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A Baseless Case: Federal Court of Appeals takes employer’s side in frivolous background check litigation

In recent years, the Equal Employment Opportunity Commission has increased its enforcement efforts against companies that it claims have a discriminatory background check policy. In short, the EEOC believes that a blanket policy against hiring individuals with felonies will have a disparate discriminatory impact on minorities and is, therefore, illegal. As an example of such enforcement efforts, in late 2008, the EEOC filed a complaint against temporary-employment agency Peoplemark, Inc., alleging that Peoplemark had such a blanket, companywide policy.

As it turned out, the EEOC’s allegations were untrue. There was no companywide policy as the EEOC alleged, and the EEOC eventually dropped the suit. Peoplemark, however, had spent thousands of dollars in legal fees to fight the case. Because the EEOC voluntarily dropped the lawsuit, and was not able to prove its allegations, Peoplemark requested from the court that it receive reimbursement from the EEOC of its costs and fees totaling $751,942.48. The United States District Court granted Peoplemark’s request, which the United States Court of Appeals for the Sixth Circuit affirmed and ordered the EEOC to pay Peoplemark. Let’s take a look at how this case came to be and the lessons that can be learned from it.

The Peoplemark story

A prospective Peoplemark employee filed a charge with the EEOC claiming that she was denied a job because of her felony record. The EEOC launched an investigation during which Peoplemark’s vice president and associate general counsel informed the EEOC that Peoplemark had a companywide policy of rejecting felon applicants. The EEOC subsequently subpoenaed documents from Peoplemark. After reviewing the documents, however, it became apparent that Peoplemark did not, in fact, have a companywide policy of rejecting felon applicants, and showed that Peoplemark had referred felons to job opportunities.

Despite documentary proof that Peoplemark did not have a companywide policy concerning felons, the EEOC chose to file a class-action lawsuit which ultimately named 286 individual class members. The EEOC hired experts in an attempt to prove with statistical evidence that Peoplemark’s hiring policies using background checks had a disparate discriminatory impact on minorities. Peoplemark was obliged to hire its own experts to oppose the EEOC’s experts.

After protracted and expensive litigation, the EEOC was unable to prove its case and agreed to voluntarily dismiss the case against Peoplemark, with prejudice, meaning that the case could never again be brought in the future. Both courts found that the EEOC should have recognized, following early analysis of the documents in the case, that the case was frivolous, unreasonable or groundless, and should have dismissed the case much earlier. It was because the EEOC chose to push the case forward, after it should have been aware that the case was baseless, that the Sixth Circuit affirmed an award of fees and costs against the EEOC.

Lessons to be learned

Although the Sixth Circuit’s decision does not foreclose the EEOC from bringing lawsuits based on claims that an employer’s background check policy may have a disparate discriminatory impact on minorities, it certainly highlights the court’s close scrutiny of such claims. It also highlights the persuasive effect of documentary evidence on the court’s decision making process. The court was persuaded by the documents, even though they had been contradicted by statements made by Peoplemark’s vice president and associate general counsel.

The EEOC will likely continue to bring claims based on discriminatory background checks but will do so with more caution in the future. Employers should view this case as an opportunity to ensure their policies and related documentation fully support that any background check procedures are being applied in a legitimate, non-discriminatory manner.

If you have questions about how this case may impact your or your business, please contact one of the attorneys in the Labor and Employment Practice Group at Bingham Greenebaum Doll LLP.

DISCLOSURE REQUIRED BY CIRCULAR 230. This Disclosure may be required by Circular 230 issued by the Department of Treasury and the Internal Revenue Service. If this article, including any attachments, contains any federal tax advice, such advice is not intended or written by the practitioner to be used, and it may not be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer. Furthermore, any federal tax advice herein (including any attachment hereto) may not be used or referred to in promoting, marketing or recommending a transaction or arrangement to another party. Further information concerning this disclosure, and the reasons for such disclosure, may be obtained upon request from the author of this article. Thank you.

  • Partner

    Blaine is a partner in the firm's Louisville office and a member of the Labor and Employment Practice Group. Blaine advises clients on employment law matters arising under a broad range of state and federal laws affecting employers ...



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