EEOC’s Guidance Under the Microscope

Most employers areaware of the Equal Employment Opportunity Commission’s April 25, 2012, guidance on using criminal background checks, including credit checks and criminal convictions, to disqualify applicants for employment.

That guidance has been some of the most controversial information to come out of the EEOC in the past decade. In particular, employers have objected because it stated that a facially neutral policy excluding applicants based on certain types of crimes could violate Title VII.

The EEOC guidance strongly pushed employers to stop using bright-line rules to reject applicants, such as disqualifying all violent felons, and instead urged them to develop “a targeted screen considering at least the nature of the crime, the time elapsed and the nature of the job.”

Experts responded by suggesting a case-by-case analysis of every decision to reject an applicant for hire based on a criminal conviction. Many HR departments voiced their frustration with this new burden. After all, bright-line disqualification rules were supposed to increase fairness by holding all applicants to the same test.

The battle recently flared up again. In April, the Sixth Circuit issued a scathing opinion upholding the Northern District of Ohio’s decision granting summary judgment to the employer in a credit check that the EEOC had brought against Kaplan Higher Education Corp. (EEOC v. Kaplan Higher Education Corp.).

The case concerned that company’s use of 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.” The EEOC, despite using a similar credit check process in its own hiring, brought suit, alleging that Kaplan’s practices had a disparate impact on African-Americans. The focus of the dispute was over the EEOC’s expert, who reached the conclusion that the credit checking resulted in a disparate impact.

His methodology included something the EEOC dubbed “race rating,” which was essentially the expert and five of his employees trying to guess the races of Kaplan’s applicants based on DMV records. If enough of them had the same guess, they coded the applicant’s race consistent with the guess.

The district court rejected the EEOC’s expert’s testimony  and the Sixth Circuit agreed, holding, “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.”

This blow is significant as the EEOC considers whether to continue to dedicate resources to these types of cases. Clearly, its plan has not been well-received.

Not only is the EEOC facing staunch challenges in court; the same is also occurring in Congress. In mid-June, the House Education & the Workforce Committee’s Subcommittee on Workforce Protections heard concerns about the guidance. The witnesses included management-side lawyers; Todd McCracken, the president of the National Small Business Association; and a representative from the NAACP.

One topic was the burden of compliance on small employers. McCracken pointed out that small businesses usually do not have dedicated HR professionals and noted that the complex EEOC guidance offers no “safe harbor” for employers attempting to comply with state laws that may mandate criminal background checks (for example, in the area of home health care or nursing home workers).

The fact that the EEOC has no rulemaking authority has been a focus of opponents of the April 2012 guidance. The EEOC often treats its guidance as de facto rules for employers to follow, but it does not give the public notice of its proposed guidance or an opportunity for comment — critical steps that agencies are required to take for their rulemaking to meet constitutional muster. Although the EEOC does not call its guidance “rules,” but just “guidance,” its aggressive enforcement stance provides employers with ample ground to contest that characterization.

While it would be misguided to believe the guidance will be completely rescinded, it looks increasingly likely that the EEOC may have to modify either the guidance or its enforcement approach.

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