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Sixth Circuit Affirms Summary Judgment Against EEOC (Equal Employment Opportunity Commission) in Credit Check Suit

In Equal Employment Opportunity Commission ("EEOC") v. Kaplan Higher Education Corp., No. 13-3408 (6th Cir. Apr. 9, 2014), the U.S. Court of Appeals for the Sixth Circuit affirmed the award of summary judgment against the EEOC in its suit alleging that Kaplan's use of credit checks disparately impacted African-American applicants in violation of Title VII of the Civil Rights Act of 1964. Following on the heels of a similar ruling in EEOC v. Freeman, 961 F. Supp. 2d 783 (D. Md. 2013), the Kaplan decision represents yet another failure by the EEOC to muster the expert testimony necessary to meet its evidentiary burden in a disparate impact case, and still another setback for an agency that has tried to make the issue of background checks a top priority in recent years.

By way of background, Kaplan runs credit checks on applicants for senior executive and financial positions. As part of the check, a third-party vendor flags for Kaplan's consideration such items as bankruptcy filings, delinquency on child support, garnishment on earnings, outstanding civil judgments, and Social Security numbers that do not match the number the credit bureau has on file. Although the vendor's report does not classify the applicant's race, the EEOC maintained that a disproportionate number of African-Americans were singled out for scrutiny based on their credit histories. To support this claim, the EEOC relied on a statistical analysis prepared by its expert, Kevin Murphy, who holds a doctorate in industrial and organizational psychology.

Murphy developed a "race rating" system to identify the race of applicants subject to credit checks based on their driver's license photos. From that sample, he concluded that a disparate percentage of African-American applicants were flagged for review on account of their credit reports. In a brief opinion, however, the Sixth Circuit summarily rejected that "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." On these grounds, the court affirmed the award of summary judgment in favor of Kaplan.

Takeaway

Although the Sixth Circuit's decision is a positive outcome for employers that utilize credit checks to screen applicants, employers still should ensure their procedures comply with existing federal, state and local law. Ten states—California, Maryland, Connecticut, Hawaii, Illinois, Washington, Oregon, Vermont, Colorado, and Nevada—and at least two localities—Chicago (IL) and Madison (WI)—have restricted the use of credit checks in hiring and personnel decisions. Moreover, even where the law permits the use of credit checks, employers must remember to follow their obligations under the Fair Credit Reporting Act and any state or local equivalents. As Freeman and Kaplan demonstrate, the EEOC is committed to pursuing disparate impact claims arising from employer background checks. 

© 2014 Proskauer Rose LLP.

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About this Author

Katharine H Parker, Labor Employment Attorney, Proskauer Rose Law Firm
Partner

Katharine Parker is a Partner in the Labor & Employment Law Department and co-head of the Employment Law Counseling & Training and Government Regulatory Compliance and Relations Groups.

212-969-3009
Daniel L Saperstein, Proskauer Law Firm, Labor Employment Attorney
Associate

Daniel L. Saperstein is an Associate in the Labor & Employment Law Department, resident in the Newark office. He is a member of the Employment Litigation & Arbitration, Labor-Management Relations, Employment Law Counseling & Training, International Labor & Employment, and Whistleblower & Retaliation Groups, as well as the Dodd-Frank Task Force.

973-274-3272
Kelly Anne Targett, Proskauer Rose Law Firm, Labor Employment Attorney
Associate

Kelly Targett is an Associate in the Labor & Employment Law Department, and a member of the Employment Law Counseling & Training, Whistleblower & Retaliation, and Appellate Practice Groups.

973-274-6074
K.M. Zouhary, Labor, Employment, Attorney, Proskauer Law Firm
Associate

Katie Marie (K.M.) Zouhary is an Associate in the Labor & Employment Law Department resident in the Chicago office.

K.M. focuses her practice on employment litigation and provides pre-litigation counseling to clients on a range of subjects. She has represented clients in proceedings in federal and state courts and administrative agencies in Illinois and New York. In addition, she provides day-to-day counseling on discrimination and harassment issues, non-compete matters, employment agreements, personnel policies and whistleblower matters. K.M. also has experience in general...

312-962-3546