The EEOC’s Position

The Equal Employment Opportunity Commission (“EEOC” or the “Commission”) recently has shown a renewed interest in prosecuting employers that engage in the widely-practiced use of pre-employment credit inquiries to evaluate job applicants. On behalf of a proposed “class of aggrieved Black job applicants and incumbents,” the Commission filed a lawsuit against test preparation company, Kaplan Higher Education, Inc. In this case, the EEOC alleges that, since January 2008, Kaplan has violated Title VII of the Civil Rights Act of 1964 by using and continuing to use “credit history information,” in its “selection criteria for hiring and discharge.”

The EEOC bases its class claim against Kaplan on allegations that the employer’s practice of reviewing applicants’ credit histories has a “significant disparate impact” on Black job applicants and employees and that the practice is neither job-related, nor consistent with Kaplan’s business needs, nor the least discriminatory alternative selection criterion. Because this is a disparate impact case, the fact that Kaplan did not intentionally discriminate against Black applicants or employees is no defense.

This is not the EEOC’s first attempt to challenge the use of applicants’ credit histories as a discriminatory selection criteria. In the 1970s, the EEOC and private litigants alike challenged this widespread practice under both disparate treatment and disparate impact theories. The courts – particularly in cases involving banking industry employers – generally concluded that pre-employment credit inquiries were not tools of employer discrimination but were, instead, consistent with employers’ business needs. More recently, in 2009, the EEOC filed a lawsuit against Freeman, alleging that the employer’s consideration of job applicants’ “criminal justice history information” and “credit history information” has a disparate impact on Black, Hispanic and male applicants.

The Commission itself acknowledges that the use of tests and other selection criteria – including credit checks – “can be a very effective means of determining which applicants or employees are most qualified for a particular job.” However, the Freeman and Kaplan cases stand as evidence that the EEOC is making good on the promise of its E-RACE initiative to “develop and implement investigative and litigation strategies to address selection criteria and methods that may foster discrimination based on race and other prohibited bases, such as credit and background checks.”

What This Means For Employers

The use of credit checks in hiring or other employment decisions will not necessarily put an employer at odds with the EEOC’s position even if their use has an adverse effect on a protected class of individuals. Nor will an employer necessarily lose if faced with a charge of discrimination or a lawsuit alleging discrimination based on consideration of job applicants’ credit histories. Notably, the Commission has not proven the employers’ liability for disparate impact in either Kaplan or Freeman.

Nonetheless, based on the EEOC’s position on the use of credit information obtained for employment purposes, employers should assess how and why they obtain credit history information regarding employees and/or prospective employees. If the employer can articulate a reason why obtaining credit history information is job-related and consistent with business necessity and that there is no alternative procedure to obtain the needed information which is less discriminatory, the employer’s use of credit information does not violate Title VII.

If you obtain credit history information on prospective or current employees, then you should first determine if you actually use that information to make employment decisions. If you do not utilize that information, then you should discontinue obtaining it. If you do use credit history information in making employment decisions, then you should articulate why such information is job-related and consistent with the needs of your business (e.g., does the employee have signatory power over business assets, does the employee have access to the employer’s financial information, is the employee vested with any fiduciary obligations to the business or its clients). Last, employers using credit history information should consider including a disclaimer in documentation used to obtain authorization from the prospective or current employees to obtain a background check which states that poor credit histories may not be an automatic bar to employment.

Notably, legislatures in several states already have taken steps adopting positions on credit-based employment screening similar to the Commission’s position. Specifically, companies with employees in Hawaii, Illinois, Oregon and Washington are subject to state laws which limit the use of credit history information in employment decisions.