The Lessons of EEOC v. Freeman – “Know when to hold ’em. Know when to fold ’em.”

3d person with casino chipsI was going to skip past this opinion from the District of Maryland until I realized that it started with a reference to a classic country song and, therefore, it immediately moved up my list and became worthy of a closer read.

World-renowned poker expert Kenny Rogers once sagely advised, “You’ve got to know when to hold ’em. Know when to fold ’em. Know when to walk away.”

In the EEOC v. Freeman opinion published in September, the court explained the company, Freeman, held the royal flush and the EEOC held nothing. Continuing the analogy throughout the introduction, the court found that, “Like the unwise gambler, it did so at its peril. Because the EEOC insisted on playing a hand it could not win, it is liable for Freeman’s reasonable attorneys’ fees.”

This case is based on Freeman’s practice of running background checks on applicants after conditional offers were made and credit checks on applicants in financially-sensitive positions with conditional offers.  The EEOC alleged that Freeman’s use of background checks had a disparate impact on African-American, Hispanic, and male job applicants.

“The EEOC is certainly entitled to attempt to police the use of background checks through litigation, and to attempt to use litigation to challenge whether an employer’s use of background checks is ‘job-related for the position in question and consistent with business necessity.’”  However, the United States District Court for the District of Maryland made clear that the analysis does not get to the “job-related” inquiry unless there is first reliable evidence of a disparate impact.

Here, the court found it was unreasonable for the EEOC to continue its investigation with the lack of proper analysis demonstrating disparate analysis and, instead, choosing to rely on flawed investigative reports. Ultimately, the court awarded over $938,000 in attorneys’ fees to Freeman.

Disparate impact cases (where an otherwise neutral policy have a disproportionate effect on a certain group) certainly remain a hot topic and were, in fact, one of the topics of presentations at the 2015 Annual Employment & Labor Law Fall Seminar sponsored by the State Bar of Arizona in Sedona last weekend. While this case is an example of one that turned out in favor of the company, it underscores the importance for both parties in litigation to get an early grasp of the statistics in the case and the determination of whether there is or is not a disparate impact.

About Ashley Kasarjian

Attorney at Snell and Wilmer in Phoenix, Arizona, and publisher of the blog, Employment and the Law.
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