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From Banking and Finance Law Daily, August 30, 2018

Discharging all employees banned by FDI Act was ‘business necessity’

By Richard A. Roth, J.D.

A bank had a business necessity for its practice of discharging all employees who had previously been convicted of crimes involving dishonesty, the U.S. Court of Appeals for the Eighth Circuit has decided. Since a class of discharged African American and Latino employees failed to describe an alternative practice that would meet the necessity without having a disparate impact on them, they could not successfully assert a claim of race-based employment discrimination (Williams v. Wells Fargo Bank, N.A., Aug. 29, 2018, Smith, L.).

Federal Deposit Insurance Act Section 19 bars anyone who has been convicted of a crime "involving dishonesty or a breach of trust" from being employed by any financial institution covered by federal deposit insurance (12 U.S.C. §1829(a)). A bank that violates the ban is subject to criminal penalties. However, an individual can ask the Federal Deposit Insurance Corporation for a waiver of the ban.

Bank practices. Wells Fargo Bank takes several steps to avoid violating the Section 19 employment ban, the court said. First, the bank asks all job applicants whether they ever have been convicted of a crime involving dishonesty, and it does not offer jobs to any applicants who have convictions. The bank initiated a fingerprint background check for employees and applicants in 2010.

Also, in 2012, the bank screened all the employees who were in its home mortgage division and discharged anyone who was found to have a conviction. The bank neither told the discharged employees they could apply for a waiver nor offered to sponsor any of them for waivers, which it could have done. As a result, the bank discharged at least 136 African American employees, 56 Latino employees, and 28 white employees. African American and Latino employees brought a class action claiming race-based employment discrimination.

Disparate impact discrimination. The class members based their discrimination claim on a disparate impact theory. According to the court, under federal anti-employment discrimination law, that theory required the class members to show that Wells Fargo had a facially neutral policy or practice that resulted in a disparate impact on members of the class. The bank then would have the opportunity to demonstrate that the challenged practice was related to the job and was a business necessity. The class then would have an opportunity to describe a different practice that would meet the business necessity but would not have a disparate impact on them.

The practice complained of by the class members was the automatic discharge of all affected employees. In this case, while the numbers did show that African American and Latino employees were discharged at a higher rate than white employees, the possibility of a $1 million-per-day fine made the discharges a business necessity, the court said. It also was reasonable for the bank to want its customers to be served by individuals who had not been convicted of crimes involving dishonesty.

The class asserted the bank could have implemented a practice that would have obviated the disparate impact by giving employees an advance notice of their Section 19 discharge, putting them on leave while they applied for a waiver, and sponsoring their waiver applications. The problem with that assertion, the court said, was that there was no evidence such a practice would have reduced the disparate impact. The data were that only 57 percent of all waiver applications were approved by the FDIC, and there were no data showing that waiver sponsorship would reduce the greater effect of Section 19 on the class.

On the record presented, the court said, "[W]e hold that even if Wells Fargo’s policy of summarily terminating or not hiring any Section 19 disqualified individual creates a disparate impact, the bank’s decision to comply with the statute’s command is a business necessity..." The class had not shown there was a less-harmful alternative that would meet that necessity.

The case is No. 16-4372.

Attorneys: Leonard Bates (Newkirk Zwagerman Law Firm) for Cara Williams. Gregory Paul Abrams (Faegre Baker Daniels LLP) for Wells Fargo Bank, N.A.

Companies: Wells Fargo Bank, N.A.

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