The Sixth Circuit Court of Appeals — encompassing Michigan, Ohio, Kentucky, and Tennessee — recently affirmed a trial court’s dismissal of a lawsuit brought by the Equal Employment Opportunity Commission (“EEOC”), which alleged that an employer’s use of credit checks to screen potential employees for certain positions unfairly discriminated against African-Americans.  This was a major victory for employers, who, as we discussed in a previous blog, are in a “damned if you do, damned if you don’t” situation when it comes to background checks. 

The employer in EEOC v. Kaplan operated a university, and some of its students received federal financial aid.  Several years ago, after it discovered that some of its financial aid officers had stolen student payments and some of its executives had improperly hired relatives as vendors, Kaplan implemented a number of corrective actions, including running credit checks on applicants for senior executive positions and other positions with access to company financials or student financial aid information.  Although the credit check process was racially blind, the EEOC nevertheless brought a complaint, alleging that the use of credit checks caused Kaplan to screen out more African-American applicants than white applicants, thereby causing a disparate impact in violation of Title VII of the Civil Rights Act.

A disparate impact claim such as this is usually proven by statistical proof compiled by an expert witness, which shows that the policy at issue unfairly impacts a protected class.  The EEOC argued that the trial court erred when it excluded its expert testimony on the grounds that there was no evidence that the expert’s methodology was reliable and that the expert’s sample was not representative of the whole applicant pool.  The Sixth Circuit, however, agreed with the trial court.  Without going into the details of the court’s analysis, its holding can be summarized by this sentence from the opinion:  “The EEOC brought this case on the basis of a homemade methodology, crafted by a witness with no particular expertise to craft it, administered by persons with no particular expertise to administer it, tested by no one, and accepted only by the witness himself.”  Ouch!

It’s worth noting that this same expert’s opinion on disparate impact is at issue in a similar case currently pending before the Fourth Circuit Court of Appeals, which covers Maryland, West Virginia, Virginia, North Carolina, and South Carolina.  In that case — EEOC v. Freeman — the district court also took issue with the expert’s methods, which it characterized as “an egregious example of scientific dishonesty” that contained a “mind-boggling number of errors.”  Not surprisingly, the district court in Freeman, like the district court in Kaplan, found for the employer.  The Fourth Circuit Court of Appeals should be ruling on the EEOC’s appeal soon.

Although both of these cases turned on the lack of credible expert testimony, both the Sixth Circuit of Appeals in Kaplan and the Maryland district court in Freeman indicated that they did not believe the EEOC’s theory that background checks cause a disparate impact on minorities held much weight.  The district court in Freeman said that it was “a theory in search of facts to support it.”  The Sixth Circuit Court of Appeals, noting that the EEOC runs credit checks on applicants for most of its positions, put it bluntly: “In this case the EEOC sued the defendants for using the same type of background check that the EEOC itself uses.”  While one should always be careful not to read too much between the lines, such language indicates that even if the EEOC fixes the problem with its expert witness, it will still face an uphill climb in showing that the proper use of background checks causes an unlawful disparate impact.

We’ll update you on the results of the Fourth Circuit’s decision in Freeman when it is issued.  For now, employers should not fear using background checks to screen applicants, provided that the checks are racially blind and are related to the position and consistent with business necessity.  If you have specific questions about the use of background checks in the hiring process, you should contact your legal counsel for advice.

Mark Jeffries focuses his practice in the area of labor and employment law. He has represented employers in wrongful discharge and discrimination cases in state and federal court, as well as before the West Virginia Human Rights Commission and the U.S. Equal Opportunity Commission.
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