For about a year now, the United States Equal Employment Opportunity Commission (EEOC) has been trying to make the case that employment-related background checks involving the use of applicant credit histories somehow constitute race, and maybe sex, discrimination. According to the EEOC:
Inquiry into an applicant’s current or past assets, liabilities, or credit rating, including bankruptcy or garnishment, refusal or cancellation of bonding, car ownership, rental or ownership of a house, length of residence at an address, charge accounts, furniture ownership, or bank accounts generally should be avoided because they tend to impact more adversely on minorities and females. Exceptions exist if the employer can show that such information is essential to the particular job in question.
See the EEOC’s guidance on Pre-Employment Inquiries and Credit Rating or Economic Status.
The EEOC’s dubious position that reviewing credit histories of applicants somehow constitutes race or sex discrimination does not rely upon direct evidence (e.g., employers overtly stating that they intend to use credit checks to discriminate against minorities or women). Nor does the EEOC’s case rely upon circumstantial evidence of discrimination (e.g., that an employer conducts credit checks only on minorities and women but not others). Instead, the EEOC’s position is that use of credit histories to screen applicants has a “disparate impact” on minorities and women. In other words, based upon statistics, the EEOC’s position is that minorities and women suffer proportionately more of an adverse impact from credit checks than non-minorities and men.
Cases based on statistics tend to be battles of experts with no certain outcome. But, regardless of the validity of the EEOC’s statistical position, employers who use credit checks for applicant screening should be aware of the EEOC’s recent focus on this issue. In March 2010, an assistant legal counsel for the EEOC issued this informal discussion letter on the issue, and the EEOC held a meeting on October 20, 2010 on employer use of credit history as a screening tool.
Most significantly, in December 2010, the EEOC filed suit in federal district court against Kaplan Higher Education Corporation. The lawsuit claims that Kaplan’s use of credit histories as a screening tool discriminated against a class of black job applicants. Combined with its other activity in this area last year, the lawsuit confirms the EEOC’s current focus on this issue.
So what are employers who use credit histories or who are thinking about doing so to do? Among other things, consider the following:
1. If using credit checks, consider (with legal counsel) whether it is advisable to perform a statistical analysis (and, if so, work with legal counsel to do so), to determine if your use of credit checks is impacting a protected class (such as a minority or women) in a statistically disproportionate manner.
2. When using credit checks, do not perform them on only select applicants for a given position. Rather, perform them for all applicants for that position in order to avoid claims that minorities or women were intentionally selected to be checked.
3. For any job position for which a credit check is being used to screen applicants, be able to articulate why a person’s credit is related to the job and why business necessity supports the need for such a check.
4. Be aware of laws that impact use of credit histories in employment. For example, the federal Fair Credit Reporting Act (FCRA) imposes specific requirements on how an employer may obtain credit and other background checks regarding an applicant or employee if using a credit reporting agency. In addition, at least four states –Hawaii, Illinois, Oregon and Washington — have laws that prohibit or regulate use of credit histories for employment purposes. The federal bankruptcy law contains potential prohibitions on the use of bankruptcies to adversely affect employment.
5. Use common sense when evaluating an applicant for employment, and, if using credit histories, make them only one part of the overall hiring process. For example, one minor blemish in an applicant’s otherwise impressive background may not be a disqualifier, unless the nature of the credit offense has a direct impact on the job.
While the merits of credit histories as predictors of employment success can be debated, what appears certain at the moment is that the EEOC has set its sights on this practice.