Credit Checks and Employment Decisions

January 27, 2011, 10:01 AM

The Equal Employment Opportunity Commission (EEOC) has consistently taken the position that relying on an applicant's credit history in making hiring decisions can have a disparate impact on women and racial minorities. As the sluggish economy continues into 2011, the EEOC has indicated a new focus on this issue. In October of last year, the EEOC held a public meeting and considered testimony from a panel of experts about the effect of relying on credit reports in making employment decisions. Shortly thereafter, on December 21, 2010, the EEOC filed a lawsuit against Kaplan Higher Education Corporation, in which the EEOC challenged Kaplan's practice of denying employment based on credit history. According to the EEOC's lawsuit, this practice has a disparate impact on racial minorities and is not justified by business necessity.

Commenting on the lawsuit against Kaplan, EEOC Regional Attorney Debra Lawrence stated that "Title VII of the Civil Rights Act of 1964 was intended to eliminate practices that serve as arbitrary barriers to employment because of a job applicant's race." In light of this, "employers need to be mindful that any hiring practice be job-related and not screen out groups of people, even if it does so unintentionally."

This case is a good reminder to employers who use credit checks when making employment decisions. Such employers should review their use of credit checks to ensure that the information being used is job-related and justified by business necessity. This type of review must consider the nature of the employer's business and the nature of the duties performed by the particular employee. --David J. Sullivan