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Last week, a district court in Maryland granted summary judgment in favor of Freeman, Inc. (“Freeman”), a service provider for corporate events, with respect to a nationwide pattern and practice lawsuit brought by the U.S. Equal Employment Opportunity Commission (“EEOC”).  EEOC v. Freeman, No. 09-CV-2573 (D. Md. Aug. 9, 2013).  In its lawsuit, the EEOC claimed that Freeman’s use of criminal and credit background checks in connection with its hiring practices had a disparate impact against African-American, Hispanic, and male job applicants.

Freeman utilized a nuanced, multi-level background check program based upon the position for which the applicant was applying.  The company only ran a background check after it made an offer of employment, and it considered the results of background checks on a detailed, case-by-case basis.  Indeed, the court noted that one of the few “bright-line” rules Freeman had for disqualifying an applicant was whether the applicant had lied on his/her application about criminal history; otherwise, the company looked at the timing and disposition of any criminal proceedings, as well as the relationship of the crime to the job for which the applicant was applying.  Similarly, for credit checks, Freeman had very specific criteria for disqualifying applicants whose positions mandated use of such checks.

Freeman clearly did not employ the kind of blanket disqualification criteria that the EEOC traditionally has frowned upon.  Nevertheless, the EEOC filed its lawsuit against Freeman in 2009, based upon a charge filed by an unsuccessful applicant who claimed that the company had violated Title VII by rejecting her based upon a credit check.  The EEOC did not challenge any particular aspect of Freeman’s background check program.  Instead, it claimed that the use of background checks as a whole created an unlawful disparate impact.

Over the course of the litigation, various aspects of the EEOC’s claim were dropped or dismissed, eventually leaving two relatively small classes of African-American employees who were denied employment due to the results of a credit check and criminal check, respectively.  To support its claims, the EEOC proffered expert testimony purporting to support their disparate impact analysis.

Freeman ultimately filed a motion for summary judgment and a motion to preclude the EEOC’s expert testimony.  The court granted both of Freeman’s motions in a 32-page opinion by Judge Roger W. Titus.  Judge Titus blasted both the EEOC’s theory and the multiple flaws in the analysis of its experts, concluding that the EEOC’s lawsuit was “a theory in search of facts to support it.”  The judge also noted the dilemma faced by employers in connection with the EEOC’s opposition to the use of background checks:

By bringing actions of this nature, the EEOC has placed many 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. 

As the Freeman court noted, this case is one of several brought by the EEOC challenging employer usage of background checks – similar cases have been filed against retailer Dollar General Corp. and automobile manufacturer BMW.  This aggressive litigation strategy dovetails with the agency’s April 2012 guidance on criminal background checks.  

It is clear that the EEOC is attempting to severely limit, if not eliminate, the use of criminal and credit histories by private employers because the agency believes that such histories unfairly impact minorities due to various societal conditions (e.g., higher incarceration rates among African-Americans).  (Ironically, as Freeman pointed out, the EEOC uses criminal and credit checks for its own employees!) 

The Freeman decision, however, represents a significant victory for employers fighting to maintain their right to refuse to hire individuals whose backgrounds present significant questions as to their qualifications for employment.  But this issue is far from settled – so stay tuned!