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8th Cir. Rules Terminating Bank Employees for Criminal Convictions Involving Dishonesty Not Unlawful Discrimination

The U.S. Court of Appeals for the Eighth Circuit recently affirmed summary judgment in favor of a bank that was sued by a putative class alleging discriminatory employment practices that supposedly violated Title VII of the Civil Rights Act of 1964 and the Iowa Civil Rights Act.

In so ruling, the Court held that the plaintiffs failed to establish a prima facie case of disparate impact because even if the bank’s policy of summarily terminating applicants or employees with a criminal conviction involving dishonesty or breach of trust had a disparate impact, the bank’s decision to comply with the applicable federal law was a business necessity under Title VII.

A copy of the opinion in Cara Williams v. Wells Fargo Bank, N.A. is available at:  Link to Opinion.

As you may recall, a federal law, 12 U.S.C. § 1829 (a)(1)(a), prohibits “any person who has been convicted of any criminal offense involving dishonesty or a breach of trust” from employment at any financial institution insured by the Federal Deposit Insurance Corporation (FDIC). The law provides that disqualified persons may apply for a waiver, but no disqualified person can begin or continue employment with an insured institution until the waiver is obtained.

The plaintiffs, 10 African Americans and Latinos, filed suit against the bank in the United States District Court for the Southern District of Iowa on behalf of a putative class alleging that the bank’s “policy of summarily terminating or withdrawing offers of employment to any [disqualified] individual” was discriminatory and violated Title VII of the Civil Rights Act of 1964 and the Iowa Civil Rights Act.

The bank moved for summary judgment. The plaintiffs moved for additional time to conduct discovery under Federal Rule of Civil Procedure 56(d), which the magistrate judge granted in part and denied in part.

The district court granted the bank’s motion for summary judgment, holding that the plaintiffs “failed to establish a prima facie case under any theory of employment discrimination pursuant to either federal or state law.”

The plaintiffs appealed, “arguing that the district court misapplied disparate-impact law.” They also challenged “the magistrate judge’s ruling on their Rule 56(d) motion.”

The Eighth Circuit framed the ultimate issue in the case as being “whether the appellants had established a prima facie case of Title VII disparate impact, and if they had, whether [the bank] failed to show a business necessity defense.”

The plaintiffs-appellants argued that the bank “refused to adopt the alternative practices of giving advance notice of the need for a waiver, granting leave to seek a waiver, and providing direct sponsorship of a waiver.” The plaintiffs-appellants argued that, if the bank had uniformly enforced such policies, that would have minimized the disparate impact caused by the law’s automatic disqualification.

The Eighth Circuit disagreed, first citing Title VII, 42 U.S.C. § 2000e-2(K)(1)(A)(i), which provides that “an unlawful disparate impact is established … ‘only if … a complaining party demonstrates that a respondent uses a particular employment practice that cause a disparate impact on the basis of race … and the respondent fails to demonstrate that the challenged practice is job related for the position in question and consistent with business necessity.’”

In order to establish a prima facie disparate impact claim, plaintiffs must show: “(1) an identifiable, facially-neutral personnel policy or practice; (2) a disparate effect on members of a protected class; and (3) a causal connection between the two.”

The Court rejected the plaintiffs-appellants’ argument that “they presented sufficient statistical evidence to show the disparity between white and non-white … employees and potential employees and that [the bank] failed to show a business necessity.”

The Eighth Circuit reasoned that even if the bank’s policy of uniformly terminating disqualified African-American and Latino employees at twice the rate of white employees caused a disparate impact, “the district court correctly recognized that the bank’s ‘sound business decision was to terminate regardless of race or age or ethnicity.’”

This was because failure to comply with 12 U.S.C. § 1829 “placed [the bank] at risk of daily fines of $1 million. Further, ‘any bank or other financial institution wisely would prefer for its customers to be served by employees who were not … persons convicted of crimes of dishonesty.’”

The Eighth Circuit concluded that the bank’s “policy of summary employment exclusion following … disqualification [under § 1829] is a business necessity.” It also concluded that the appellants failed to present sufficient “evidence or statistics showing that … alternative practices would have reduced the disparate impact on people of color. … The statistics do not support the inference that any of the alternative practices put forward by the applicants would result in proportionally more non-white employees receiving waivers and thereby reduce the disparate impact. Without meaningful evidentiary support for their contention, the appellants’ argument fails.”

The Court also rejected the plaintiffs-appellants’ challenge to the magistrate judge’s denial of their motion seeking additional discovery because the appellants failed to file an objection to the magistrate judge’s order. “Because the appellants failed to test the magistrate judge’s pre-trial motion ruling before the district court, they cannot now leapfrog the district court and appeal the order directly to us.”

Accordingly, the district court’s summary judgment ruling in favor of the defendant bank was affirmed.

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Hector Lora has substantial experience in all phases of complex commercial litigation, including motion practice, written discovery, depositions, mediations, bench and jury trials, and appellate practice. For more than a decade, his practice has focused extensively on the defense of civil enforcement actions filed by the FTC, as well as real estate litigation, and contested mortgage and condominium lien foreclosures and foreclosure of security interests under UCC Article 9. Hector also has substantial experience in advising a variety of types of businesses regarding their compliance with applicable federal and state laws, including the Federal Trade Commission Act, the Telephone Consumer Protection Act, the Telemarketing and Consumer Fraud and Abuse Prevention Act, the Telemarketing Sales Rule, the Controlling the Assault of Nonsolicited Pornography and Marketing Act of 2003, and Florida laws governing telephone solicitation and communication. Hector received his Juris Doctor from the Georgetown University Law Center, and his undergraduate degree with honors from the University of Florida.

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