On January 28, 2013, the Northern District of Ohio granted Defendant Kaplan Higher Education’s motion for summary judgment in EEOC v. Kaplan Higher Education Corp. [pdf].  The Court dismissed the matter because the EEOC failed to meet its burden of proving that Kaplan’s use of background checks had a “disparate impact” on minority applicants.

In the case, Kaplan argued that due to discovered breaches of their system where business officers misappropriated student payments, it used the background checks to “ascertain whether applicants for certain employment positions were under ‘financial stress or burdens’ that might compromise their ethical obligations.”  Interestingly, the EEOC itself uses background checks in hiring decisions for similar reasons.

Although the Court did not address the issue of whether the EEOC can challenge an employer’s use of credit history information when the EEOC itself uses the information, it thoroughly analyzed its methodology and supposed “statistical” data and ultimately determined it was not reliable.  Essentially, the EEOC set up a panel of five “expert” “race‑raters” who looked at photographs and names of individual applicants to identify the individual’s race.  The Court noted that this methodology was not credible because it met none of the factors needed to meet the reliability of scientific expert testimony.  Importantly, the Court noted that the “race‑rater” panel was not able to reach even an 80% consensus as to the race of 11.7% of the applicants.

The decision is important for employers (who are not government contractors subject to a separate set of rules and regulations) because it forces the EEOC to provide “reliable” statistical analysis that demonstrates that the use of the background checks actually “caused the exclusion of applicants” because of their race.