Hunton Employment & Labor Perspectives

On April 9, 2014, the Sixth Circuit of Appeals not only affirmed summary judgment in EEOC v. Kaplan Higher Education Corp., et al. but also chastised the EEOC for applying a flawed methodology in its attempts to prove that using credit checks as a pre-employment screen had an unlawful disparate impact against African-American applicants.

The Sixth Circuit began its opinion by noting that the EEOC sued defendants for using the same type of background check the EEOC itself uses.  The Court further acknowledged that Kaplan has legitimate business justifications for running credit checks on applicants for senior-executive positions, accounting and other positions with access to company financials or cash, and positions with access to student financial-aid information because of its past history when it discovered that some of its financial-aid officers had stolen payments that belonged to students and some of its executives had engaged in self-dealing, by hiring relatives as vendors.

But, the focal point of the Sixth Circuit opinion centers around the reliability, or lack of thereof, of the “race rating” process crafted by the EEOC’s expert, Kevin Murphy.  Because Kaplan’s credit-check policy is racially blind, the EEOC subpoenaed records from various states’ departments of motor vehicles.  In response to these subpoenas, eleven states provided records that identified an applicant’s race, but thirty-six states and the District of Columbia provided color copies of drivers’ license photos for approximately 900 applicants.  To address these photos, Murphy devised the “race rating” process, whereby a team of five “race raters” reviewed the drivers’  license photos to classify what race the applicants should be placed in for purposes of Murphy’s statistical assessment of Kaplan’s credit check policy.  The “race rating” process had numerous flaws, not to mention that the raters had no particular expertise in race rating, they failed to reach consensus 11.7% of the time, Murphy provided the raters with the applicants’ names, and notably, the process yielded statistical “fail” rates that were higher than the actual “fail” rates of Kaplan’s credit check policy.  Quoting directly from the Court –

The EEOC brought this case on the basis of a 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 itself.  

The Court found that the district court did not abuse its discretion in excluding Murphy’s testimony.

What this case signifies for employers is that there are viable challenges an employer can make to attack the EEOC’s disparate impact theory, including the expertise of as well as the methodology and results espoused by the EEOC’s expert. 

Accordingly, when faced with an EEOC disparate impact investigation or charge, employers should consider arming themselves with consulting and/or potential testifying experts early on who can help formulate attacks against the EEOC’s disparate impact theories.  As for the EEOC’s credit check/criminal background check crusade, this case demonstrates yet another instance where the EEOC has failed to successfully prove that an employer’s policy has a disparate impact on minority applicants.