Wells Fargo branch in San Francisco. (Photo: Mike Scarcella/ ALM)

Updated Aug. 30

A federal appeals court Wednesday upheld a Wells Fargo employment policy that allows the bank to fire employees, or not consider job applicants, based on criminal records, despite concerns from advocates that such practices discriminate against minorities.

The panel on the U.S. Court of Appeals for the Eighth Circuit ruled against 10 African-American and Latino workers who alleged discriminatory employment practices. The appeals court upheld a decision from federal court in Iowa.

The Wells Fargo policy at issue summarily terminates or withdraws employment offers to any individual with a disqualification in their criminal background check. Minorities were fired or no longer considered at a higher rate than white workers, according to the lawsuit, which was filed on behalf of a putative class of terminated bank employees and prospective hires.

The central issue focused on a federal provision, known as Section 19, that bars “any person who has been convicted of a criminal offense involving dishonesty or a breach of trust” from working at or continuing to work at a financial institution insured by the Federal Deposit Insurance Corp. The statute does not consider the age of the convictions when applying the employment bar. Violations of Section 19 can result in fines up to $1 million a day. Wells Fargo is an FDIC-insured bank.

“Here, African-American and Latino employees were terminated (or potential employees were not hired) at rates at least twice those of non-minorities,” Judge Lavenski Smith wrote for the appeals panel. “But even assuming that the disparate impact was caused by Wells Fargo's policy of uniformly applying Section 19, the district court correctly recognized that the bank's 'sound business decision was to terminate regardless of race or age or ethnicity.'”

The plaintiffs were represented by teams from Newkirk & Zwagerman and Goldstein, Borgen, Dardarian & Ho. The attorneys did not respond to request for comment.

Faegre Baker Daniels represented Wells Fargo. A Wells Fargo spokesperson said in an email: “We are pleased with the decision, and continue to stand by our hiring and employment policies and practices related to criminal background checks.”

The National Employment Law Project urged the appeals court, in a friend-of-the-court brief, to consider this case not in isolation but within the “stark real-world context and the public policy concerns it presents.”

Workers' rights advocates have pushed for laws to limit employers' use of criminal records in employment history. State and local governments have pushed laws in recent years that restrict background-check policies by removing the “box” on applications that asks would-be hires about any criminal history. Iowa does not have a “ban-the-box” law in place.

In 2010, Wells Fargo began using a fingerprint-based background check for current and potential employees. In 2012, the bank re-screened its entire home mortgage division to find whether they had convictions “involving crimes of dishonesty.”

According to the appeals court, between December 2011 and March 2013, Wells Fargo terminated at least 136 African-Americans, 56 Latinos and 28 white employees because of Section 19 disqualifications. Between February 2013 and November 2015, Wells Fargo withdrew at least 1,350 conditional job offers to African-Americans and Latinos and 354 nonminorities after the background check revealed these individuals had disqualifying convictions, according to the appeals court.

“Wells Fargo chose to summarily terminate plaintiffs despite the availability of less harsh alternatives that would have allowed plaintiffs to resume or begin their careers with the company—alternatives Wells Fargo has selectively offered to others with similar criminal records,” the plaintiffs' lawyers told the appeals court. “This summary termination policy had a devastating effect on long-term incumbent employees and conditionally hired applicants of color.”

Update: An earlier version of this report misidentified the court that issued the ruling. It was the Eighth Circuit, not the Sixth Circuit. 

➤➤ Get employment law news and commentary straight to your in-box with Labor of Law, a new Law.com briefing. Learn more and sign up here.