Some Straight Talk about the High Cost of EEOC Systemic Losses


After the EEOC’s recent defeat in EEOC v. Freeman, a 2009 civil prosecution challenging the use of criminal background checks in hiring, social media came alive with legal alerts from various Biglaw outfits.  I gratefully posted several of them in SEEN, as well as other employment law/HR LinkedIn groups.  After all, with the EEOC’s policy of publicizing only its wins, settlements, and lawsuit filings, it is critically important to present a more balanced and accurate view of the enforcement landscape. 

Odds are, however, that the folks at Freeman are not exactly doing cartwheels over their EEOC victory.  Whatever elation they now feel will surely subside once they receive their legal bill, no matter which law firm championed their successful defense.  EEOC systemic investigations and prosecutions are crushingly expensive for employers and/or their EPL carriers, perhaps unnecessarily so in some ways.  Nevertheless, given the staggering expense of proving that they are right in the first place, employers must DEMAND more responsible and competent use of the EEOC’s prosecutorial discretion and public war-chest. 

Piling on the Attorney Heap

As a freshly-minted EEOC attorney in the 1990’s, it always amused me when I encountered an entourage of defense attorneys at every meeting, deposition or court appearance: if they knew how understaffed, underfunded and overworked we EEOC attorneys were, they’d never send an army to fend off little me, I thought.  When our skeleton EEOC crew successfully prosecuted a systemic age discrimination case, we literally joked about how every attorney in this mid-sized defense firm must be billing on this one case.  At the EEOC, by contrast, we litigated lean. 

Years later as a Biglaw defense attorney, I freaked when the EEOC announced its enforcement shift to systemic discrimination on April 4, 2006 (not coincidentally, the anniversary of Dr. King’s assassination).  I probably even earned the moniker of “Chicken Little of Systemic Discrimination;” in fact, my local colleagues at one Biglaw outpost actually turned my obsessive musings about systemic discrimination into a drinking game. 

Nevertheless, in early 2007, the EEOC hit one of my firm’s giant institutional clients with systemic investigation related to its use of criminal background information in the hiring process.  Given my background (but still, as an afterthought) I became part of an entourage of partners, associates, and adverse impact “analysts” working the file.  I “earned” the responsibility of responding to the EEOC’s RFI’s, while only “relationship partners” communicated with the client’s in-house counsel and could talk in marathon conference calls—i.e., an unduly expensive telephone game. All I knew is that I was really busy; I still have no idea what the other seven attorneys did.  Anyway, about five years after it started and long after I’d left this firm, I learned that the employer settled with the EEOC for over $3.3 million. With seven attorneys billing on the case for five years, I can only imagine the final price tag. In any case, and in my humble opinion,  one (maybe even two) minimally knowledgeable and competent litigators could have settled the case for $3.3m long before incurring five years of Biglaw legal fees. 

At another Biglaw outpost, a partner in a distant office requested my help with a “directed investigation” that the EEOC had initiated, alleging that this employer’s use of a manufacturing skills test screened out older applicants.  I immediately teamed up with my longtime, trusted statistical and test validation expert, understanding quite well the importance of having adverse impact analyses conducted on ANY dataset turned over to the EEOC.  To keep fees low, I advised this one-client partner that EEOC systemic investigations and prosecutions do not require an entourage of lawyers, but rather the right skill set: (1) an excellent statistical and test validation expert; and (2) a knowledgeable legal strategist.  He assigned a giant entourage of lawyers in his distant office anyway, while I (in Colorado) and our expert (in California) formulated and handled the substantive defense.  Ultimately, the EEOC ended its directed investigation after our expert demonstrated the absence of any statistically significant adverse impact against older workers by clarifying several pivotal incorrect assumptions the EEOC had made about the data and applicant flow.  The winning argument was not a LEGAL argument, but rather a STATISTICAL one developed by a PhD-level expert at an hourly rate far less than standard legal fees. 

Winning (in Context)

I fault these experiences for ruining the genuine excitement that employment defense attorneys should enjoy watching our federal courts set limits around the EEOC’s runaway systemic initiative.  In December 2012, for example, a federal judge in Ohio smacked down the EEOC’s flagship prosecution on CREDIT REPORTS, EEOC v. Kaplan University, in which the EEOC had argued that Kaplan’s use to credit reports in hiring financial aid analysts had an adverse impact on African-American applicants.  Problem is, Kaplan did not collect race information in the hiring process.  And so, to support its assumption that this practice disproportionately screened out African-Americans, the EEOC resorted to applicants’ driver’s license photos and data, counting anyone who looked or sounded African-American as African-American–i.e., creepy, racist stereotypes.

Quite understandably, the defense’s PhD-level expert went nuts, establishing that the EEOC’s use of “race raters” was simply too unreliable for admission as expert testimony.  Once the defense knocked out the EEOC’s threshold statistical case on a Daubert motion, the entire EEOC prosecution crumbled on summary judgment. Ultimately, the winning argument focused on statistical, not legal grounds.  According to the Bloomberg BNA write-up of this important defense victory, however, this excellent result necessitated the involvement of eight attorneys, seven from a single firm. 

In EEOC v. Freeman, the district court also sharply criticized the EEOC’s statistical analysis, calling it “an egregious example of scientific dishonesty” and noting a “mind-boggling” number of errors, including miscoding the race of certain job applicants.As in Kaplan, the court dismissed the EEOC’s prosecution on summary judgment with a stinging rebuke, correctly noting that whether a practice causes an adverse impact depends entirely on the composition of the applicant pool, not overbroad assumptions about the impact of criminal background checks generally.  Nevertheless, I wonder how many attorneys it took to advance that winning statistical argument.

Takeaways for Employers and EPL Carriers

Given the realities of the EEOC’s systemic initiative and our courts’ reception of it, three main “takeaways” emerge for employers and EPL carriers:

Winning defense arguments are often STATISTICAL, not LEGAL

Excellent defense outcomes depend on competent adverse impact analyses performed by PhD-level industrial psychologists or labor economists. Despite its professed “expertise”, the EEOC consistently botches the adverse impact analysis necessary to make its prima facie case of disparate impact discrimination. Based on these botched analyses, the EEOC lurches forward with these expensive investigations, even using faulty logic/data to justify seven-figure monetary demands in conciliation or settlement discussions.  A competent adverse impact analysis performed by a PhD-level expert can actually scare away EEOC systemic investigations, minimize the “shortfalls” the EEOC uses to negotiate settlements, and defeat an EEOC prosecution.  Both the Kaplan and Freeman decisions make clear that statistical (not legal) arguments carry the day.

It does not take an entourage of attorneys to present a winning STATISTICAL argument

No doubt, the EEOC hopes to settle every systemic case for millions of dollars as some kind of sick return on its time/money investment; after all, last year, the EEOC equated its historic collections from employers with evidence of “enforcing the law more effectively.”  Million dollar exposure, however, does not justify million dollar attorney “pile-ons.” Because systemic cases often succeed or fail based on threshold statistical considerations, in-house counsel and EPL carriers must become more savvy about the actual skillsets needed to yield cost-effective outcomes—e.g., a PhD-level expert and one (maybe even TWO) knowledgeable attorneys. 

Employers deserve better from the EEOC

Given the staggering defense expense of EEOC systemic investigations/prosecutions, employers must DEMAND more reasonable and competent use of its enforcement powers and prosecutorial discretion.  The EEOC is well aware that employers are spending millions to fend off its systemic investigations and prosecutions, which are often based on faulty, even “laughable” and “scientifically dishonest” statistical analyses.  Notably, the EEOC’s entire systemic initiative hinges on the theory that certain employer screening practices adversely affect certain protected groups more than others, “a theory in support of facts to support it,” as the Freeman court described.  While this theory may have generalized support in social scientific literature, the determination whether a particular employer’s practice causes an adverse impact depends entirely on a specific applicant pool.  As a practical matter, therefore, the EEOC has placed individual employers in the unfortunate position of spending millions to disprove the EEOC’s generalized theory about credit and criminal background checks, a theory that has not stood up particularly well to the scrutiny of peer review and the litigation process.  

Despite the EEOC’s recent setbacks, employers and EPL carriers are probably stuck with the EEOC’s preference for big, systemic cases for the foreseeable future.  Employers and EPL carriers must, therefore, get smarter about how these cases are defended and staffed.   Unfortunately, most attorneys personify the old adage “he who is good with a hammer thinks everything is a nail.” They treat indispensable experts like playthings, not partners, and then overstaff the matter with the wrong skill sets (e.g., layers of attorneys).  If employers are going to weather the EEOC’s systemic storm intact, however, they must learn to use the right “tools” for the case.