Why it matters

The Equal Employment Opportunity Commission’s (EEOC) efforts to crack down on employer background checks took a serious hit from the Fourth Circuit Court of Appeals when that federal appellate court affirmed dismissal of the EEOC’s complaint against Freeman Company. Since issuing guidance on the topic in 2012, the EEOC has filed a number of actions against companies for using background checks that allegedly have had an unlawful disparate impact on males and African-American applicants. In support of its case, the EEOC produced multiple expert reports based on data provided by Freeman. But in a scathing opinion, the Fourth Circuit found “an alarming number of errors and analytical fallacies” in the expert’s reports, pushing the expert’s conclusion “outside the range where experts might reasonably differ.” A concurring opinion noted that the EEOC has faced similar reactions from other courts and urged the agency to “reconsider how it might better discharge the responsibilities delegated to it or face the consequences for failing to do so.” Between the latest courtroom loss and criticism from lawmakers about the EEOC’s background check lawsuits, the suits seem to be a losing proposition for the agency.

Detailed discussion

In 2001, after experiencing problems with theft, drug use, and violence by employees, Freeman—a provider of integrated services for expositions, conventions, and corporate events—began conducting background checks of all applicants for criminal history and credit checks for “credit sensitive” positions.

Freeman later modified the criteria that would exclude applicants in 2006 and again in 2011, when it stopped conducting credit checks.

After an unsuccessful applicant complained to the EEOC in 2008, the agency launched an investigation that resulted in a complaint filed in Maryland federal court alleging that the company violated Title VII. The EEOC claimed that Freeman’s use of credit and criminal background checks had a disparate impact on black and male applicants.

As discovery progressed, the EEOC produced an expert report by Kevin Murphy, an industrial/organizational psychologist. Eight days later (after the expert disclosure deadline), the agency produced an amended report. Two other reports were later produced as well.

Freeman moved for summary judgment, arguing that the expert testimony was unreliable under Federal Rule of Evidence 702. A federal district court judge agreed and dismissed the case because the EEOC had failed to establish a prima facie case of discrimination.

Reviewing the case, the Fourth Circuit Court of Appeals agreed that the “alarming number of errors and analytical fallacies” made it impossible to rely upon Murphy’s results.

The employer produced a database of complete background check logs for thousands of applicants over the years at issue. But Murphy cherry-picked data, the court found, selecting the majority of applicants to focus on from before October 14, 2008, and using just 19 applicants after that date—only one of whom passed the checks. This approach was used despite the fact that Freeman conducted more than 1,500 criminal checks and over 300 credit investigations between October 15, 2008, and August 31, 2011.

In addition to failing to utilize an appropriately large sample size from the relevant time period—while purporting to analyze all background checks with verified outcomes—Murphy also omitted data from half of Freeman’s branch offices, the court noted.

“Most troubling, the district court found a ‘mind-boggling’ number of errors and unexplained discrepancies in Murphy’s database,” the court wrote. Taking a closer look at 41 individuals for whom the EEOC sought back pay, the court found that 29 had at least one error or omission; 7 were missing from the database altogether; another 7 lacked a race code; others were incorrectly coded as failing the check; and 9 were listed twice and double-counted in Murphy’s results.

The EEOC tried to point the finger at Freeman, telling the court that the errors were present in the original data provided by the employer, “a contention dispelled by comparing the information from the discovery materials to Murphy’s database,” the panel said. “It was in fact Murphy who introduced these errors into his own analysis.”

Murphy’s subsequent reports did nothing to fix any of the errors, and in fact managed to introduce fresh errors into the analysis, the court added. “The sheer number of mistakes and omissions in Murphy’s analysis renders it ‘outside the range where experts might reasonably differ,’ ” the panel concluded, affirming the grant of summary judgment to Freeman on the ground that the expert reports were properly excluded as unreliable under Rule 702.

Adding to the critical opinion, Judge Steven Agee wrote separately to address his concerns “with the EEOC’s disappointing litigation conduct” as a whole.

“The Commission’s work of serving ‘the public interest’ is jeopardized by the kind of missteps that occurred here,” he wrote. “And it troubles me that the Commission continues to proffer expert testimony from a witness whose work has been roundly rejected in our sister circuits for similar deficiencies to those we observe here. It is my hope that the agency will reconsider pursuing a course that does not serve it or the public interest well.”

Emphasizing the expert’s missteps like drawing broad conclusions from incomplete data, making obvious errors and mistakes, and cherry-picking relevant data, Judge Agee said Murphy not only “capriciously selected in his use of post-October-2008 data, but the high number of ‘fails’ among his few selections suggests that he fully intended to skew the results.”

These problems are bad enough on their own, but considering that the Sixth Circuit Court of Appeals reached an identical result in a background check case brought by the EEOC based on Murphy’s reports, as well as a decade of similar findings based on his testimony, the concurrence queried why the EEOC continued to defend his testimony.

“The EEOC must be constantly vigilant that it does not abuse the power conferred upon it by Congress,” Judge Agee wrote. “The Commission’s conduct in this case suggests that its exercise of vigilance has been lacking. It would serve the agency well in the future to reconsider how it might better discharge the responsibilities delegated to it or face the consequences for failing to do so.”

To read the opinion in EEOC v. Freeman, click here.