Pepsi said the discrimination was unintentional and agreed to offer jobs to former applicants.
Pepsi Beverages Co. will pay $3.13 million and provide job offers and training to resolve a race discrimination charge filed in the Minneapolis office of the U.S. Equal Employment Opportunity Commission, government officials said Wednesday.
The settlement, considered "unusually large" for the Minneapolis office, will be divided among 300 black job applicants nationwide who had applied for positions at the company, then called Pepsi Bottling Group, between 2006 and 2010.
While the initial complaint came from a job applicant in Minnesota, the 300 people affected by Pepsi's policy were spread across the country, said Julie Schmid, director of the Minneapolis EEOC office. It was not immediately known how many came from Minnesota, she said, adding that the names of the applicants who will split the payment are not public.
Schmid said she has never seen a conciliation agreement that large in Minneapolis during her six years here. "For our district, this is unusually large," she said.
The settlement is also unusual, she said, because Pepsi not only agreed to pay the cash but agreed to offer jobs to the affected black applicants. "Usually the settlement just involves money,'' she said. A portion of the settlement will cover claims processing costs.
EEOC officials said their investigation into the company found "reasonable cause to believe that the criminal background check policy formerly used by [the bottling company] discriminated against African-Americans in violation of Title VII of the Civil Rights Act of 1964."
The bottling group reportedly applied a criminal background check that "disproportionately excluded black applicants from permanent employment," the EEOC said.
Under Pepsi Bottling's former policy, job applicants who had been arrested but were never convicted of any offense were not allowed to be hired for permanent jobs at bottling plants. EEOC officials said the former policy also denied employment to applicants who had been arrested or convicted of minor offenses.
Pepsi Beverages spokesman Dave DeCecco said the company "always maintained a neutral criminal background check policy, and the EEOC has not found any intentional discrimination by the company."
The policy of using arrest records to screen candidates occurred before PepsiCo bought New York-based Pepsi Bottling Group Inc. in 2010.
Also in 2010, PepsiCo bought an unrelated firm called PepsiAmericas from the Pohlad Group and combined both operations under the Pepsi Beverages subsidiary. PepsiAmericas was not involved the EEOC suit.
While the use of arrest and conviction records to deny employment "can be legal" under the Civil Rights Act, the EEOC said it is not legal when the records are not relevant to the job because it can limit the employment opportunities of applicants or workers based on their race or ethnicity.
Jacqueline Berrien, chairwoman of the EEOC, said in a statement that the agency has a longstanding policy on the use of arrest and conviction records. Employers who use arrest records to screen job applicants must take into account the gravity of the offense, the time that has passed since the conviction, and how it relates to the nature of the job being sought.
Failure to consider all three items may cause some companies to unintentionally violate the law, EEOC officials said.
Berrien noted that Pepsi Beverages altered its screening policy after the problem was brought to its attention. She commended Pepsi's "willingness to re-examine its policy and modify it to ensure that unwarranted roadblocks to employment are removed."
An inclusive history
Pepsi has long been recognized as a pioneer in the hiring of African-Americans. It was one of the first U.S. corporations to hire an all-black sales team and launch a national ad campaign that marketed to African-Americans in the 1940s, a time when many companies refused to employ black sales executives.
"We are committed to promoting diversity and inclusion and we have been widely recognized for our efforts for decades," said DeCecco. "After the issue was raised to PBG in 2006, we worked in cooperation with the EEOC to revise our criminal background check process to further advance our efforts to create a workplace that is as diverse and inclusive as possible."
Mary Krakow, chairwoman of Fredikson & Byron's employment and labor law department, said Pepsi Bottling's run-in with the EEOC was unusual because many large companies know they shouldn't reject applicants based solely on an arrest record.
"To be arrested can be happen to anyone. But to be convicted is completely different," Krakow said. An increasing number of her corporate clients use criminal background checks to screen applicants. But she advises they use EEOC criteria that question relevance and fairness.