Avoid lawsuits, avoid credit checking applicants.

Author:Read, Brendan B.

While there is little likelihood of major new laws and regulations coming down from the conservative-swaying Congress and state houses, the Obama Administration and many of its state counterparts have given notice that they will enforce existing ones to the max. And that includes regulations impacting on employment.


The case in point is credit checks for job applicants. The U.S. Equal Employment Opportunity Commission (EEOC) announced on Dec. 21, 2010 that it was filing suit against Kaplan Higher Education Corporation under Title VII of the Civil Rights Act of 1964. The commission says it is a violation of the act "to use hiring practices that have a discriminatory impact because of race and that are not job-related and justified by business necessity".

"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," said Regional Attorney Debra Lawrence of the EEOC's Philadelphia District Office in a statement. "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."

Kaplan's side was reported in a Bloomberg article that also appeared Dec. 21. "The company conducts background checks on all job applicants, including credit histories for those who handle financial matters," the company said.

Kudos to the EEOC. Credit checks are the equivalent of debtors' prisons because they punish individuals who have been struggling to survive in this tough economy and who got behind with their bills by denying them the employment that they need to pay off their debts; a Catch-22 if there ever was one. Only in rare circumstances, such as if an employee is required to be bondable, should this practice be allowed.

Some law firms are raising the red flags on this issue. A January 19, 2011 blog by Sheppard Mullin, Richter and Hampton points out employers should determine "whether there is a sound business reason to obtain such information because, if it is not directly job related, it could be considered discriminatory."

"Moreover, employers should be aware that credit checks are not always accurate indicators of a person's qualification for a particular job or a valid predictor of job performance," adds the firm.

Sheppard Mullin points out several states-Hawaii, Illinois, Oregon and Washington-ban or...

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