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Kelly Noonan

Excerpted from: Kelly Noonan, An Industry Missing Minorities: the Disparate Impact of the Securities and Exchange Commission's Fingerprinting Rule, 87 Chicago-Kent Law Review 299-327 (2012) (Student Note)(166 footnote)


Employers in the United States must be careful to comply with the numerous laws and regulations enacted by the government to protect employees. Employers whose businesses are subject to regulation by industry-specific federal agencies created to protect the public interest face the further burden of compliance with the applicable rules and regulations of their respective industries. Given the vast range of federal rules and regulations impacting U.S. employers, conflicts will inevitably arise, which can create a dilemma for employers.

Employers in the securities industry face just such a dilemma as they strive to comply with both Title VII of the Civil Rights Act of 1964 and the Securities and Exchange Commission's (SEC) requirement to disqualify from employment any job applicants or employees who have been convicted of various misdemeanors or felonies. Section 15b(4)(1) of the Securities Exchange Act of 1934 requires that the SEC limit the activities, including suspending privileges or revoking registrations, of any employee or broker-dealer that employs an individual who has been convicted of certain types of misdemeanors or felonies. Thus, the SEC enacted a rule that requires the vast majority of employees in the securities industry to submit fingerprints for a criminal history check to determine whether such employees are statutorily disqualified from employment. This regulation may be in conflict with Title VII, which prohibits employment practices that appear neutral but have a disparate impact on a particular race. The Equal Employment Opportunity Commission (EEOC), the agency charged with ensuring compliance with Title VII, has asserted that the use of criminal background checks as a method of pre-employment screening can have a disparate impact on African Americans and Hispanics, who are more likely to have criminal conviction records.

The language of the SEC's fingerprint rule has not kept pace with the changing structure of the trading industry in recent years, resulting in broad application of the rule. Of course, ensuring the safety of financial instruments and the trustworthiness of those charged with handling cash and securities is extremely important. Yet in its current form, the fingerprint rule goes beyond merely protecting money: it excludes many individuals with even minor criminal histories from working in the securities industry. In today's business environment, the rule arguably covers nearly all positions at a trading firm despite some limiting language about the job roles to which it applies.

This broad application of the fingerprint rule may have a disparate impact on African Americans and Hispanics in violation of Title VII. Title VII prohibits employment practices that adversely impact a protected class of individuals if the employment practice is not consistent with business necessity. The extensive list of offenses for which an individual is subject to disqualification under the Securities Exchange Act and the wide array of job functions covered by the SEC's fingerprint rule create a barrier against working in the securities industry for many prospective employees with a past criminal record. Notably, incarceration rates for African American and Hispanic men are nearly 6.5 and 2.5 times greater, respectively, than incarceration rates for white men. Given that African Americans and Hispanics are significantly more likely to have criminal records as compared to white people, this rule has a greater impact on those races. Thus, employers are placed in a difficult position because compliance with the fingerprint rule could leave the employer vulnerable to claims of disparate impact.

This Note explores the disparate impact the SEC's fingerprint rule may have on African Americans and Hispanics. In Part I, this Note will explain the requirements of Title VII with respect to disparate impact claims and will examine the recent actions by the EEOC asserting that criminal background checks as a method of pre-employment screening can adversely impact African Americans and Hispanics. Part II will examine the SEC's fingerprint rule and whether the technological advances in the industry have resulted in unnecessarily broad application of the rule, beyond what could be legitimately considered a business necessity. Part III proposes that the SEC's fingerprint rule may have a disparate impact on minorities, contributing to low numbers of African Americans and Hispanics in the securities industry. Finally, Part IV recommends that the SEC narrow the scope of the fingerprint rule to achieve the intent of Section 15b(4)(1) of the Securities Exchange Act without unnecessarily excluding minorities from the industry.