On April 9, 2014, the Sixth Circuit Court of Appeals affirmed summary judgment in the case of Equal Employment Opportunity Commission (EEOC) v. Kaplan Higher Education Corporation, et al. The EEOC brought suit against Kaplan claiming that its practice of using credit checks during the hiring process had a disparate impact on minority classes. However, the Sixth Circuit found the EEOC used flawed methodology when trying to prove credit checks unfairly impacted Black applicants.
Specifically, the EEOC alleged Kaplan’s use of credit checks screened out more non-white minority classes than white applicants and created a disparate impact in violation of Title VII of the federal Civil Rights Act. While proof of disparate impact is usually statistical proof in the form of expert testimony, the court excluded testimony from the EEOC’s expert witness, who holds a doctorate in industrial and organizational psychology, on grounds that it was unreliable.
Why did Kaplan win?
Kaplan won firstly because their expert’s testimony was thrown out as inadequate. That is important. But secondly and even more crucial is the process Kaplan was able to show in using the results of credit checks. Kaplan used defined parameters for reviewing credit reports. The race of the individual was not known by Kaplan’s decision makers.
Specifically, Kaplan had credit checks performed by a third-party vendor, which reports, among other things, whether the applicant
- has ever filed for bankruptcy,
- is delinquent on child-support payments,
- has any garnishments on earnings,
- has outstanding civil judgments exceeding $2,000, or
- has a social-security number that does not match the number the credit bureau has on file.
If an applicant’s credit history includes any of the enumerated items, the vendor flags the applicant’s file for “review. Race of the applicant was not know.
Excerpts from the Opinion
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT No 13-3408
KETHLEDGE, Circuit Judge. In this case the EEOC sued the defendants for using the same type of background check that the EEOC itself uses. The EEOC’s personnel handbook recites that “[o]verdue just debts increase temptation to commit illegal or unethical acts as a means of gaining funds to meet financial obligations.” Because of that concern, the EEOC runs credit checks on applicants for 84 of the agency’s 97 positions. The defendants (collectively, “Kaplan”) have the same concern; and thus Kaplan runs credit checks on applicants for positions that provide access to students’ financial-loan information, among other positions. For that practice, the EEOC sued Kaplan.
Specifically, the EEOC alleges that Kaplan’s use of credit checks causes it to screen out more African-American applicants than white applicants, creating a disparate impact in violation of Title VII of the federal Civil Rights Act. See 42 U.S.C. § 2000e-2(a)(1), (a)(2), (k). Proof of disparate impact is usually statistical proof in the form of expert testimony. For two reasons, however, the district court excluded Murphy’s testimony on grounds that it was unreliable. First, the EEOC presented “no evidence” that Murphy’s methodology satisfied any of the factors that 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. The district court therefore granted summary judgment to Kaplan. The EEOC now argues that the district court “erred” We reject the EEOC’s arguments and affirm the lower court’s decision.
Some of Kaplan’s students obtain financial aid through programs operated by the United States Department of Education; and consequently, some of Kaplan’s employees have access to those students’ financial information. The Department has regulations that circumscribe the manner in which Kaplan can access and use students’ information. Violations of those regulations can bring severe penalties.
Kaplan’s concerns became reality about a decade ago, when it discovered that some of its financial-aid officers had stolen payments that belonged to students. In response, Kaplan implemented a number of measures to prevent these abuses. One of those measures was to run credit checks on applicants for senior-executive positions, accounting and other positions with access to company financials or cash, and positions with access to student financial-aid information. The credit checks are performed by a third-party vendor, which reports, among other things, whether the applicant has ever filed for bankruptcy, is delinquent on child-support payments, has any garnishments on earnings, has outstanding civil judgments exceeding $2,000, or has a social-security number that does not match the number the credit bureau has on file. If an applicant’s credit history includes any of the enumerated items, the vendor flags the applicant’s file for “review.” At that point, Kaplan typically reviews the file and makes an ad hoc decision as to whether to move forward with the application. The credit-check process is racially blind: the vendor does not report the applicant’s race with other information.
The district court also found that the EEOC “present[ed] no evidence” that Murphy’s race-rating methodology “is generally accepted in the scientific community.” Op. at 16; see generally Daubert, 509 U.S. at 593.
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.
The district court’s judgment is affirmed.
