January 2, 2014

Study shows EEOC’s disparate impact cure is worse than the disease

By Anastasia P. Boden Attorney

A group of congressmen have introduced a bill that would ban employers from considering job applicants’ credit histories.  As we’ve noted before, the Equal Employment Opportunity Commission has proscesuted companies’ for using credit and background checks due to the practices’ purported disparate impact on minority applicants, even though such screenings make perfect business sense.  For example, after Kaplan University discovered that employees had embezzled company funds, it began conducting credit checks on job applicants on the intuitive theory that those under financial stress would be more likely to steal from the company.  Other legitimate business-related reasons abound: in some states, employers can be held liable for their employees’ crimes—or they can be sued for negligent hiring.  It makes sense for these businesses to put a premium on trustworthiness.  Nevertheless, EEOC has sued Kaplan, BMW, Dollar Tree and many others under Title VII’s disparate impact provisions—a bold move for a governmental body that itself conducts credit checks on its own employees.

Courts have begun to reject EEOC’s lawsuits with resounding benchslaps.  In one case, a judge called the Commission’s evidence “laughable,” and found that its analysis was riddled with a “mind-boggling-number of errors.”  In another case, the Sixth Circuit slammed EEOC with almost a million dollars in fees for suing Peoplemark even though it knew its claims were meritless.  And in the Kaplan case, the district court threw out the Commission’s evidence of discrimination.  EEOC had assembled a panel of government bureaucrats to infer the applicants’ race by looking at nothing but driver’s license photos—which as we noted in an amicus brief, was not only unscientific, but crude and offensive.

We’ve filed several amicus briefs arguing that EEOC’s dubious disparate impact theory—which does not require the government to prove that an employer intentionally discriminated—may violate the Constitution’s promise of equal protection.  By holding employers liable for disparities that result naturally from rational hiring criteria, disparate impact theory encourages employers to racially balance their work force—or to intentionally discriminate—in order to avoid liability for unintentional imbalances.

As a matter of policy, EEOC’s disparate impact theory and Congress’ proposed bill may exacerbate the problem the government seeks to solve.  A recent study reported that employers who use background checks are less likely to discriminate than employers who do not look at such reports.  Employers who do not have access to criminal histories may make conclusions about trustworthiness based on prejudicial assumptions about the applicants’ race.  Accordingly, the study found that employers who use background checks are more likely to hire African American workers—especially men—than those who do not use checks.  They also found that using criminal background checks benefits other stigmatized groups—like applicants with gaps between jobs or otherwise poor employment history.  As the study shoes, EEOC’s crusade against rational business decisions is another case of government creating a cure that is worse than the disease.  Hopefully courts will continue to reject EEOC’s twisted theory of discrimination.

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