Human Resource Executive- January 5, 2010
By Pamela Q. Devata and Caitlin A. Senff
Making hiring decisions, particularly in light of the recent increase in job applicants, is often a challenging task for employers. While the use of background checks can be extremely effective, employers should be cautious in their use of credit checks, based on recent state and federal legislation and litigation, as well as the current E-RACE initiative by the U.S. Equal Employment Opportunity Commission.
Given the current economic climate, employers have undoubtedly seen an increase with “issues” related to applicants’ credit information — and they need to be cognizant of the law in this area on both a state and federal level to ensure that they do not open themselves up to unnecessary liability when making hiring decisions.
Specifically, employers should evaluate their background-screening procedures and policies to consider what, if any, job-relatedness exists between an individual’s credit information and the position sought, so as not to create a discriminatory, disparate impact on people in certain protected classes.
Federal Legislation and Action
Recently, U.S. Rep. Steve Cohen, D-Tenn., sonsored the Equal Employment For All Act, a bill that proposes to amend the Fair Credit Reporting Act to ban employers from using credit reports entirely in making hiring or promotion decisions. The bill, HR 3149, was introduced on July 9, 2009 and has been referred to the House Committee on Financial Services.
While the bill is still in the preliminary stages of the legislative process, the federal government, by way of the EEOC, has already increased its focus into an employer’s use of an individual’s credit (and criminal history) in hiring decisions.
As part of the E-RACE (Eradicating Racism and Colorism from Employment) Initiative, the EEOC has determined that employer policies or practices based on an individual’s criminal or credit history may have an overall adverse impact on certain protected classes, namely, African-American and Hispanic applicants/employees.
To this end, national employers have been experiencing an increase in EEOC requests for information concerning background-screening procedures and policies — and it has been bringing lawsuits challenging such procedures.
Most recently, in EEOC vs. Freeman, filed in September 2009, the EEOC alleged that the use of credit and criminal-justice history has had, and continues to have, a significant disparate impact on African-American applicants, and that the company’s use of criminal history has had an adverse impact on Hispanic and male applicants.
Similarly, in EEOC vs. Peoplemark, the EEOC filed a complaint on behalf of African-American applicants alleging the company’s policy denies hiring or employment to any person with a criminal record — and that such a policy has a disparate impact on African-American applicants.
Employers need to be aware — particularly in light of the EEOC’s emphasis on investigating employer practices on a nationwide basis — of the possibility that their background-screening practices, employment applications and hiring criteria may be requested and reviewed in an effort to examine whether such practices have a disparate impact on certain groups.
Indeed, the EEOC has ostensibly taken the position that “it seems likely that in most cases credit-check policies will be legally problematic” in Title VII cases where adverse impact is shown, according to the testimony of EEOC Commissioner Stuart Ishimaru before the Hawaii State Senate Committee on Labor on March 19, 2009.
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