Credit History as Hiring Criterion? No, No, No. By L D Sledge, J.D.

In December, 2010, the Equal Employment Opportunity Commission sued the Kaplan Higher Education Corporation for using credit history in its hiring process. The New York Times has the story:  http://www.nytimes.com/2010/12/22/business/22kaplan.html?hpwthe story.

Kaplan, a Washington Post Company, operates a string of for-profit colleges and training schools throughout the country.  The commission alleges that Kaplan has rejected job applicants based on their credit history which has a “significant disparate impact” on blacks. “This practice has an unlawful discriminatory impact because of race and is neither job-related nor justified by business necessity,” the commission said. Private and government surveys have suggested that about half of all employers use credit histories in at least some hiring decisions.

“Disparate impact” is the theory that if a given test or criterion rules out a higher proportion of applicants from one race than from another — which almost any test will, given racial (or in some cases age) gaps in skills and abilities — it’s presumed illegal unless the company can prove it’s “job-related.” And “job-related” doesn’t just mean “significantly correlated with job performance”.   IQ tests may prejudice the ability to perform any given set of tasks, but they are totally verboten.

Justine Lisser, an E.E.O.C. spokeswoman, said that credit histories were often inaccurate and might not be a good indicator of a person’s qualifications for a particular job. “Credit histories were not compiled to show responsibility,” she said. “They were compiled to show whether or not someone was paying the bills, which is not always the same thing.” “This practice has an unlawful discriminatory impact because of race and is neither job-related nor justified by business necessity,” the commission said. The agency did not specify what types of jobs were involved.

So what can be learned from this? Don’t use credit history as an element of hiring rationale.  Buy and read NO FAIL HIRING, and then schedule a workshop to get the confidential details on how to put this foolproof procedure into application.