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Using criminal background checks to screen out job applicants — even if they weren’t convicted of a crime has cost Pepsi Co. $3.1 million in a settlement after federal charges of race discrimination were brought against the soda giant.

According to the Equal Employment Opportunity Commission, Pepsi’s policy of not hiring workers with arrest records disproportionately excluded more than 300 black applicants. The policy barred applicants who had been arrested, but not convicted of a crime, and denied employment to others who were convicted of minor offenses. The EEOC says using arrest and conviction records to deny employment can be illegal if it’s irrelevant for the job.

Pepsi Beverage spokesman Dave DeCecco said the company’s criminal background check policy has always been neutral and that the EEOC did not find any intentional discrimination. After the issue was first raised in 2006, he said the company worked with the EEOC to revise its background check process “to create a workplace that is as diverse and inclusive as possible.”

The new policy is said to take a more “individualized approach” in considering applicants’ criminal history against the particular job being sought. Pepsi will also provide the EEOC with regular reports on its hiring practices and offer antidiscrimination training to its hiring personnel and managers.

EEOC may soon be cracking down on other companies as part of its national effort to correct hiring policies that disproportionately discriminate against black and Latino applicants, according to Julie Schmid, acting director of the EEOC’s Minnesota office

“We hope that employers with unnecessarily broad criminal background check policies take note of this agreement and reassess their policies to ensure compliance” with anti-discrimination laws.”

Do you think Pepsi’s policy was wrong? Should companies use arrest records to exclude applicants?

Brande Victorian is a blogger and culture writer in New York City. Follower her on Twitter at @be_vic.

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