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Big Win for Employers- EEOC v. Kaplan Higher Education Corp

April 10, 2014

On April 9, 2014, a federal appeals court upheld the dismissal of the Equal Employment Opportunity Commission’s lawsuit against Kaplan Higher Education Corporation. The lawsuit between the EEOC and Kaplan has been lengthy and drawn out. In December 2010, the EEOC sued Kaplan in federal district court in Ohio, claiming that Kaplan’s use of pre-employment credit checks was in violation of Title VII, and had a disparate impact on protected class members. The EEOC alleged that Kaplan’s use of credit checks caused it to screen out more African-American applicants than white applicants. In November 2012, Kaplan and the EEOC both filed separate motions for judgment before trial. Kaplan’s motions argued that the EEOC had failed to identify a particular employment practice, that their expert opinion was inadmissible, and that Kaplan’s use of credit history information was job related and consistent with business necessity. The EEOC’s motion argued that the court should reject Kaplan’s defense that its use of credit history information was job related. On January 28, 2013,the district court granted Kaplan’s motion to strike the EEOC’s expert opinion and motion for summary judgment, and dismissed the EEOC’s lawsuit. The court ruled that the EEOC did not provide reliable statistical evidence of discrimination, and failed to prove that Kaplan’s use of credit history information resulted in disparate impact. It was also noted that the EEOC has the same type of policy in place in regards to performing credit history checks that Kaplan uses. Therefore, the EEOC sued Kaplan for using the same type of background check that the EEOC itself uses.

The EEOC’s relied on the expert opinion of Kevin Murphy, who holds a doctorate in industrial and organizational psychology. The district court excluded his testimony on the grounds that it was unreliable. The EEOC did not present any evidence that Murphy’s methodology satisfied any of the factors courts typically consider in determining reliability, and Murphy also admitted that the sample he compiled was not representative of Kaplan’s applicant pool as a whole. The EEOC argues that the court made an error in excluding Murphy’s testimony. On April 9, 2014, the court rejected the EEOC’s arguments and affirmed.

Perhaps the most striking quote from Judge Raymond Kethledge, who penned the appeals-court decision, came at the end of his report. He stated “We need not belabor the issue further. 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 himself. The district court did not abuse its discretion in excluding Murphy’s testimony. The district court’s judgment is affirmed.”

A large corporation such as Kaplan was fortunate to have the means to fight this costly and time consuming lawsuit. In a similar case, Freeman vs. EEOC, the court ruled in favor of Freeman and called the EEOC’s position, “an egregious example of scientific dishonesty”. Freeman Companies also incurred significant costs to defend its background screening policies. Not all employers have the wherewithal to combat these over-reaching claims of disparate impact when screening potential applicants.

Despite losing several high profile cases, will the EEOC continue their aggressive enforcement tactics with a seemingly endless budget of taxpayer money? The results of ongoing cases such as BMW and Dollar General may help to answer this question. Stay tuned.

In the meantime, employers should work with their attorneys and background screening provider to ensure they have a proper background screening policy and process in place to balance the risks of discrimination claims against business necessity.

Click here for more information regarding EEOC Best Practices.

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