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Do We Have to Allow Criminals As Tenants? HUD Says Maybe.

Now that the Supreme Court has definitively ruled that disparate impact claims are valid under the Fair Housing Act (discussed in further detail here), HUD has issued guidance regarding one common multifamily property policy that it believes has a discriminatory effect on minorities—criminal background screening.

In light of statistics demonstrating that African Americans and Hispanics are incarcerated at rates disproportionate to their share of the general population, HUD warned in guidance published on April 4, 2016 that criminal records-based barriers to housing are likely to have a disproportionate impact on minority home seekers.  Accordingly, landlords and management companies will need to have a substantial, legitimate, and nondiscriminatory reason for implementing a policy which considers criminal records in the housing application process.  Moreover, landlords and management should ensure that the interest achieved by their criminal background screening policy cannot be achieved by another practice that has a less discriminatory effect.

So does that mean that you cannot consider a prospect’s criminal background at all during the application process?  Not exactly.  HUD seems to agree that ensuring resident safety and protecting property are likely to be considered substantial and legitimate interests.  But it also warns that your criminal background policy darn sure better be tailored to achieve those goals. In terms of actual, specific (and useful) guidance, HUD does make two clear assertions: 1) a policy that excludes prospects because of one or more prior arrests (without a conviction) is unlikely to achieve a substantial, legitimate, nondiscriminatory interest; and 2) a policy that imposes a blanket prohibition on any person with any conviction (without any consideration of when the conviction occurred, what the underlying conduct entailed, or what the convicted person has done since) is also unlikely to achieve a substantial, legitimate, nondiscriminatory interest.

So what can you do?  Simple—sit down, and review your criminal background policy to make sure that it is tailored to meet your policy goals (such as protection of residents and property).  In essence, make sure that your policy only excludes based on criminal conduct that indicates a demonstrable risk to resident safety and/or property.  And make sure that you are taking into account mitigating factors, such as the amount of time that has passed since the conviction.  In other words, while you may be fine with a policy that excludes prospects with a violent felony conviction in the past seven years (absent any mitigating circumstance), you’re probably going to want to rethink a policy that excludes any prospect with a minor traffic offense.  The bottom-line is that you need to sit down and give some serious (and documented) thought to your criminal background policy to make sure that it is truly achieving your policy goals.

The Anatomy Of A Disparate Impact Claim

Following the U.S. Supreme Court’s recent decision in Texas Department of Housing and Community Affairs v. Inclusive Community Projects, Inc. , it’s pretty clear that disparate impact claims are valid under the Fair Housing Act.  But the question remains:  how exactly does a disparate impact claim work?  And is it as draconian for landlords and property management companies as it seems?  The short answer is that while the threat of a disparate impact claim may give management a bit of heartburn, there are safeguards in place to protect legitimate, nondiscriminatory policies and practices.

As I’ve written about before (The U.S. Supreme Court Upholds “Disparate Impact” Claims Under The Fair Housing Act), a disparate impact claim allows a plaintiff to attack a housing policy that may seem nondiscriminatory on its face, but which has a disparate impact on certain protected classes.  As upheld by the Supreme Court in Texas Department of Housing and Community Affairs, and as originally promulgated by the U.S. Department of Housing and Urban Development, a disparate impact claim encompasses a burden shifting framework.  So what does that mean in plain English?  Well, under the Supreme Court’s guidance, a disparate impact claim works as follows.  First, the plaintiff must make a threshold showing of disparate impact, meaning that the plaintiff must show that a challenged practice or policy has caused, or will cause, a discriminatory effect.  Importantly, pursuant to the Supreme Court’s guidance, there must be a causal relationship between the defendant’s practice or policy and the discriminatory effect—if there is not, then the plaintiff cannot make its required initial showing, and the case is dismissed.  If the plaintiff does make this initial showing, then the burden shifts to the defendant to show that the practice or policy is necessary to achieve one or more substantial, legitimate, non-discriminatory interests.  Presuming that the defendant makes this showing, then the burden shifts back to the plaintiff to prove that the interests offered by the defendant in support of the practice or policy could be achieved by another practice or policy with a less discriminatory effect.

While the above framework may seem complex, the key takeaway is that management is still able to articulate and rely on a valid interest served by the challenged practice or policy as a defense to a disparate impact claim.  Moreover, the causal requirement set out by the Supreme Court—which the Court itself described as needing to be “robust”—is designed to ensure that defendants will not be held liable for disparities that they did not create.  In fact, the Supreme Court has specifically cautioned that courts should examine with care whether a plaintiff has met the threshold requirements to make a disparate impact claim, and that courts should promptly dismiss those cases where the plaintiff’s initial showing is insufficient.

While the above safeguards should provide management with a little peace of mind, it is still instrumental for management to analyze all practices and policies to determine if they might have a discriminatory impact on any protected classes and, if so, to consider whether there are any less discriminatory means that might equally achieve the intended goals of the practice or procedures.