Appeals Court Slaps Down EEOC Over Disparate-Impact Suit

Apr 9 2014, 9:55pm CDT | by

A federal appeals court delivered a sharp rebuke to the Equal Employment Opportunity Commission today when it upheld the dismissal of the agency’s lawsuit against Kaplan for using credit histories to screen job candidates — the same method the EEOC uses for 87% of its positions.

A lower court dismissed the case because the EEOC’s expert flunked the test most courts use to decide whether an expert has the credibility to testify. A three-judge panel of the Sixth Circuit Court of Appeals in Cincinnati agreed, saying the expert’s method for proving racial discrimination, which included hiring “race raters” to examine drivers’ license photos of applicants to determine their race, was “not a reliable means to demonstrate disparate impact.”

Disparate impact is a method of analysis favored by the Obama administration for identifying and suing employers who engage in discrimination, whether or not they intend to do so. Employers complain  that they can be held liable for millions of dollars in damages and back wages based simply upon the statistical makeup of their work force, without any evidence they intended to discriminate. Conservative groups are hoping to put the concept to the test before the U.S.Supreme Court, but the Obama administration has killed such attempts so far, first by settling a potentially damaging case in Minnesota, and later with the help of the George Soros-backed Open Society Institute to squelch a similar challenge involving the city of Mount Holly, N.J.

In this case, the EEOC accused Kaplan of using credit scores to reject a disproportionate number of African-American candidates for jobs. The appeals-court decision, penned by Judge Raymond Kethledge, doesn’t begin well for the government: “In this case the EEOC sued the defendants for using the same type of background check that the EEOC itself uses.”

The EEOC considers credit scores as an important indication of whether an applicant might be tempted “to commit illegal or unethical acts as a means of gaining funds to meet financial obligations,” as stated in federal regulations, Kethledge noted. Kaplan uses them to for similar reasons. The company began the practice after discovering some of its financial-aid officers were stealing money from students, and executives were engaging in self-dealing by hiring relatives as vendors.

The government relied upon an expert named Kevin Murphy, an industrial psychologist by training, who devised his own method for determining whether the credit checks had a disparate impact on African-Americans. Murphy obtained some 4,600 records from one of Kaplan’s several credit-check vendors, and since those records didn’t have race data, he used subpoenas to pull drivers’ license records from 47 states plus the District of Columbia. Eleven states provided racial data, and for the rest he used a team of five “race raters” to examine photographs of the job applicants and determine their race.

The EEOC didn’t provide further details on how these raters could determine the race of an applicant from a digital headshot, although the agency said they each had experience in “multicultural, multiracial, treatment outcome research.” But Murphy’s raters apparently found discrimination: Out of 1,090 applicants whose race the raters had determined, 23.8% of African-Americans (or people identified as such by the raters) had been flagged for review because of a subpar credit record, compared with 13% of the entire pool of 4,600 applicants.

The trial judge didn’t think much of this methodology as a means for determining whether Kaplan is a racist organization liable for millions of dollars in damages, and neither did Kethledge.

Not only did Murphy use a subset of a subset of applicants to “prove” discrimination, but he didn’t disclose an error rate or any of the other markers, such as peer-reviewed results, that judges are supposed to consider before allowing expert testimony. Since a disparate-impact suit hinges upon such testimony, getting it right is important.

In conclusion, Kethledge said, this was a waste of time.

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 Murphy’s testimony.

Gerald Maatman of Seyfarth Shaw argued for Kaplan, a unit of Graham Holdings.


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