Court Dismisses EEOC’s Disparate Impact Claims Based on Criminal Background and Credit Checks

09/04/2013 / Andrew D. Moran

In an opinion which sharply criticized the Equal Employment Opportunity Commission’s attempted use of statistics to support its discrimination claims based on criminal background and credit checks, the U.S. District Court for the District of Maryland granted summary judgment to Freeman, Inc. on the EEOC’s race and sex discrimination claims under Title VII of the Civil Rights Act of 1964. EEOC v. Freeman, D. Md., No: 8:09-cv-02573, 8/9/13. The EEOC has taken the position that employers’ use of credit and conviction records in making employment decisions can have the effect of discriminating against minorities, and such information should be considered only in limited circumstances.   
In 2001, after experiencing problems with embezzlement, theft, drug use, and workplace violence by its employees, Freeman began conducting credit history and criminal background checks on applicants. The types of credit checks performed by Freeman varied with the nature of the job sought, including additional checks for “credit sensitive” positions in which an employee would: have access to client or company credit card information; handle money or other valuable items; have budgetary authority; have decision-making authority with respect to customer invoices; or make purchases from vendors. Freeman also conducted criminal background checks for applicants who were offered positions, and used a multi-step evaluation process to review the information obtained. These checks screened applicants for both convictions and outstanding arrest warrants, but not arrests, within seven years of the application date, and Freeman made case-by-case decisions on applicants whose background checks revealed convictions and outstanding arrest warrants. 
In 2009, the EEOC filed suit against Freeman, alleging that the company had violated Title VII by utilizing credit and criminal background checks to engage in a pattern or practice of discrimination against African-American, Hispanic, and male job applicants based on race and sex. The EEOC supported its claims by submitting expert reports which contained a statistical analysis purportedly demonstrating the existence of a practice or policy causing a discriminatory impact. 
The Court granted Freeman’s motion for summary judgment and offered some harsh criticism for the EEOC along the way, describing its lawsuit as “a theory in search of facts to support it.” The Court began its opinion by stating as follows: 
For many employers, conducting a criminal history or credit record background check on a potential employee is a rational and legitimate component of a reasonable hiring process. The reasons for conducting such checks are obvious. Employers have a clear incentive to avoid hiring employees who have a proven tendency to defraud or steal from their employers, engage in workplace violence, or who otherwise appear to be untrustworthy and unreliable. 
The Court went on to criticize the expert reports containing the statistical breakdown as an “egregious example of scientific dishonesty,” “laughable,” and “unreliable.” Among other deficiencies, the expert who prepared the report “cherry-picked” a limited number of individuals who were screened from employment, as opposed to drawing a random sample, in an effort to bolster the EEOC’s statistical claims. In addition, the expert ignored the majority of the available data and focused on statistics from a limited pool of applicants, many of whom had been screened outside of the time period at issue in the case. The Court also rejected the EEOC’s reliance on national statistics showing racial disparities in credit ratings and criminal convictions because the EEOC failed to demonstrate that the general population is sufficiently representative of the pool of job applicants. 
The Court further ruled that, even if the EEOC had presented sufficient expert reports to support its claims, those claims fail because the EEOC did not identify the specific policy or policies utilized by Freeman which caused the alleged discriminatory impact. In so doing, the Court stated as follows:
Under Title VII, it is not enough for the plaintiff to show that “in general” the collective results of a hiring process cause disparate impact. Statistical analysis must isolate and identify the discrete element in the hiring process that produces the discriminatory outcome.
Where a hiring process has multiple elements, the plaintiff must identify the element(s) that it is challenging and “demonstrate that each particular challenged employment practice causes a disparate impact,” unless it can demonstrate that “the elements” are not capable of separation for purposes of analysis.
The Court noted that Freeman’s practice relating to background checks was not a simple, one-step process. Freeman used different types of checks depending on the position being sought, and further considered a number of subjective and objective criteria and other additional factors in making employment decisions. Because the EEOC brought only a general complaint against Freeman’s credit and criminal screening policies as a whole, the EEOC failed to challenge a specific practice as is generally required under Title VII. 
The use of credit and criminal background information has long been the subject of much debate, particularly since the EEOC issued its enforcement guidance relating to criminal background checks in April of 2012. The Court’s decision in EEOC v. Freeman represents at least one judge’s opinion that the EEOC has exceeded the scope of Title VII in bringing such claims without sufficient statistical and evidentiary support. Although the nationwide impact of this case may be limited, it represents a step in the right direction for employers who are concerned about the expansive position taken by the EEOC with regard to background checks on credit information and criminal history. Only time will tell whether the courts will support the EEOC’s position. In the meantime, employers are advised to confer with legal counsel before implementing policies which require consideration of the credit history and criminal conviction records of job applicants.