In EEOC v. Freeman, a Maryland district court pushed back against the EEOC’s recent scrutiny and investigation of employers’ use of background checks in the hiring process.

Freeman provides services for conventions, events and meetings and employs over 3,500 full-time and 25,000 seasonal workers across the United States. Freeman began conducting background checks in 2001 to better evaluate the trustworthiness, reliability, and effectiveness of prospective employees. The types of background checks performed by Freeman varied with the nature of the job sought. Certain positions required only a criminal history investigation and social security verification, while others required a credit history review and education and certification verification. Background checks are run after the applicant was offered and accepted a position, but before he or she began work.

On September 30, 2009, the EEOC brought suit against Freeman, alleging Freeman engaged in a “pattern or practice” of discrimination against African-American job applicants by using poor credit history as a hiring criterion, and against African-American, Hispanic, and male job applicants by using criminal history as a hiring criterion. The EEOC asserted that these hiring criteria have a significant disparate impact on the identified suspect classes and are not job-related or consistent with business necessity. Freeman moved for summary judgment on the EEOC’s claims.

To prevail on a claim of disparate impact, a plaintiff must show that a certain class of applicants is disproportionately and adversely impacted by a particular employment practice on the basis of their race, color, religion, sex or national origin. The plaintiff bears the burden of proving discriminatory impact by showing statistical disparities between the number of protected class members in the qualified applicant group and those in the relevant segment of the work-force.

The EEOC attempted to show a statistical disparity through expert witness reports and national employment statistics. EEOC experts analyzed employment data produced by Freeman in an attempt to show that African-American applicants fail Freeman’s credit background checks at a significantly higher rate than other races, and that male and African-American applicants fail Freeman’s criminal background checks at a significantly higher rate than females and non-blacks. The EEOC attempted to use national statistics in support of the same point.

However, the Court ruled the EEOC’s expert witness reports were unreliable and inadmissible and that national statistics alone cannot prove that an employer’s policies had a disparate impact on certain protected classes of employees. The Court concluded that the EEOC failed to identify the specific policy or policies causing the alleged disparate impact. The Court stated it is not enough for the plaintiff to show that “in general” the collective results of a hiring process cause disparate impact. Statistical analysis must isolate and identify the discrete element in the hiring process that produces the discriminatory outcome. Accordingly, summary judgment was entered in favor of Freeman and the EEOC’s claims were dismissed.

The Court chided the EEOC for bringing a lawsuit based on inadequate data and stated the EEOC’s actions force employers to either ignore criminal background, thus exposing themselves to potential liability for criminal and fraudulent acts committed by employees, on the one hand, or incurring the wrath of the EEOC for having utilized information deemed fundamental by most employers. As the Court stated, conducting a criminal history check on a potential employee is a rational and legitimate component of a reasonable hiring process. However, employers must be sure that their background check policies and practices are not discriminatory and do not have a discriminatory impact on certain classes of applicants. All background checks, and decisions based thereon, must be job-related for the position in question and consistent with business necessity.

(NOTE: The Fair Credit Reporting Act establishes steps an employer must take before getting or acting upon a consumer report, including a credit report and some criminal background reports.) For questions regarding background checks and the hiring process, please contact our Labor and Employment Group.

By Kenneth T. Short, kshort@dsda.com