By Sylvia Hsieh
The Daily Record Newswire
BOSTON, MA — Employers are coming under increasing scrutiny and are now facing freshly filed lawsuits over credit screenings of job applicants.
While background checks that can include criminal, financial and employment histories have become popular for screening, the Equal Employment Opportunity Commission has been sending out signals since last year that the practice may violate federal employment discrimination laws.
In April, the agency issued a legal advisory letter warning that credit checks could violate Title VII if they disproportionately screen out women, minorities and other protected groups.
Then, in October the EEOC held public meetings where attorneys on both sides of the issue sparred over whether credit history is a useful predictor of job performance or a catch-22 that keeps people with bad credit from finding a job and getting out of debt.
And last month, the EEOC filed suit against Kaplan Higher Education alleging that the company’s practice of denying jobs to candidates based on their credit histories had a disparate impact on African-American job applicants nationwide.
Four states — Hawaii, Illinois, Oregon and Washington — have passed laws that curtail or ban credit screening of job applicants, except for specific positions where credit-worthiness is job-related.
Another development has employment lawyers thinking this could be the next new wave of employment litigation.
In the first lawsuit of its kind, a class action was filed in November in Florida against a university for its pre-hiring credit screening practices, alleging that the practice had a disparate impact on African-American candidates.
According to an August 2010 survey by the Society of Human Resources Management, 60 percent of employers make some use of credit background checks for hiring, 47 percent use credit screening for select candidates and 13 percent report using credit checks for all job applicants.
Lawyers are closely watching how these two new cases develop before they decide just how big this litigation trend will get.
“If these cases prosper and do well and survive summary judgment, that’s when you’ll start seeing more activity,” said Michael Fox, a management attorney with Ogletree Deakins in Austin, Texas.
He suggested that by bringing these cases as class actions, plaintiffs’ attorneys have turned failure-to-hire claims, which typically don’t garner much in damages or attention on an individual level, into a type of suit that will make employers sit up and take notice.
In the lawsuit brought by the EEOC, the complaint alleges that “since at least 2008, Kaplan Higher Education has rejected job applicants based on their credit history. This practice has an unlawful discriminatory impact because of race and is neither job-related nor justified by business necessity.”
(A pending case filed by the EEOC in September 2009 alleges that a Maryland event-planning company’s use of credit and criminal background checks discriminated against male candidates and other job seekers based on race and national origin. (EEOC v. Freeman (D. Md.) No. 8:09-CV-02573-RWT.) )
According to a press release, the EEOC attempted to reach a voluntary settlement with Kaplan before filing suit.
The suit seeks injunctive relief and lost wages, benefits and offers of employment for those denied jobs because of their credit history.
Justine Lisser, a spokesperson and senior attorney-advisor at the EEOC in Washington, said the EEOC is especially concerned about barriers to employment in this economy.
“The fact that different groups as a whole have poor credit histories, for example African Americans, Hispanics, people with disabilities and to some extent women, this is a barrier,” Lisser said, adding that the EEOC does not advocate a blanket ban on credit screening.
In the class action filed in November, a Miami woman, Loudy Appolon, was offered a position at the University of Miami School of Medicine as a senior medical bill collector. The employer reneged on the offer after it ran a credit check, even though, according to the complaint, her reports contained no pending delinquencies and only a few prior defaults that Appolon had cleared up with lenders.
Her complaint also alleges that in her previous job as a medical collector she handled confidential patient information, including credit card numbers and Social Security numbers.
The suit seeks class certification for all African-American and Latino individuals who suffered adverse employment actions based on their credit background since June 24, 2009 and seeks declaratory judgment, injunctive relief, damages and attorney fees.
In a disparate impact claim, the plaintiff will first have to prove that credit screening in fact has a disproportionate impact on the protected class, most likely through statistical analysis.
“The impact is pretty clear. Carrying the initial burden is not something we’re concerned about,” said Samual R. Miller, an attorney at Outten & Golden in New York, one of the attorneys who filed the class action.
He pointed to studies showing that African Americans and Latinos suffer more than whites from financial events that lead to bad credit, such as unemployment,
health-related bankruptcy, foreclosures and predatory lending. He also cited studies that show racial and ethnic disparities in credit scores, including a 2007 Federal Reserve Board report to Congress that found the mean credit score of African Americans to be half that of whites, with Latinos scoring only slightly better.
But Pamela Quigley Devata, a partner at Seyfarth Shaw in Chicago who represents employers, contends that the plaintiffs will have to show a more specific statistical correlation between employment credit screening and adverse impact.
“This is a hugely important issue that people are gliding over. There’s no study I’m aware of that shows a disparate impact of employers’ use of credit information on minority groups,” she said.
Fox, the defense attorney, predicted that employers will challenge the plaintiffs’ statistical model early on.
“The real battle is between statisticians, but it will be done at the summary judgment stage [with the defendants] saying the plaintiffs’ model is inherently flawed,” Fox said.
One of the reasons employers will try to knock the cases out at that stage is because it only gets harder if they don’t.
Once disparate impact is proven, the employer must show that the credit screening was justified by business necessity and that there weren’t alternatives it could have used.
“Business necessity is a pretty hefty burden for employers to handle. Employers don’t like having that burden,” said Fox.
He noted that it’s too early for employers to start revising their hiring policies.
“There are so many goblins out there to chase, you tend to pick your poison,” he said.
But that may change soon.
“Everyone is extremely focused on [the class action] case to see what the court is going to rule and how the case is going to be litigated. It’s certainly on the radar of plaintiffs’ counsel, defense counsel and employers,” said Devata.
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