Employment Law Blog

The Use of Background Checks in Hiring Procedures

The Sixth Circuit (encompassing Kentucky, Michigan, Tennessee and Ohio) recently sent a strong message that baseless suits against employers will not survive summary judgment. The case, Equal Employment Opportunity Commission v. Kaplan Higher Education Corp. et al., No. 13-3408 (6th Cir., Apr. 9, 2014), involved the use of credit checks in hiring decisions.

The employer and defendant in the case, Kaplan, had a practice of running credit checks on potential employees applying for certain positions. The purpose, according to Kaplan, was to screen out applicants who may be tempted by financial pressures to commit unlawful acts. In 2010, the EEOC sued Kaplan for this practice, alleging that the use of credit history in making hiring decisions has a disparate impact on African American applicants, therefore violating Title VII. Kaplan argued that their practice was unrelated to race, was necessary for certain jobs that involve access to student loan information, and was instituted after former employees misappropriated student payments.

During the discovery process, Kaplan learned that the EEOC uses the same type of background checks for its own applicants. According to the EEOC personnel handbook, an employee’s personal “debts increase temptation to commit illegal or unethical acts as a means of gaining funds to meet financial obligations.” Despite this finding, the EEOC proceeded with litigation. In 2013, the Federal District Court granted summary judgment in favor of Kaplan.

In conjunction with its award of summary judgment, the District Court rejected EEOC’s expert witness and his disparate impact theory. In fact, the court found that the expert’s methodology (which consisted of using a “race rating” system that involved identifying race through driver’s license photos to assess the effect of Kaplan’s credit check system) was unscientific and failed the requirements for admissibility of expert testimony.

The case proceeded to the Sixth Circuit Court of Appeals, where the Court affirmed the District Court’s holdings. In a, seven page opinion, the Court criticized the EEOC for bringing suit that hinged on the basis of “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 be the witness himself.”

Nevertheless, employers must be cautious when using background checks in the hiring process, so as to avoid unintentional discrimination. The EEOC has identified one of its six priorities for the upcoming year as “eliminating barriers in recruitment and hiring.” As part of this initiative, EEOC seeks to curtail employers’ use of credit checks. Accordingly, employers should look to their policies and seek advice of counsel to ensure that the use of background checks does not have a discriminatory purpose or impact.

If you would like more guidance on best hiring practices, contact a McBrayer employment law attorney today.

Preston Clark Worley is an associate with McBrayer law. Mr. Worley concentrates his practice in employment law, land development, telecommunications, real estate and affordable housing. He is located in the firm’s Lexington office and can be reached at pworley@mcbrayerfirm.com or at (859) 231-8780, ext. 1201.

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This article does not constitute legal advice.