Target has agreed to pay $3.74 million to settle claims that its background criminal checks discriminated against thousands of black and Latino applicants. The retailer says it will also review the way it screens jobs candidates for hourly positions at its stores.

The class-action lawsuit and settlement, both filed Thursday, stem from a 2006 complaint against the retailer filed on behalf of Carnella Times, who received a job offer from Target to work as an overnight stocker in South Windsor, Conn., that was later rescinded after the company’s background check found that she had two misdemeanor convictions from a decade earlier.

“Target’s background check policy was out of step with best practices and harmful to many qualified applicants who deserved a fair shot at a good job,” said Sherrilyn Ifill, president of the NAACP Legal Defense Fund, the civil rights law firm that filed the settlement. “Criminal background information can be a legitimate tool for screening job applicants, but only when appropriately linked to relevant questions such as how long ago the offense occurred and whether it was a nonviolent or misdemeanor offense.”

The big-box chain said Thursday that members of the class-action lawsuit will receive priority in its hiring process for job openings at the company’s 1,800 U.S. stores. Applicants who are no longer in the market for a job — because they’re already employed or are retired, for example — will be eligible for a cash award.

Jenna Reck, a Target spokeswoman, said the company has revised its hiring policies over the past 10 years. Four years ago, it stopped asking applicants about their criminal histories in its job applications. Those questions now come “in the final stages of the hiring process,” Reck said. “This ensures individuals are considered for employment based on their qualifications, interview and availability.”

Samuel Spital, director of litigation for the NAACP Legal Defense Fund, said Thursday’s settlement was particularly important because so many companies use similar criminal background checks to vet potential hires. Black Americans are incarcerated at more than five times the rate of whites, according to the NAACP.

“Because of bias and standardized racism at every stage of the justice system, African Americans and Latinos are convicted at rates that are much higher than whites,” he said. “It’s essential that people who have criminal backgrounds are given a fair chance if these are very old offenses, very minor offenses, or offenses that have nothing to do with the position they are seeking.”

The settlement comes less than three years after the Minneapolis-based retailer paid $2.8 million to settle similar claims of hiring discrimination with the U.S. Equal Employment Opportunity Commission. The commission found that three employment assessments used by Target disproportionately screened out applicants for salaried positions based on race and sex.  Target, which maintained that there had been no wrongdoing, said it would review its vetting processes.

“More than 10 years ago, like many major employers, Target began conducting regular criminal background checks as part of our hiring process to help ensure our stores were safe places to work and shop,” Reck said. “Since then, we’ve revised our hiring practices.”

“However, as part of our commitment to safety and security, we still believe it is important to consider an individual’s criminal conviction history as part of the overall hiring process,” Reck added. “We exclude applicants whose criminal histories could pose a risk to our guests, team members or property.”

In 2013, the chain came under fire after a lawsuit claimed that a Target warehouse in California had distributed a list of “multicultural tips” for dealing with Hispanic employees. “Not everyone wears a sombrero,” the document said. “They may say ‘okay, okay’ and pretend to understand, when they do not, just to save face.”

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