide initial deference to agency interpretation of laws and regulations.

However, this guidance seems to misconstrue the Civil Rights Act and goes beyond the law’s original intent.  Pepsi would have had solid legal footing to challenge the EEOC.  Besides, is it Pepsi’s fault that blacks statistically get arrested at high rates?

Pepsi had what was obviously considered at the time to be a common-sense hiring policy meant to foster a safe work environment.  They did not actively discriminate against anyone.  According to the Associated Press, “the EEOC did not find any intentional discrimination.”  So when does “did not find any intentional discrimination” turn into illegal discrimination?  When the EEOC says so.

Instead of looking for actual bias and real discrimination, it seems the EEOC simply bean-counts and declares invented discrimination where it sees fit.

Who saw this coming?  We here at the National Center did.  In August 2010, the National Center issued two press releases deriding the guidance on such background checks as wrongheaded and detrimental to the economy.  Then, last July, after the EEOC held hearings on its wayward guidance – suggesting that criminals need jobs or else they will commit more crimes – I commented that:

When parsed out, the EEOC’s logic is so convoluted it collapses on itself.

One the one hand, the EEOC is telling employers, “don’t worry, hire criminals, they are contributing members of society.”  But on the other hand, an EEOC spokeswoman told the Wall Street Journal, “if ex-offenders are not given jobs the chances are that they may re-offend.”

So these folks will commit more crimes if companies don’t hire them, but they will be model employees if corporations do employ them?  Yeah, that makes sense.

The EEOC needs to abandon this misguided guidance and let employers resume hiring based on valid business considerations.

America does not have a crisis of too few regulations.  It has a crisis of too few jobs.  Perhaps, if we got rid of some of the former, we could have more of the latter.

It could be argued that Pepsi choose to settle the complaint to avoid a public relations nightmare.  But, they didn’t.  Just take a look at some recent headlines:  from ABC News, “Pepsi Beverages Pays $3.1M in Racial Bias Case,” from the Wall Street Journal, “Pepsi Bottling Unit Settles Discrimination Charges for $3.1M,” from the EEOC announcement, “Pepsi to Pay $3.13 Million and Made (sic) Major Policy Changes to Resolve EEOC Finding of Nationwide Hiring Discrimination Against African Americans.”  These headlines do not paint Pepsi in a positive light.  It would seem the EEOC basically extorted Pepsi, and the soda company was too timid to fight back.

Instead of essentially rolling over for the EEOC, Pepsi should have gone to court.  The EEOC’s informal guidance misconstrues the legal concept of disparate impact and creates a de facto protected class that Congress never intended.

The EEOC, as courts have proven, is not an invincible government machine.  Just two weeks ago, the U.S. Supreme Court unanimously struck down an EEOC ruling that misconstrued the First Amendment in Hosanna-Tabor Evangelical Lutheran Church and School v. EEOC.  In a rare showing of consensus, all nine justices agreed that the EEOC lacked the power to tell religious organizations who they must hire.

Since the EEOC is unlikely to revoke either its criminal background check or its high school diploma requirement guidance, it is up to the legal system to reign in this federal freight train.  Let’s just hope the next company to enter the EEOC’s crosshairs for violating one of these guidances has a little more courage of their convictions.

The National Center for Public Policy Research is a communications and research foundation supportive of a strong national defense and dedicated to providing free market solutions to today’s public policy problems. We believe that the principles of a free market, individual liberty and personal responsibility provide the greatest hope for meeting the challenges facing America in the 21st century.