April 10, 2014
Yesterday, the Sixth Circuit Court of Appeals affirmed a district court decision granting summary judgment to Kaplan, Inc. in a race discrimination suit filed against it by the Equal Employment Opportunity Commission. The appellate court’s opinion skewered the EEOC for the agency’s reliance on “expert” reports that were the product of an ad hoc and sketchy methodology (a decidedly non-expert process). In this post, after discussing this decision, The Bullard Edge briefly addresses Oregon's statutory restrictions on the use of credit history information in employment.
The Sixth Circuit Rejects EEOC's Do-As-I-Say-Not-As-I-Do Approach
Kaplan is an educational provider that offers undergraduate and graduate degrees to students. Because some students require financial aid in order to participate in the programs, some Kaplan employees have access to student financial information. Applicable US Department of Education regulations strictly govern the use of that information. After a limited number of Kaplan employees violated those rules in the past, Kaplan began a credit check program for applicants to positions with access to “company financials or cash” or “student financial-aid information.” The racially blind credit checks are performed by several third-party vendors who flag applicants for bankruptcy filings, delinquency on child-support payments, garnishments on earnings, large outstanding civil judgments, or social-security number matching problems. Kaplan then reviews flagged applicants “and makes an ad hoc decision as to whether to move forward with the application.” The Sixth Circuit notes that the EEOC employs a similar credit check program in its own employment selection process.
The EEOC filed a lawsuit against Kaplan, alleging that this use of credit history in the hiring process had a disparate impact on Black applicants and violated Title VII (specifically, 42 USC §2000e-2(a)(1), (a)(2) and (k)). To support its allegations, the EEOC necessarily had to present statistical evidence and retained Kevin Murphy, an industrial and organizational psychology PhD, to analyze the data. For his analysis, Murphy reviewed a subset of the data from one of the third-parties that performed credit history checks for Kaplan. Because that data did not include applicant race information, the EEOC attempted to obtain race information from motor vehicle department records. However, a number of the states from which records were subpoenaed could only provide color photographs (no race data). To overcome this data gap, Murphy devised a "race rating" process whereby a team of five persons would review the photographs and visually determine race (as African-American, Asian, Hispanic, White, or “Other”).
Kaplan challenged this process as unreliable and the district court agreed. It found that the pool used was not representative of Kaplan’s applicant pool and that Murphy’s methodology failed to satisfy any of the Federal Rule of Evidence 702 criteria for determining reliability (including that the expert’s information is based on sufficient data and is the product of reliable principles and methods). The district court agreed with the challenge to this evidence and granted summary judgment to Kaplan since this was the only evidence offered by the EEOC.
The EEOC said that the district court had “erred” and appealed to the Sixth Circuit, which yesterday rejected the appeal and affirmed the summary judgment in its entirety. The opinion pulled no punches in rebuking the EEOC's methods.
“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.”
Two observations from The Bullard Edge
First, while the Sixth Circuit’s decision does not mean that a credit check program is never violative of Title VII, the EEOC should be embarrassed by this outcome. The Sixth Circuit's short opinion is a withering indictment of the EEOC’s methods. Here is a sample.
“The EEOC responds that the relevant standard was Murphy’s requirement that four of five raters agree on an applicant’s race. But that response overlooks Murphy’s own concession that the raters themselves had no particular standard in classifying each applicant; instead, they just eyeballed the DMV photos.”
Second, Oregon employers need to be aware of ORS 659A.320 (“Discrimination based on information in credit history prohibited; exceptions”). This statute generally prohibits an employer from obtaining credit history information or using it in making hiring, termination and various other employment decisions. The limited exceptions concern federally insured banks or credit unions, employers required by law to consider this information, employers of certain law enforcement and public safety personnel, and employers for whom “the information is substantially job-related and the employer’s reasons for the use of such information are disclosed to the employee or prospective employee in writing.”
This is a complex area of law and employers ought to confer with legal counsel before obtaining or using credit history information.
The Bullard Edge