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Use of Credit Checks Not Found to Have Disparate Impact

By La Toya M. Palmer  5/8/2014
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The Equal Employment Opportunity Commission (EEOC) failed to show that an employer’s use of credit checks to screen applicants constituted disparate impact under Title VII of the 1964 Civil Rights Act because the statistical data the agency provided was unreliable, the 6th U.S. Circuit Court of Appeals ruled.

The EEOC sued Kaplan Higher Education Corp. alleging that the type of credit checks Kaplan used to screen applicants created a disparate impact in that the checks screened out more black applicants than white applicants.

Kaplan began conducting the credit checks approximately a decade ago after some of its financial aid officers stole payments that belonged to its students. The company instituted the measures due to concerns that applicants with overdue debts may be tempted “to commit legal or unethical acts as a means of gaining funds to meet financial obligations.”

The EEOC set out to prove its proposition of disparate impact by presenting expert statistical evidence. The EEOC’s expert allowed five individuals to identify the race of applicants by visual means or “race rating.” The race raters undisputedly had no experience in visually determining someone’s race, yet they were tasked with viewing an applicant’s driver’s license photo and classifying the person as black, Asian, Hispanic, white or other. If four out of five of the raters deemed the person to be of a particular race, that was the race noted for the statistics.

The district court held that the EEOC expert’s methodology was unreliable, and the 6th Circuit affirmed. In doing so, the 6th Circuit explained that the district court correctly used several factors in its determination, such as whether the technique proposed could be or had been tested, whether the method had been subject to peer review and publication, the method’s known or potential rate of error, and whether the expert’s race-rating methodology had been generally accepted in the scientific community. The district court noted that the EEOC itself discourages employers from visually identifying an individual by race and that the EEOC stated visual identification is only appropriate if an employee refuses to self-identify.

The 6th Circuit affirmed the district court’s decision that the EEOC could not proceed with its disparate impact case because the EEOC’s expert testimony was unreliable.

Equal Employment Opportunity Commission v. Kaplan Higher Education Corp., 6th Cir., No. 13-3408 (April 9, 2014).

Professional Pointer: Employers should ensure that their background-screening practices regarding credit and criminal records are consistent with business necessity and follow guidelines issued by the EEOC under Title VII and related federal and state laws.

La Toya M. Palmer is an attorney with Pilchak & Cohen, the Worklaw® Network member firm in Auburn Hills, Mich.

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