Use of Credit Reports not Proven to be Discriminatory in Case Filed by the EEOC

employment credit reportsKaplan’s recent victory in obtaining summary judgment against the EEOC in Equal Opportunity Employment Commission Vs. Kaplan Higher Learning Edu. Corp., et al should serve as  a reminder to businesses that employment background screening, a standard pre-employment practice, can no longer be approached with umbrella-like, “one-size-fits-all” adjudication metrics.

Although the EEOC lost in this case, it is important to note that the EEOC lost on a matter of technicality regarding admissible expert testimony.  If the EEOC had been able to statistically present a disparately-affected protected class in an admissible manner, the outcome for Kaplan might have been much less favorable. Arguably, employers can avoid being brought to court in the first place if they utilize a holistic, EEOC-recommended approach to assessing background screening reports: the individualized assessment. The EEOC advises against hiring practices that do not take into consideration the entirety of an applicant’s background report, as well as the job-specific relevance of an applicant’s background report.

The Equal Employment Opportunity Commission (EEOC) brought a lawsuit against Kaplan in 2010, alleging that Kaplan’s use of credit reports in its hiring process had a disparate impact on African American applicants.

A disparate impact can be especially challenging for employers to defend, as the plaintiff in a “disparate impact” case does not have to prove a discriminatory motive; in many cases only discriminatory consequences must be established. An employment policy that is facially neutral, but in its effect or application, has an adverse impact on populations that are protected under Title VII of the Civil Rights Act of 1964, is termed legally as causing a “disparate impact”.

Legal precedent has provided that in order to establish a disparate impact claim, a plaintiff must:

“(1) identify a specific employment practice that is being challenged”


“(2) establish, through statistical means, that the identified employment practice,  'caused   the exclusion of applicants... because of their membership in a protected group’”

(Equal Opportunity Employment Commission Vs. Kaplan Higher Learning Edu.  Corp.,et al.)

The Court ruled that the EEOC failed to establish, “through statistical means” that Kaplan’s hiring practice created a disparate impact on the African American population. The EEOC used a practice of “race rating” in its efforts to establish the disparate impact statistics. The method of “race rating” involved Dr. Kevin R. Murphy assembling a team of five designated “race raters” who individually determined the race of individuals in 891 DMV photos. The Court ruled that the “race rating” technique employed by EEOC expert Kevin R. Murphy did not fulfill any of the admissible testimony requirements, as set forth in the case, Daubert v. Merrell Dow Pharmaceuticals. The requirements from Daubert, while not comprehensive, require that an expert’s theory can be tested, that the theory has a known error rate, and that the theory has been generally accepted by the scientific community. The judgment of the Court held that assembling teams to guess individuals’ races from DMV photographs was not scientifically established and was not a court-admissible method for determining disparate impact on a protected class.

Although the case against Kaplan was a loss for the EEOC, employers should feel encouraged to reassess their assessment protocols with credit reports. An umbrella hiring assessment policy for all job applicants could potentially leave an employer open to a “disparate impact” lawsuit. Evaluation of all information in the applicant’s background screening report, including but not limited to the credit history, should be assessed individually. Such hiring evaluations should remain consistent, job-specific, and a matter of business necessity.

Employment Background Investigations (EBI), professionally-accredited employment screening company, works with employers globally to provide a full range of comprehensive and legally compliant employment background check, drug testing, occupational healthcare and electronic form I-9 solutions.  EBI provides employers with the options they need to perform an individualized hiring assessment that will help reduce the risks and liabilities of a bad hire! Our "Just One Solution" suite of services  EBI is committed to providing employers with valuable education and resources on changing legislation and cutting-edge and compliant solutions to meet federal, state, local, and international mandatory requirements.  EBI is not providing legal advice or counsel and nothing provided in this document should be deemed as legal guidance or advice.  Readers should consult with their own legal counsel to determine their responsibilities or if they have questions on any information provided by EBI.