Setting the Record Straight – Part I

May 5, 2018 by bmc85

by Scott E. Whitman

One in three U.S. adults has been arrested by age twenty-three.[1] In real numbers, between 70 and 100 million Americans possess some type of criminal record.[2] Even a minor criminal record—such as a misdemeanor or simply an arrest without a conviction—can create an array of lifelong barriers that stand in the way of professional and financial success.[3] This systemic issue has drastic implications for individuals’ and families’ economic stability, as well as for our national economy as a fleeting encounter with the criminal justice system may close every employment door to those who may need it most.[4] For some, this essentially leaves business ownership as the only meaningful option to provide for their families and to rehabilitate their image.[5] However, given the restrictions often preventing former felons from owning businesses, criminal records have come to serve as a major driver of poverty in the United States.[6]

Often, weighing the competing interests for or against scrutinizing criminal records is no simple task.[7] Case in point: The inspiration for this piece. While working at a law firm in Baltimore this spring, I was tasked to draft a memorandum concerning a client who sought to own a Child Daycare Center after pleading guilty to felony theft. Although there is no express provision in Maryland which stipulates whether she can own a childcare business, a closer look may­—and possibly should—be warranted given the particular nature of the field she seeks to pursue. What complicates this inquiry is that usually analysis of an individual’s record is restricted to reasonable ways in which a criminal background contributes to business ownership[8] But not always.

While licensing requirements and getting hired[9] often present greater challenges, prior felony convictions can stand in the way of business ownership as well.[10]

In a recent example, the Second Circuit in Kernan v. N. Y. State Department of Financial Services found that a narrow statute prohibiting convicted felons from engaging in the insurance industry was not unconstitutional when applied to the owning an insurance business.[11] Conversely, in Postscript Enterprises v. City of Bridgeton the District Court of the Eastern District of Missouri imposed a far broader restriction on business ownership and found that it was reasonable for the State to consider that a movie theater operator was a convicted felon when determining his ability to own the theater.[12] The Postscript court seemingly felt that the questions presented by allowing convicted felons to own businesses had much broader implications than the narrower application of the Second Circuit. In determining whether a criminal record should affect the ability to own a business, courts and legislatures have fallen on both sides of the Postscript/Kernan spectrum—taking into consideration the nature of the industry, the degree of responsibility that the owner has, and the methods in place to check the former felons’ power and thus the ability to regulate if needed for potential character concerns.[13]

As case law and experience demonstrate, considering an individual’s criminal record to determine fitness for business ownership is sometimes a permissible endeavor and is only one—and the less common—of the ways that unnecessarily broad scrutiny of criminal records has negatively impacted society. Still, generally, using criminal records as a primary factor in ascertaining competency for business ownership should be limited.[14] Moreover, this can deprive ex-convicts of the ability to own small businesses.[15] This ability is crucial in ensuring that the vicious cycle of recidivism is halted, as in many cases small business ownership is the only option for ex-felons and is a useful way to capitalize on their unique character capabilities–such as determination and perseverance–that former felons often possess.[16] Simply put, enabling ex-felons to own small businesses is an integral and underutilized weapon in the war on poverty.[17]

[1] Matthew Friedman, Just Facts: As Many Americans Have Criminal Records As College Diplomas, Brennan Ctr. for Just. (November 17, 2015), (last visited Mar. 8, 2018).

[2] Id. See Sent’g Project, Americans with Criminal Records 1 (2015),

[3] Id.

[4] Id. See Brendan Lynch, Never Convicted, But Held Back by a Criminal Record, Talk Poverty (Dec. 9, 2014),

[5] See, e.g., Steve Yoder, Meet America’s New Small-Business Owners: Ex-Cons, Fiscal Times (Mar. 27, 2012); Susan R. Jones, Small Business and Community Economic Development: Transactional Lawyering for Social Change and Economic Justice, 4 Clinical L. Rev. 195, 196 (1997). See also, Avery Appelman, The Difficulties of Starting a Business with a Criminal Record, Appelman Law Firm LLC (Mar. 26, 2013),

[6] See Sent’g Project, supra note 2, at 2.

[7] See Elena Saxonhouse, Unequal Protection: Comparing Former Felons’ Challenges To Disenfranchisement and Employment Discrimination, 56 Stan. L. Rev. 1597 (2004) [hereinafter Unequal Protection].

[8] See Unequal Protection, supra note 7, at 1614-19.

[9] My hope is to address Operating and Employment in later pieces (Parts II and III, forthcoming).

[10]  See, e.g., Kernan v. N. Y. State Dep’t of Fin. Servs., No. 2:13-cv-03196, 2017 WL 5040690, at *3 (2d Cir. Nov. 2, 2017); Postscript Enters. v. City of Bridgeton, 699 F. Supp. 1393, 1397 (E.D. Mo. 1988).

[11] Kernan, 2017 WL 5040690 at *3. See generally Thomas P. Billings, The Massachusetts Law of Unfair Insurance Claim Settlement Practices, 76 Mass. L. Rev. 55 (1991) (providing a possible rationale for why this may be a unique concern in the insurance industry).

[12] 699 F. Supp. at 1397.

[13] See, e.g., Szulik v. Tagliaferri, 966 F. Supp. 2d 339, 359 (S.D.N.Y. 2013) (limiting investment managers convicted of fraud); Campus Bus.’s v. Liquor Control Comm’n, 610 N.E.2d 1173, 1174-75 (Ohio Ct. App. 1992) (regulating a felon who maintained financial control over limited partnership which owned liquor permit); Byrd v. Tenn. Wine & Spirits Retailers Assoc., No. 17-5552, 2018 WL 988931 (6th Cir. Feb. 21, 2018) (restricting alcohol retailers who are felons). Cf. Miller v. Adminastar Fed., Inc., 179 F. App’x 967, 969 (7th Cir. 2006) (suggesting that seniority changes the determination of the role felony convictions play in employment); Agar v. Judy, 151 A.3d 456, 460 (Del. Ch. 2017) (noting that the FCC “looks askance at fraudsters or felons” controlling communications entities).

[14] See Unequal Protection, supra note 7.

[15] See Appelman, supra note 5.

[16] See Michael Zakaras, Why Ex-Cons Make Great Entrepreneurs, Forbes (Nov. 5, 2012 ),

[17] See e.g., Randall Kempner, Are Small Businesses Being Overlooked in the Fight Against Poverty?, Guardian (May 7, 2015),; Yoder, supra note 5; Jones, supra note 5.