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U.S. District Court for the District of Maryland Denies EEOC's Challenge to Employer's Use of Criminal History and Credit Checks in Making Hiring Decisions

August 30, 2013

A federal judge in Maryland recently dismissed a lawsuit by the EEOC alleging that an employer’s use of criminal background checks and credit checks in making hiring decisions was unlawful because of a disparate impact on minorities. 

 Case Background:  In EEOC v. Freeman, the EEOC filed a discrimination lawsuit alleging that the Freeman Company, which employs workers for expositions, conventions and corporate events, maintained a background check policy which had an illegal disparate impact on African Americans, Hispanics, and male job applicants.  The employer performed background checks that varied with the nature of the job sought.  For employees who did not hold credit sensitive jobs (i.e., those involving the handling of client or company money, checks, credit cards, or similar valuable items), the check included only a criminal history investigation and social security verification.  For credit sensitive positions, the check included a credit history review.  With respect to criminal convictions, the employer considered only those criminal convictions which occurred, or which the applicant was released from confinement for, within the past seven years.  The employer also evaluated whether the type of criminal conduct underlying the particular conviction (such as whether it involved violence, destruction of property, or sexual misconduct) made the applicant unsuitable for employment.  With respect to credit history, the employer considered several specific issues (such as student loan defaults, a bankruptcy within the past seven years, or a house foreclosure or car repossession within the prior three years) which would disqualify the individual from employment.   

 The Court’s Ruling:  In challenging the background check policy, the EEOC purported to present statistical evidence showing that the policy as a whole had a significant disparate impact on African Americans, Hispanics and males, and was not job related or consistent with business necessity.  However, the Court found the EEOC’s evidence unconvincing, noting that “there appear to be such a plethora of errors and analytical fallacies underlying [the EEOC expert witness’] conclusions to render them completely unreliable, and insufficient to support a finding of disparate impact.”  In particular, the Court faulted the EEOC’s analysis in that it failed to identify any specific aspect of the background check policy that caused the alleged disparate impact.  The Court noted that the EEOC’s position in this case defies common sense and could have a chilling impact on employers.  “By bringing actions of this nature, the EEOC has placed employers in the ‘Hobson’s Choice’ of ignoring criminal history and credit 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.”

 Impact of the Ruling.  This case represents a significant victory for employers who routinely use background checks and credit checks in making employment decisions.  Indeed, the Court noted that the employer’s policy in this case appeared to be reasonable and suitably tailored to its purpose of ensuring an honest work force.  What was helpful here is that the employer did not have a “one size fits all” background check policy.  Rather the employer performed a different type of check depending on the nature of the position sought.  Moreover, with respect to criminal convictions, the employer only looked back for seven years, and even then did not categorically exclude an individual with a conviction within that time period, but rather considered the type of conduct underlying the conviction in making a hiring decision.