Jan 11 (Reuters) - PepsiCo Inc will pay $3.13 million to settle a federal lawsuit accusing it of racial discrimination for using criminal background checks to screen out job applicants who were arrested but not convicted, disproportionately excluding blacks.

The Equal Employment Opportunity Commission said the former policy of the company's Pepsi Beverages Co unit not to hire workers who had arrest records or were convicted of minor offenses improperly excluded more than 300 black applicants.

According to the agency, the use of arrest and conviction records to deny employment can be illegal under Title VII of the Civil Rights Act of 1964, if that use is irrelevant to the jobs being sought.

Once known as Pepsi Bottling Group, Pepsi Beverages is a manufacturing, sales and distribution business. It handles most of the North American beverage volume for PepsiCo, one of the world's largest beverage and snack food companies.

Dave DeCecco, a Pepsi Beverages spokesman, said the company has always applied its background checks neutrally.

He added that after the issue first surfaced in 2006, Pepsi Beverages worked with the EEOC to revise the background check policy, to help promote a diverse and inclusive workplace.

Most of the $3.13 million will be divided among black applicants for Pepsi Beverages jobs.

Pepsi Beverages also agreed to improve training, and to offer jobs to qualified applicants who were victims of the old policy and still want employment.

EEOC Chair Jacqueline Berrien in a statement commended Pepsi Beverages' decision to change the background check policy, "to ensure that unwarranted roadblocks to employment are removed."

PepsiCo is based in Purchase, New York. Its major brands include Pepsi, Frito-Lay, Gatorade, Quaker and Tropicana.

(Reporting by Jonathan Stempel)

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