Kaplan Higher Education Triumphs Again Over EEOC on Employment Credit Reports

Nick Fishman

Earlier this week, the Sixth Court of Appeals affirmed a lower court ruling granting summary judgment to Kaplan in a high profile lawsuit brought by the Equal Employment Opportunity Commission (EEOC v. Kaplan Higher Education Corp.) over their use of employment credit reports. First and foremost, we want to congratulate our good friend Pam Devata and her colleague at Seyfarth Shaw who have done a wonderful job on this case since it was originally filed.

You might recall that the EEOC lost its case in the lower court because the research conducted by their expert witness (which concluded that credit reports have a disparate impact on minorities) was flawed. And without that research, the EEOC’s case fell apart. The judge basically indicated that without reliable statistical evidence of discrimination, the EEOC’s hard line enforcement doesn’t stand up in court.

This case is particularly important for those that conduct pre-employment credit reports as well as those concerned about the EEOC’s perspective on employment background checks.

Now, let’s dissect the ruling here.  In explaining the court’s ruling, Judge Kethledge pulled no punches.  Here are some of my favorite parts:

In this case the EEOC sued the defendants for using the same type of background check that the EEOC itself uses. The EEOC’s personnel handbook recites that “[o]verdue just debts increase temptation to commit illegal or unethical acts as a means of gaining funds to meet financial obligations.” Because of that concern, the EEOC runs credit checks on applicants for 84 of the agency’s 97 positions. The defendants (collectively, “Kaplan”) have the same concern; and thus Kaplan runs credit checks on applicants for positions that provide access to students’ financial-loan information, among other positions. For that practice, the EEOC sued Kaplan.

My Translation: What’s good for the goose is good for the gander. Or if you prefer, “The EEOC is a hypocrite”.

Kaplan’s concerns became reality about a decade ago, when it discovered that some of its financial-aid officers had stolen payments that belonged to students. Kaplan also learned that some of its executives had engaged in self-dealing, by hiring relatives as vendors. In response, Kaplan implemented a number of measures to prevent these abuses. One of those measures was to run 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.

My Translation: Kaplan had every reason they needed to demonstrate why credit reports were an important part of their hiring practices.

Finally, as an independent ground for excluding Murphy’s testimony, the district court found that “[t]here is no indication” that Murphy’s group of 1,090 applicants is in “any way ‘representative’ of the applicant pool as a whole.” Op. at 18. Instead there is a strong indication to the contrary: Murphy’s group had a fail rate of 23.8%, whereas the GIS applicant pool had a fail rate of only 13.3%. On this point, suffice it to say that an unrepresentative sample by definition might not be representative of the respective fail rates of black and white applicants in the larger pool—and thus is not a reliable means to demonstrate disparate impact.

My Translation: The research that the EEOC used to prove its case is bogus.

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.

My Translation: Get out of my court and don’t come back.

Will This Ruling Deter EEOC from New Guidance?

The EEOC has made it no secret that they intend to draft new guidance on employers’ use of credit reports as a hiring tool. Given this ruling it would be difficult to comprehend how they could offer guidance that clearly isn’t being well received in the courts. In the meantime, we have some advice for employers that are considering the use of credit checks as part of their employment background screening programs.

  • Download EmployeeScreenIQ’s latest article HR’s Guide to Employment Credit Reports.
  • Consider whether there are particular state or federal laws that mandate your use of a credit report.
  • Make sure that you can demonstrate why a job candidate’s credit history might have a bearing on the job they are being considered for.
  • Find out if your state has laws that restrict employers’ use of credit reports and if so, what exemptions might apply (view our state by state guide)

Nick Fishman
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Nick Fishman

Nick Fishman is the co-founder of EmployeeScreenIQ, a leading, global employment background screening provider, and serves as the company’s executive vice president and chief marketing officer. He pioneered the creation of EmployeeScreen University, the #1 educational resource on employment background checks for human resources, security and risk management professionals. A recognized industry expert, Nick is a frequent author, presenter and contributor to the news media. Nick is also a licensed private investigator in the states of Ohio and Texas.
Nick Fishman
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