On January 28, a federal court ruled in favor of Kaplan Higher Learning Education Corp. and Kaplan University in a lawsuit filed by the Equal Employment Opportunity Commission (EEOC). The EEOC had alleged that Kaplan’s use of credit history reports in making hiring decisions violated certain provisions of Title VII of the Civil Rights Act of 1964 because the practice has a disparate impact on black applicants. 
Background
The defendant in this case was a group of educational institutions. As the court noted, educational institutions operate in a highly regulated industry. The U.S. Department of Education (DOE) provides financial aid to many students enrolled at Kaplan University and Kaplan Higher Learning Education and requires its participants to have in place quality controls that limit access to student and parent information.
Before 2004, Kaplan discovered breaches of its systems in which business officers misappropriated student payments. As a result, it took additional steps to ensure compliance with financial rules and regulations as well as DOE guidelines. A short time later, Kaplan began using credit histories to ascertain whether applicants for certain jobs were under “financial stress or burdens” that might compromise their ethical obligations.
What is particularly interesting about this case is the manner in which the EEOC attempted to show that Kaplan’s use of credit histories had a disparate impact on minority applicants. To determine the race of a particular applicant, the EEOC subpoenaed records from the departments of motor vehicles in 38 states and the District of Columbia. Fourteen states and the District of Columbia provided records that identified an applicant’s race. The remaining 24 states provided copies of driver’s license photos.
To determine the race of job applicants from the states that provided photographs, the EEOC’s statistical expert assembled a team of five “race raters” who were asked to review each photo and determine whether the individual is “African-American,” “Asian,” “Hispanic,” “White,” or “Other.” Individuals considered “multiracial” were adjudged “Other.”
The race raters were shown 891 photographs. In 11.7 percent of the photographs, they were unable to achieve an 80 percent consensus on the applicant’s race. The race raters worked individually, not as a group, in assigning race. Thus, each race rater came to an independent determination of race without conferring with the other race raters. The group was made up of individuals with advanced degrees in cultural anthropology, education, human development, psychology, and economics.
Court’s decision
The court ruled that the expert’s report and testimony were inadmissible because the EEOC failed to present sufficient evidence that the use of race raters is reliable. The court noted that the EEOC itself discourages employers from visually identifying an individual by race and indicates that visual identification is appropriate “only if an employee refuses to self-identify.” In fact, even if an employer’s visual belief about an employee’s race differs from the race disclosed by the employee, the employer must rely on the race identified by the employee.
The court ruled that because the EEOC had failed to present admissible evidence showing that the use of credit reports caused the exclusion of applicants on the basis of their membership in a protected group, the agency couldn’t establish a prima facie, or minimally sufficient, case of disparate impact discrimination. As a result, the lawsuit was dismissed.
A bit hypocritical?
The EEOC itself runs credit checks on job applicants. According to the agency’s “Personnel Suitability and Security Program Handbook,” credit checks are required for most positions at the EEOC. However, the agency says it has never “unfavorably adjudicated employees based on their debt issues.”
Judith Kramer is an attorney with Fortney & Scott LLC in Washington, D.C. She joined Fortney Scott after a 25-year tenure at the U.S. Department of Labor, where she served for 16 years as Deputy Solicitor for Planning and Coordination, the highest-ranking career employee in the Office of the Solicitor. She may be contacted at jkramer@fortneyscott.com.
If they never, “unfavorably adjudicated employees based on their debt issues.”
Why do they even run them?
Another government case of, “Do as I say, not as I do.”