Foster Swift Employment, Labor & Benefits Quarterly
Most employers now recognize that once an employee is hired, there are many factors to consider before terminating even an at-will employee. The decision to terminate employment is rarely risk-free. Increasingly, hiring managers have returned to various applicant screening devices at their disposal to select applicants they believe will result in the hire of productive, successful employees. Not all screening tools, however, are appropriate in all circumstances or for all employers.
In late December, the EEOC issued a news release confirming that it has filed a nationwide suit against Kaplan Higher Education Corporation. The EEOC claims that Kaplan’s use of applicant credit history is unlawfully discriminatory based on race. The key allegation states:
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.
According to the EEOC, the company used credit history checks as a selection tool in making hiring decisions in a way that had a significant disparate impact on black job applicants. Rejecting applicants on the basis of financial criteria such as poor credit ratings has been found in the past to disproportionately exclude minority groups.
Financial problems may be used as a basis to argue that an applicant is financially irresponsible, reflecting poorly on character or reliability. But, financial problems may be caused by circumstances beyond the applicant’s control, like uninsured, unexpected medical bills. Because the reason for a poor credit check result may not have a direct correlation to the employee’s skills or reliability, rejecting every applicant with a poor credit history, while appearing to be "objective" may in fact (1) disproportionately affect certain groups (2) for reasons that are not directly related to the particular job for which they applied.
Whether the EEOC’s current case will be proven remains to be seen, but the EEOC’s warning from the December press release is clear: "Employers need to be mindful that any hiring practice be job-related and not screen out groups of people, even if it does so unintentionally." Employers should be aware that using credit checks as a screening tool may increase the risk of a discrimination claim. Therefore, employers must be able to show that hiring criteria used to evaluate and screen applicants must be necessary for the job in question. For example, credit checks may be consistent with business necessity for bank employees, in general, but may not be relevant screening tools for every employee of a medical practice or manufacturing operation. Given the EEOC’s recent action, employers are well-advised to carefully consider their use of credit history checks as a screening tool, whether for an individual position or as a baseline screening tool for all applicants for employment.
If you have any questions, please contact Sheralee Hurwitz at 616.726.2239.