April 01, 2015

EEOC and Private Plaintiffs Continue Aggressive Litigation Attacking Background Checks

As part of its focus on eliminating barriers to hiring, the Equal Employment Opportunity Commission (EEOC) continues to mount an aggressive litigation strategy targeting background-check policies that it believes have a disparate impact on minority applicants and employees. In an effort to prove such a case, statistical analyses are often necessary. Recent court decisions, however, have dealt a serious blow to the EEOC’s litigation tactics. Despite these setbacks, the EEOC and private plaintiffs continue to pursue costly lawsuits alleging that background checks discriminate against minorities in violation of Title VII. In addition, there has been a recent uptick in class cases alleging that background checks violate the Fair Credit Reporting Act (FCRA). 

Title VII Litigation

In February, the Fourth Circuit affirmed a Maryland federal court’s dismissal of a case brought by the EEOC against Freeman, Inc., a service provider of corporate events. In a lawsuit that dated back to 2009, the EEOC claimed that Freeman’s use of credit history had a disparate impact on black applicants and that Freeman’s use of criminal history had a disparate impact on black and male applicants. In a scathing opinion, the Fourth Circuit berated the EEOC’s statistical expert, stating that his analysis had a “mind-boggling number of errors” and was “utterly unreliable.” As a result, the EEOC was unable to set forth a prima facie case of disparate impact discrimination. The EEOC has not yet stated whether it will appeal, but an appeal seems unlikely. 

Freeman isn’t the first time the EEOC and its statistical expert have been on the same sinking ship. Last year, the Sixth Circuit also upheld an Ohio federal court’s dismissal of a similar case against test prep company, Kaplan, Inc. In that case filed in 2010, the EEOC alleged that Kaplan’s use of credit checks violated Title VII because it had a disparate impact on black job applicants and employees. Like Freeman, Kaplan did not survive summary judgment because the underlying expert analysis supporting the theory of the EEOC’s case was not reliable. In affirming dismissal and exclusion of the expert’s testimony, the Sixth Circuit took aim at the EEOC’s litigation strategy: “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.” Kaplan ended with the EEOC paying Kaplan $17,683.90 in costs.

The setbacks in Freeman and Kaplan, however, have not dissuaded the EEOC from maintaining other large-scale cases over background-check policies, and it is likely that the EEOC will continue to aggressively pursue these cases as a part of its Strategic Enforcement Plan for eliminating systematic barriers to hiring. In fact, lawsuits against Dollar General and BMW Manufacturing Co. continue to churn through the federal courts, as explained in a previous Faegre Baker Daniels legal update, “EEOC Continues Aggressive Enforcement Related to Criminal Background Checks.” 

FCRA Litigation

Title VII isn’t the only way employers can get into hot water over background checks. The FCRA and similar state laws impose several requirements on employers that use consumer reports (which can include both criminal history and credit checks) to inform employment decisions, including various notice provisions to applicants and employees. Recently, plaintiffs’ lawyers have taken greater note of the FCRA as a vehicle to commence class action lawsuits. 

In fact, Michaels Stores, Inc. now finds itself defending two nationwide class actions, in which plaintiffs allege that the crafts retailer failed to adequately notify applicants it may obtain their credit history. Specifically, the classes allege applicants did not receive a document separate from the application explaining the company may obtain consumer reports on them. Instead, the FCRA disclosure and authorization were among other materials included on a web page applicants used to apply for a job. Many companies, including Whole Foods Markets, Inc., are facing similar lawsuits involving the visibility of mandated disclosures that are part of online applications. 

Violations of the FCRA can result in large verdicts and settlements. Recently, in order to avoid the time and expense of litigation, Publix Super Markets, Inc. agreed to pay nearly $6.8 million to settle a class-action lawsuit alleging that its electronic application improperly included an authorization for a background check. The plaintiffs claimed that this practice violated the requirement that employers notify applicants of a consumer-report request “in a document consisting solely of the disclosure.” The settlement class consists of 90,633 individuals, each of whom would receive $48.55 after legal fees are deducted. 

Though Title VII and the FCRA are different laws with different remedies, last year the EEOC and the Federal Trade Commission co-published guidance addressing legal requirements in using background checks for employment purposes, as explained in a previous Faegre Baker Daniels legal update, “EEOC and FTC Issue Joint Guidance on Use of Background Checks."


The use of background checks continues to create compliance issues and litigation risk for large and small companies alike. To assist employers in navigating these risks, through April 9, 2015, Faegre Baker Daniels will host a series of client roundtable discussions on “Background Checks—Navigating Moving Minefields” in six locations across the country. More information and registration are available on the Faegre Baker Daniels labor and employment events page.

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