A recent lawsuit filed against RadioShack Corporation in federal court in Tennessee claims the company’s practice of using credit reports to evaluate job applicants discriminates against minorities and violates Title VII of the Civil Rights Act. The lawsuit was filed on behalf of an African-American man who was denied a job at RadioShack in 2005 and “all others similarly situated.” The lawsuit’s request for class action status asserts the prospective class includes “thousands of persons.”

The claim against RadioShack is significant because it does not focus on alleged intentional discrimination against an applicant. Rather, it relies on a less often used theory under Title VII that is based on proving that a facially neutral employment practice has a “disproportionate impact” on a protected group. In the RadioShack case, the lawsuit claims the company’s practice of relying on credit information to make hiring decisions discriminates against African-Americans and Hispanics in violation of Title VII because those groups typically have lower credit scores than the rest of the population. Therefore, the lawsuit alleges, credit screening has a “disproportionate adverse impact” on them.

To avoid liability on a disproportionate impact claim, an employer may prove that its screening practice was job-related for the position in question and consistent with business necessity.

This lawsuit illustrates the risk of relying on blanket rules that eliminate applicants based on credit reports. Similar challenges have been made to screening practices that automatically eliminate candidates based on arrests, criminal convictions, and even educational requirements that have no reasonable relation to a particular job. Although employers may, in the right circumstances, use credit scores, criminal convictions or other similar information as justification for not hiring an applicant, the automatic elimination of candidates without individualized consideration is more likely to land an employer in a disproportionate impact lawsuit. Prudent employers should examine their hiring practices and seek legal advice if they use credit scores or other blanket screening tools.

For questions regarding this Alert or other employment matters, contact Louis Meyer at lmeyer@poynerspruill.com or 919.783.2810, or Susie Gibbons at sgibbons@poynerspruill.com or 919.783.2813.