CWS 3.0: April 23, 2014

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Company Overcomes EEOC Suit; Attorney Advises Caution

Kaplan Higher Education Corporation’s use of credit checks to screen job applicants was upheld earlier this month by a federal appeals court. However, end-users of a contingent workforce must still be careful to make sure background checks don’t run afoul of the law.

“The Kaplan decision clearly represents a defeat for EEOC, but is unlikely to deter future litigation by EEOC or private plaintiffs,” said Eric Rumbaugh, partner with law firm Michael Best & Friedrich LLP.

The U.S. Equal Employment Opportunity Commission sued Kaplan alleging its credit checks on job applicants had a disparate impact on African-American applicants.

A lower court ruled in favor of Kaplan saying testimony from an EEOC expert witness on the statistical impact was unreliable. The appeals court upheld the ruling.

“The ironic aspect of the Kaplan case is that (as the court notes) EEOC uses for its own hiring a very similar background screen to the screen utilized by Kaplan,” Rumbaugh said. “Otherwise, the Kaplan decision is a rebuke of a particular expert and a particular expert report, but not EEOC’s legal theory. It is still clear that disparate impact theory applies to credit checks, criminal record checks and other background checks that screen out minorities at a statistically higher rate than non-minorities.”

In cases where the difference is statistically significant, businesses must be able to show that their screen is “job related and consistent with business necessity,” he said. Businesses should review their background screens on an ongoing basis to ensure that they can meet this burden, and that usually means making sure screening tests are tightly related to specific jobs and not overbroad.

Businesses should also periodically self-assess the statistical impact of their screens, Rumbaugh said.

Kaplan runs credit checks on job applicants for positions that provide access to students’ financial-loan information among other positions, according to court documents in the case. A decade ago, Kaplan had found some of its financial aid officers stole payments that belonged to students.

“The credit checks are performed by a third-party vendor, which reports, among other things, whether the applicant has ever filed for bankruptcy, is delinquent on child-support payments, has any garnishments on earnings, has outstanding civil judgments exceeding $2,000 or has a social-security number that does not match the number the credit bureau has on file,” according to court documents.

If the vendor finds any of the above items, it flags the applicant’s file for review by Kaplan, according to court documents. It does not report the applicant’s race. Proof of disparate impact in this case relied solely on statistical data compiled by Kevin Murphy. The district court ruled Murphy’s testimony was unreliable.

For more on background checks, click here.