In the last several years, the Equal Employment Opportunity Commission (EEOC) has accelerated its scrutiny of employers’ use of background and credit checks to pre-screen its applicants.  Earlier in 2014, the United States Court of Appeals for the Sixth Circuit upheld the dismissal of a case, EEOC v Kaplan Higher Educationwhere the EEOC alleged that the employer’s use of credit checks caused it to screen out more black applicants than white applicants.  

In an interesting opening note, the Sixth Circuit states that the EEOC tried to sue Kaplan because Kaplan was using the same type of background check that the EEOC uses itself.  Nevertheless, the EEOC found fault with Kaplan’s use of credit checks and claimed that it caused Kaplan to screen out more black applicants than white applicants, creating a disparate impact.  The EEOC alleged a violation of Title VII.  

At the lower court level, the district court had refused to admit the statistical evidence offered by the EEOC’s expert, Kevin Murphy.  Dr. Murphy held a doctorate degree in industrial and organizational psychology.  However, Murphy’s statistical evidence suggesting that Kaplan’s use of credit checks screened out more blacks than whites was flawed because “first, the EEOC presented ‘no evidence’ that Murphy’s technology satisfied any of the factors that the courts typically consider in determining reliability under Federal Rule of Evidence 702; and second, as Murphy himself admitted, his sample was not representative of Kaplan’s applicant pool as a whole.”

Kaplan had instituted background checks using credit reports about a decade before the lawsuit when it discovered some of its financial aid officers had stolen payments that belonged to students.  Kaplan also learned some of the executives had engaged in self-dealing by hiring relatives as vendors.  As with any employer, once Kaplan discovered the abuses, it attempted to implement the policy of credit checks to assist in avoiding problems in the future.  

Interestingly enough, the EEOC uses the same types of credit checks.  In fact, the EEOC’s own policies indicate that “overdue just debts increase temptation to commit illegal or unethical acts as a means of gaining funds to meet financial obligations.”  As a result, the EEOC runs credit checks on applicants for 84 of its 97 positions.  

The Sixth Circuit’s decision centered around the fact that the EEOC failed to provide evidence to establish the necessary scientific proof to support the reliability of the statistical evidence that the EEOC tried to admit in this case.  In this regard, the expert’s testimony was rejected by the district court.  The district court’s refusal to admit the evidence was affirmed by the Court of Appeals.  In summary, the Court of Appeals stated as follows:

We need not belabor the issue further.  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.  The district court did not abuse its discretion in excluding [the expert’s] testimony.

Although the court rebuffed the EEOC’s case, employers must still be careful when using credit checks on applicants.  If an employer has a legitimate business reason to perform background and credit checks that is job related and consistent with business necessity, then the employer may and should proceed with background checks.  Background and credit checks, of course, should always be used as a basis for assuring that the most qualified individual is hired for the position.  Background checks also should be used along with other hiring criteria which review the applicant’s skill and ability, education, experience, training, aptitude, and other relevant factors.


The use of background checks is subject to some limitations, particularly when outside third-parties are used to conduct those checks such as credit checks and criminal background checks.  

To assure compliance with applicable statutes and regulations, please contact Masud Labor Law Group.