United States: Eighth Circuit Sheds Light On The Legality Of Employer Disqualification Policies

Courts have ruled that sweeping and overbroad employer-initiated disqualification policies must be struck absent business justification. But where is the line on what constitutes an overbroad and impermissible policy when applicant and employee disqualification is mandated by federal law? The Eighth Circuit Court of Appeals considered this very issue when affirming summary judgment for an employer on a former employee's Age Discrimination in Employment Act (ADEA) disparate impact claims. Eggers v. Wells Fargo Bank NA, No. 16-4376 (August 13, 2018).


The original plaintiff, Richard Eggers, applied to work for Wells Fargo in 2005 at the age of 61 years old. Eggers's employment application asked him to indicate whether he had ever been convicted of any crime involving dishonesty or breach of trust. Eggers answered negatively and his subsequent name-based background check did not reveal prior convictions. Accordingly, Wells Fargo hired him for its home mortgage division.

Wells Fargo later transitioned to a fingerprint-based background check system and required employees in the home mortgage division to submit to rescreening thereunder. Eggers authorized the fingerprint screening and again indicated that he had no prior convictions for crimes involving dishonesty or breach of trust. However, the results of this background check indicated that Eggers was convicted and served jail time for fraud in 1963.

Federal law precludes financial institutions such as Wells Fargo, which are insured by the Federal Deposit Insurance Corporation (FDIC), from employing "any person who has been convicted of any criminal offense involving dishonesty or a breach of trust." The relevant statute, 12 U.S.C. section 1829 et seq. (known as "Section 19"), imposes stiff penalties for employer violations, including daily fines of up to $1,000,000 per day and/or five years' imprisonment. However, individuals with prior disqualifying convictions can apply for—and employers may sponsor—employment waivers with the FDIC. A disqualified individual may not begin or continue employment with any FDIC-insured institution absent the required waiver.

Because the results of Eggers's background check indicated that he was disqualified from employment, Wells Fargo offered him leave to obtain an employment waiver. Eggers refused to pursue the waiver and was discharged for that reason. Following the termination of his employment, Eggers applied for and received the required waiver. Wells Fargo then made an offer of reinstatement, which Eggers declined.

The Eighth Circuit's Analysis

Eggers filed suit under the ADEA alleging disparate impact based on age. Specifically, he contended Wells Fargo's failure to sponsor the pertinent waivers and failure to provide pre-screening notice of the opportunity to obtain such waivers disproportionately harmed older workers.

The U.S. District Court for the Southern District of Iowa entered judgment in favor of Wells Fargo. During the pendency of the case, Eggers died and his estate, represented by his widow, Charlene, was substituted as the party plaintiff. Charlene Eggers appealed the judgment. On appeal, the Eighth Circuit affirmed the district court's grant of summary judgment to Wells Fargo and rejected Charlene Eggers's renewed claims on behalf of her late husband.

The Eighth Circuit found that Eggers had been disqualified from his former position based on federal law and that he had failed to state a claim for disparate impact. In so finding, the court noted the difference between cases where disparate treatment ensues from sweeping and overbroad company-initiated disqualification policies and the case at hand. The differentiating factor was that in Eggers's case, federal law—not company policy—mandated disqualification from employment. The court also distinguished cases where overbroad employer-initiated policies were struck because they barred almost all individuals with past convictions without business justification from instances in which legitimate business reasons necessitated employment decisions. The court noted that the district court had observed that "any bank or financial institution wisely would prefer for its customers to be served by employees who were not previously persons convicted of crimes of dishonesty."

Additionally, the court pointed to the fact that Eggers had failed to present any statistical evidence of discriminatory policy application by Wells Fargo. The discussion centered on the narrower scope of disparate impact liability under the ADEA than under Title VII of the Civil Rights Act of 1964. The court noted that in the case of ADEA disparate impact claims, liability is precluded where the employer can show the adverse impact on the employee was attributable to any reasonable nonage factor, acknowledging the "need to preserve a fair degree of leeway for employment decisions with effects that correlate with age."

Key Takeaways 

Although some leeway may be given in relation to statutorily mandated employer disqualification policies, liability can still ensue for sweeping employer-initiated disqualification policies. Since there is no bright line regarding what constitutes a permissible company disqualification policy (beyond those mandated by statute), employers may want to proactively review any broad disqualification policies—including those treating large swaths of past convictions as an absolute bar to employment—with an eye towards limiting the disqualifying class to meet actual business necessity.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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