Does your small business conduct criminal background checks on job applicants? If so, a recent settlement agreement between Pepsi Beverages and the U.S. Equal Employment Opportunity Commission (EEOC) illustrates the legal dangers you may run into if you don’t use such background checks carefully.

According to reports of the settlement, Pepsi ran background checks on job applicants and refused to hire individuals with arrest records (but no convictions) and individuals convicted of minor offenses, as well as those convicted of more serious crimes. The EEOC determined that Pepsi’s policy disproportionately affected African Americans and that more than 300 African Americans who might have received job offers from the company were excluded.

To settle the EEOC’s charges against it, Pepsi paid a $3.1 million fine. The company also agreed to revise its criminal background check policy and offer jobs to qualified applicants who were previously excluded under its former policy.

The Pepsi settlement highlights the legal minefield that your small business can inadvertently wander into if it runs criminal background checks on prospective employees. Under federal law, hiring policies that could have a disproportionate impact on minorities or other protected groups may be illegal, even if you do not intend to discriminate against anyone.

According to the EEOC, an arrest record, without a resulting conviction, is not a useful hiring tool because everyone—including a prospective employee—is presumed innocent until proven guilty. Further, excluding applicants convicted of minor crimes, particularly if the incident occurred years ago and is not related to the particular job at issue, may be deemed irrelevant to the hiring process.

There’s nothing wrong with wanting your company to be staffed by honest and trustworthy individuals, and used correctly, criminal background checks can help you weed out individuals who might genuinely present a problem in the workplace. However, if you do run criminal background checks on prospective employees, you should avoid using the background checks to make blanket hiring decisions.

Instead, evaluate each prospective employee’s record on a case-by-case basis, taking into consideration whether the offense is related to the position at issue. In addition, consider giving the applicant the opportunity to explain or dispute any arrest or conviction information you discover. Taking steps like these will help ensure that your criminal background checks continue to be a useful hiring tool, without running afoul of the law.

By: Guest blogger Steven Koprince, an attorney with Petefish, Immel, Heeb & Hird, LLP in Lawrence, KS. Mr. Koprince’s practice emphasizes government contracts and small business law.