Federal Appellate Court Throws Out EEOC Discrimination Complaint After Expert Accused of “Cherry-Picking” Data

Franczek P.C.
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Last week, the Federal Court of Appeals for the Fourth Circuit upheld a district court’s decision granting summary judgment to an employer accused by the Equal Employment Opportunity Commission (EEOC) of racial bias in its use of criminal background and credit history checks during the employment application process. The Court found that because the EEOC had relied on expert witness reports with “an alarming number of errors” to prove the background checks had a disparate impact on black and male applicants, the district court properly ruled in favor of the employer. The decision and blistering concurring opinion may give the EEOC pause before it brings claims against employers in the future based on unreliable statistical analysis.

In E.E.O.C. v. Freeman, the EEOC filed a Title VII complaint alleging that Freeman’s criminal background check process had a disparate impact on black and male applicants. Additionally, the EEOC alleged Freeman’s credit report checks, which were limited to “credit sensitive” positions involving money or sensitive data, had a disparate impact on black applicants. According to the complaint, while the procedures were facially neutral regarding race and sex, they effectively shut out members of each class from securing employment with Freeman.

To support its claim, the EEOC submitted a series of expert witness reports and calculations prepared by Kevin R. Murphy, an industrial psychologist. Murphy based his reports and conclusions on applicant data submitted by Freeman. On three occasions Murphy submitted revised calculations, amended reports, and edited conclusions. Freeman moved to exclude the findings under Federal Rule of Evidence 702, arguing that Murphy’s calculations were riddled with errors and wholly unreliable. The district court agreed and granted the employer’s motion to exclude the expert’s analysis, finding the reports “rife with analytical errors.” Additionally, the court found that without a valid statistical analysis, the EEOC could not establish its prima facie disparate impact discrimination claim. Therefore, the court also granted Freeman’s motion for summary judgment.

On review, the Fourth Circuit upheld the district court’s decision and strongly criticized the EEOC’s reliance on Murphy’s “shoddy” work. For example, Murphy inexplicably excluded thousands of background and credit check reports from his analysis, including the most recent data provided by Freeman. Additionally, Murphy left out data from over half of Freeman’s branch offices. Judge Agee noted that Murphy’s data contained a “mind-boggling” number of errors, improperly coding several applicants as failing background checks when they actually passed, and improperly coding applicants’ genders. Even after being given an opportunity to correct the report, Murphy introduced “fresh errors” by double-counting applicants who failed their background checks, greatly skewing his data and conclusions. The Fourth Circuit upheld the district court’s grant of summary judgment to Freeman.

In his concurring opinion, Judge Agee took the opportunity to rebuke the EEOC for “disappointing litigation conduct.” Judge Agee described the statistical analysis offered by the EEOC as “cherry-picking” data to reach unsound results. Agee noted that the EEOC continues to rely on Murphy’s questionable work despite rulings in other circuits that his methods are unreliable. For example, in EEOC v. Kaplan Higher Education Corp., 748 F.3d 749 (6th Cir. 2014), the Sixth Circuit upheld the district court’s decision to exclude Murphy’s report regarding the disparate impact of Kaplan’s credit check procedures because he drew conclusions from a skewed, unrepresentative sample. Decisions from the Second Circuit, Eleventh Circuit, and the Western District of Wisconsin, all similarly found Murphy to be unreliable. Judge Agee sternly noted the EEOC’s exercise of prosecutorial discretion and “vigilance has been lacking.” Additionally, Agee reminded the EEOC that it has duties to employees and employers, including “a duty reasonably to investigate charges, a duty to conciliate in good faith, and a duty to cease enforcement attempts after learning that an action lacks merit.”

Despite repeated setbacks in criminal background and credit check cases, the EEOC continues to challenge employers who use these screening procedures for job applicants. For instance, the EEOC is currently litigating criminal background check claims against Dollar General stores, 1:13-CV-04307 (N.D. Ill.), and BMW dealerships, 7:13-CV-01583 (D. S. Car.). The EEOC continues to challenge employers it believes do not comply with the parameters set forth in its 2012 Enforcement Guidance on the use of criminal background checks. Under the EEOC’s Guidance, using background checks may violate Title VII if the checks are not job-related and consistent with business necessity. The EEOC Guidance directs employers that use background checks to develop a targeted screening of applicants with criminal records that considers the nature of the crime, the time elapsed since the crime, and the nature of the position or job responsibilities. The Guidance also directs employers to engage in an “individualized inquiry” to determine whether an applicant’s criminal history renders the applicant unqualified for the particular job in question. Accordingly, despite the EEOC’s questionable litigation conduct and recent employer victories, employers should take steps to ensure their use of criminal background and credit checks comply with the EEOC’s Guidance.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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