Categories: Financial Services

By:  William J. Milani and Anna Kolontyrsky

The Eastern District of New York has rejected a claim for relief under the New York State Human Rights Law (“NYSHRL”) brought by a job applicant who alleged that a bank unlawfully discriminated against her based on her criminal history. In Smith v. Bank of America Corp. (subscription required), Smith, who worked as a temporary employee at Bank of America, was encouraged by her supervisor to apply for full-time employment.  Before doing so, she informed her supervisor that she had been arrested and charged with a misdemeanor but that the charges had been dismissed after she participated in New York’s adjournment in contemplation of dismissal (“ACD”) program. The ACD process was created so that persons charged with minor offenses would not be permanently identified as criminals.  The program allows for the postponement of a criminal case with the understanding that if the accused fulfills certain conditions, all charges will be dismissed and the arrest and prosecution leading to the ACD will “be deemed a nullity.”
Smith stated that the Bank assured her that the arrest would not hinder her chances of obtaining full-time employment. In fact, Smith received a job offer; but the Bank subsequently withdrew that offer after a routine background check revealed that she had been arrested and charged with petit larceny.  Smith immediately challenged the background check, explaining that the charges against her had been dismissed pursuant to the ACD.  When the Bank still refused to hire her, Smith filed a lawsuit alleging violations of the NYSHRL.

The NYSHRL limits the ability of employers to make adverse employment decisions on the basis of criminal history.  The statute provides in relevant part that it "shall be an unlawful discriminatory practice, unless specifically required or permitted by statute, for any…corporation or association…to make any inquiry about, whether in any form of application or otherwise, or to act upon adversely to the individual involved, any arrest or criminal accusation not then pending against that individual which was followed by a termination of that criminal action or proceeding in favor of such individual."  In other words, the statute prohibits employers from denying any individual a job due to an arrest that did not result in a conviction.  The fact that Bank of America withdrew its offer of employment as a result of Smith’s dismissed charge was undisputed.  Instead, the Bank argued that its refusal to hire Smith was actually protected by the NYSHRL, as the rule specifically allows employers to rely upon arrest records in making employment decisions when “specifically required or permitted by statute.”

Federal law prohibits FDIC-insured banks, except “with the prior written consent of the [FDIC],” from hiring any person who “has agreed to enter into a pretrial diversion or similar program in connection with the prosecution of” any criminal offense involving dishonesty.  As an FDIC-insured national bank, the Bank argued that it was barred from hiring Smith because the ACD program is a “pretrial diversion or similar program” and petit larceny constitutes a crime of “dishonesty.”

The Court agreed.  It found that New York's ACD program is a “pretrial diversion or similar program” and that, according to FDIC policy, crimes of dishonesty include those in which the defendant is accused of wrongfully taking property from another in violation of a criminal statute. Because under N.Y. Penal Law a “person is guilty of petit larceny when he steals property,”  Smith’s crime was covered under the FDIC definition of dishonesty.  Accordingly, the Court held that Bank of America was required by federal law “not to hire [Smith] after being informed of the results of her background check” and that the bank “did not violate [N.Y. Exec. Law §] 296(16) by refusing to hire her in the absence of a waiver by the FDIC.” 

Thus, an applicant who participates in New York’s ACD program may not be protected by the NYSHRL when seeking employment with an FDIC-insured national bank.  Before conducting a background check on any employee or applicant, however, employers should consult the relevant legal statutes.  For example, the federal Fair Credit Reporting Act and various state laws impose requirements on employers, such as securing employee authorization before a background check is conducted by a credit reporting agency.

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