Court Rules Against EEOC in ‘Disparate Impact’ Case

In a stunning setback to the credibility of the EEOC’s enforcement of employers’ use of credit and criminal records, on August 9th, Judge Roger Titus of the U.S. District Court for Maryland dismissed the nationwide pattern or practice lawsuit brought by the EEOC against Freeman, Inc. The EEOC had alleged the corporate events service provider unlawfully relied upon credit and criminal background checks that caused a disparate impact against African-American, Hispanic, and male job applicants.

Seyfarth Shaw’s Workplace Class Action Blog summarized the case and Judge Titus’s reactions to the EEOC’s recent targeting of employers. He noted, “Careful and appropriate use of criminal history information is an important, and in many cases essential, part of the employment process of employers throughout the United States.”

He also pointed to Freeman’s argument that even the EEOC conducts criminal background investigations as a condition of employment for all positions, and conducts credit background checks on approximately 90 percent of its positions.

Further, in describing flaws in the data the EEOC’s expert Kevin Murphy relied upon to support the  disparate impact claim, the Judge labeled these reports as 1) “laughable”; 2) “based on unreliable data”; 3) “rife with analytical error”; 4) containing “a plethora of errors and analytical fallacies,” and a “mind-boggling number of errors”; 5) “completely unreliable”; 6) “so full of material flaws that any evidence of disparate impact derived from an analysis of its contents must necessarily be disregarded”; 7)  “distorted”;  8) “both over and under inclusive”; 9) “cherry-picked”; 10) “worthless”; and 11) “an egregious example of scientific dishonesty.”

In summary, Judge Titus, in his 32-page ruling against the EEOC, made three very telling points:

  1. It is “important, and in many cases essential” for employers to conduct background checks (the EEOC also conducts these checks on its own employees). Therefore, the fact that Freeman uses them in the hiring process is reasonable.
  2. The EEOC failed to demonstrate that disparate impact discrimination existed in this case. The Judge’s withering critique of Murphy’s statistical analysis eviscerated the government’s factual outcome basis for its claim, stating in part that, “the story of the present action has been that of a theory in search of facts to support it.” Furthermore, the Judge’s rejection of the evidence indicates a more overarching problem with disparate impact; it will be exceedingly difficult for the EEOC to demonstrate.
  3. The EEOC did not identify exactly what part of Freeman’s hiring process may have caused discrimination. Freeman used a complex, multi-step process, but no evidence was presented to show where the company might have inadvertently discriminated against job applicants. In other words, the government relied completely on its flawed statistical outcome data, while never identifying the causal factors in Freeman’s procedures that resulted in discrimination.

Background and Preview of Coming Attractions

In case you haven’t followed this case, it has been bouncing around the Federal court system for some time. The EEOC first filed suit against Freeman in October 2009, saying Freeman had rejected applicants because of credit or criminal backgrounds.

Eventually, Freeman fought back, seeking discovery of the EEOC’s own use of background screening in hiring, a novel twist in the case. In a lucid decision about a year ago, the Judge dismissed the EEOC’s motion to have its own practices put under protective custody, and out of the reach of discovery (see our 2012 post on EEOC v Freeman).

The decision on August 9th this year may not be the end of the story. It serves as a reminder of the heavy burden on the EEOC to support its disparate impact theory, so letting the decision stand without challenge severely compromises its ability to pursue other actions on the same basis. In fact, the decision might set a precedent in other lawsuits the Commission has recently filed against BMW and Dollar General (see our post on EEOC disparate impact lawsuits). You may very well see further appeals and challenges in this case.

Implications for Employers

In as much as the legal battle on the issue of disparate impact discrimination is going to continue, the EEOC likely has too much at stake to pull back.

The Freeman decision does give employers a little relief. Pending a much more convincing analysis of employers’ employment practices and outcomes, the EEOC will be on the defensive with new disparate impact claims.

In the meantime, employers received an endorsement from Judge Titus to continue background screening for adverse credit and criminal records. By implication, excluding applicants on these grounds (given a series of reasonable steps) is acceptable.

Still, we continue to caution employers to structure screening programs carefully to avoid discrimination. The fact that Freeman had a complex, multi-step hiring process and paid attention to issues like severity, recency, and job-relatedness in its procedures helped. We believe these factors will continue to provide a solid defense against a perhaps overzealous EEOC.



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About MichaelGaul

Michael is a results-oriented marketing executive with over two decades of experience in employment screening, physical security, and business process management. Michael has deep experience in human capital risk management and a passion for educating business leaders and HR professionals on strategies that tangibly protect their interests. Michael serves on the Board of the Secure Cash and Transport Association (SCTA) and is a member of the Professional Background Screening Association (PBSA), and the American Society of Industrial Security (ASIS).
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