Credit History Screenings
Credit history screenings can have a disproportionate impact on certain groups, such as racial minorities and women, who may statistically have lower credit scores due to historical economic disparities. This disparate impact can lead to legal liabilities if not addressed.
The Equal Employment Opportunity Commission (EEOC) has challenged credit checks that are not demonstrably related to job requirements. To mitigate this risk, employers should limit credit checks to positions where financial responsibility is directly relevant to job duties.
Several states have enacted laws restricting employers’ use of credit information in employment decisions. When using credit checks, employers should establish clear policy criteria for how credit information will affect employment decisions.
An individualized assessment of credit issues, including consideration of extenuating circumstances, can help mitigate disparate impact concerns. Regular analysis of how credit checks affect different demographic groups can help identify potential disparate impacts before they become legal liabilities.
To minimize the risk of disparate impact, employers should regularly review their practices and policy regarding credit history screenings. By doing so, they can ensure compliance with relevant laws and regulations, reducing the risk of legal challenges.
The effect of credit history screenings on diverse groups should be a key consideration in developing employment practices. Employers must balance their need for credit checks with the potential impact on protected classes.
Developing Legally Defensible Employment Policies
To avoid disparate impact liability, employers must develop employment policies that are grounded in job-related criteria and justified by business necessity. This approach not only helps in minimizing legal risks but also ensures that the policies are fair, effective, and aligned with the organization’s goals.
Job-Related Criteria
Developing legally defensible employment policies begins with ensuring all criteria are genuinely job-related. This involves conducting thorough job analyses to document the essential functions of each position and the skills, knowledge, and abilities required. By doing so, employers can create selection criteria that are directly related to the job’s requirements rather than relying on traditional or convenient practices.
Selection criteria should be developed based on these job analyses. This ensures that the criteria are relevant and necessary for the job, thereby reducing the risk of disparate impact. Validation studies play a crucial role in establishing that selection procedures accurately predict job performance.
