April 11th, 2023 | Chris Christian, Director of Compliance, Sterling

Fair Chance Laws Expand Into Occupational Licensing and Regulated Industries

For over a decade, “Fair Chance” hiring laws have had significant impacts on state and federal employer hiring policies and practices. In roughly over a decade there have been over 200 combined states, counties, and cities which passed fair chance and/or ban the box laws impacting both public and private employers. While the specific requirements may vary, fair chance laws require that employers first consider a job candidate’s qualifications without the stigma of considering their criminal background checks history until after the application process, job interview, or conditional job offer. These policies are designed to minimize the possibility of hiring discrimination by providing job applicants with a fair chance at employment regardless of their criminal history. In more recent years we have seen a variety of different models of fair chance laws emerge.

While most of the fair chance policies and legislative efforts have focused on private and public employers’ hiring practices, fair chance policies have also been making steady inroads into regulated industries which already have very stringent requirements for hiring and for the issuing of occupational licenses to individuals with criminal histories.

Fair Chance Laws in Occupational Licensing

Occupational licensing laws require workers to submit verification of training, testing, and education — and often pay associated fees — before they can start a job in their chosen field. According to the National Conference of State Legislatures (NCSL), over the last 60 years, the number of jobs requiring an occupational license to practice a profession has grown from about one in 20 to almost one in four. In addition to this increase, state occupational licensing boards have also expanded the licensing requirements related to criminal history checks.

The National Employment Law Project (NELP) indicates there are over 27,000 state occupational licensing requirements, of varying degrees, which restrict those with a criminal record from acquiring a license. Many times, the restrictions to occupational licensing place blanket barrier prohibitions on individuals with a criminal history. Advocates of fair chance policies in occupational licensing point to the fact that licensing already impacts a wide range of industries (such as manufacturing, transportation, construction, energy, and others). As a result, they believe that the criminal record barriers to licensing is an issue that requires change.

Occupational licensing issues were also amplified by the Covid-19 pandemic. During the crisis, many states were forced to re-evaluate their occupational licensing restrictions placed on individuals with a criminal history. For example, in healthcare there was a shortage and need for more licensed healthcare professionals. In response, states modified the criminal history barriers for obtaining a license — either temporarily or permanently.

In the past several years, more and more state legislatures have begun to adopt “fair chance licensing” reform policies to remove and/or ease state occupational licensing requirements related to a person’s criminal history. These fair chance licensing laws are similarly rooted in the fair chance and ban the box laws seen in the employment arena. Most state licensing laws prohibit the denial of an occupational license based on convictions without a direct relationship to the duties of the license. Many of these “direct relationship” laws also require an individualized assessment for each conviction where certain factors must be considered when assessing if the conviction has a direct relationship to the job.  This is very similar to the EEOC’s individualized assessment process outlined in their Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions under Title VII of the Civil Rights Act.

What form do fair chance laws take when applied to occupational licensing? There are differing models. For example, some state laws create a formal process to allow individuals a chance to petition a licensing board to decide if their criminal history would disqualify them prior to the application for licensure. However, other laws require the licensing boards to provide an individual with a written response explaining the reason why their criminal history prohibits them from obtaining a license.

State Legislative Activity Focusing on Fair Chance

Let’s take a look at several states’ fair chance laws which have already passed and are impacting the hiring and occupational licensing process.

Louisiana

In June of 2022, Louisiana passed HB 639 which now mandates that licensee applicants may only be denied a license if they were convicted of a crime directly related to the license profession, and if they also failed to provide evidence of rehabilitation. The new law also creates a petition process that will let ex-offenders know if their criminal record would already disqualify them beforethey invest in any expensive training or education requirements.

Oklahoma

In May of 2022, Oklahoma passed Senate Bill 1691 which provides that conviction, plea of guilty, nolo contendere (does not accept or deny charge), or pending criminal charges shall be grounds for licensure denial only if the underlying offense substantially relates to the duties and responsibilities of the occupation and poses a reasonable threat to public safety, health, or welfare.

Minnesota

In June of 2022, Minnesota passed HF 3255 which creates a petition process so that individuals with a criminal history can learn beforehand if their criminal record would disqualify them before they invest in any potentially expensive or time-consuming training or coursework.

Colorado

In May of 2022, Colorado passed HB22-1098 which, among other things, limits the authority of a regulator to deny a license, certification, or registration based on an applicant’s criminal history record only, by requiring the hearing and mediation process established in current law. A regulator is required to document the grounds for the denial of the license, certification, or registration in writing to the applicant.

Fair Chance in the Financial Industry

Fair chance policies have also made recent advances in the financial industry. On December 23, 2022 President Biden signed H.R. 7776, known as the “James M. Inhofe National Defense Authorization Act for Fiscal Year 2023” (“NDAA”). Section 5705 of the NDAA is entitled, “Fair Hiring in Banking,” which amends 1) Section 19 of the Federal Deposit Insurance Act which restricts hiring at Federal Deposit Insurance Corporation (FDIC) regulated employers, and 2) Section 205(d) of the Federal Credit Union Act (FCUA), which restricts hiring at credit unions insured by the National Credit Union Administration (NCUA).

Background

Section 19 of the Federal Deposit Insurance Act prohibits a person from participating in the affairs of an FDIC-insured institution if he or she has been convicted of a crime involving dishonesty, breach of trust, or money laundering, or has entered a pretrial diversion or similar program in connection with a prosecution for such an offense, without a written waiver from the FDIC.

Like Section 19, Section 205(d) of the FCUA places restrictions on persons convicted of any criminal offense involving dishonesty or breach of trust, or who has agreed to a program entry in connection with a prosecution for such an offense, from directly or indirectly participating in the affairs of an NCUA-insured credit union, unless presenting a written waiver from the NCUA.

Section 19 and Section 205(d) both establish a waiver application process for those with disqualifying criminal records. The waiver application allows an individual with a disqualifying record an opportunity to file a waiver application seeking an exception for employment from the appropriate regulatory body (FDIC or NCUA). The financial institution may also file the waiver application on behalf of the individual.

Fair Hiring in Banking Amendments

The new amendments, among other things, narrow the scope of criminal records of applicants subject to Section 19 and Section 205(d). A few key highlights of the amendments consist of the following: 

• Unless the conviction is subject to the 10-year prohibition period for certain offenses, an applicant or employee no longer requires a waiver application if: 
• It has been 7 years or more since the offense occurred; or
• The individual was incarcerated with respect to the offense, and it has been five years or more since the individual was released from incarceration.  
• The offenses in Section 19 and 205(d) shall not apply if the offense has an order of expungement, sealing, or dismissal that has been issued regarding the conviction in connection with such offense.
• Now defines the term “criminal offense involving dishonesty” to mean an offense where the person (directly or indirectly) cheats or defrauds, or wrongfully takes property belonging to another in violation of a criminal statute, and further indicates that the definition does not mean to include a misdemeanor criminal offense committed more than one year before the date on which a person files a waiver application, excluding any period of incarceration, or an offense involving the possession of controlled substances. 

During the waiver application process, the FDIC and NCUA must: 

• Conduct an individualized assessment when evaluating consent applications that considers evidence of rehabilitation, the applicant’s age at the time of the conviction or program entry, the time that has elapsed since conviction or program entry, and the relationship of individual’s offense to the responsibilities of the applicable position.
• Consider the individual’s employment history, letters of recommendation, certificates documenting participation in substance abuse programs, successful participating in job preparation and educational programs, and other relevant mitigating evidence.
• Consider any additional information to be determined necessary for safety and soundness. 

Key Takeaways

For years now, employers have had to pay a great deal of attention to the emergence of fair chance and ban the box polices being implemented into federal, state, and local laws. However, the inroads that these policies have made into regulated industries deserve comparable attention by employers in those affected industries. While it’s difficult to predict the exact long-term impacts fair chance policies will have in regulated industries, it’s clear that regulators at both the state and federal levels are now well aware of the fair chance movement and have begun implementing fair chance policies into a wide range of regulated industries.

In the future, we could see more regulators place fair chance hiring responsibilities onto employers. If this occurs, employers should consider becoming familiar with the responsibility of conducting “individualized assessments” of applicant’s criminal records as indicated by the EEOC’s individualized assessment process outlined in their Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions under Title VII of the Civil Rights Act. Employers should also consider becoming familiar with other state and local fair chance laws as well as “Clean Slate Laws” and also begin considering how to adapt their hiring procedures and how to train staff responsible for reviewing and assessing an applicant’s criminal records.

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