Get Ready Hiring Managers: Here Comes the EEOC, and It’s Mad!

In case you were enjoying yourself over the holidays instead of reading my critically-acclaimed (OK, criticized) articles, my objective is to bring best practices to the HR forefront. Experience shows organizations that make informed hiring and promotion decisions (e.g., based on objective job-related tools) tend to have happier employees, are more successful, and reduce their potential for unfair hiring practice challenges.

That said, in case you might have missed Hiring the Kind of Salespeople You Only Dream About, I found John Zappe’s EEOC article a great companion. That is, if your organization routinely uses credit checking when hiring salespeople, you might want to know how the present Washington administration treats employers who don’t do their hiring homework.

(It’s OK, I’ll wait here while you catch up).

Get Ready!

We live in a confusing world where politicians are always on the lookout for reasons why their voting block is not being hired; where the government does not require organizations to hire unqualified employees; and, where adverse impact is not illegal. On the other hand, if someone thinks your organization does not have enough employees of the right color, gender, age, religion, and so forth, government agencies are empowered to be in your face!

Let’s start with an oversimplified explanation of the audit process. First, they (EEOC or OFCCP) process a complaint. Second, auditors use stats to examine your employee demographics. Third, if the stats show adverse impact, you are (on the face of the data) guilty of discrimination. The government could care less about how individual employees perform. Analysis is done at the group level. This can catch even the largest organizations flat-footed. Predictably, teams of $750/hour attorneys will be hired, everyone will argue back and forth for months, and eventually the organization $ettle$ out of court. (Note, although there are hiring exemptions extended to small business and special interest groups, best practices work for everyone).

Get Set!

The outcome of a legal challenge is unpredictable. The cost of a legal challenge is not. There are ways organizations can substantially strengthen their defense; and, the best part is, the government even tells you how to do it! Let’s say that, on the face of statistical analysis, your organization looks like a socially bankrupt, adverse-impact loving, discrimination-monger. No problem. Just show them records outlining: business necessity, job-relatedness, validation, documentation, tracking, and efforts to reduce adverse impact.

What? You don’t have them? You have a better way? Who made that decision? No matter. You’re screwed and your attorney is about to get a brand new Mercedes. You see, organizations that do not care about following best practices because their goal was filling open slots and surviving probationary periods inevitably have both weak employee bench-strength and shoddy legal credibility.

Go!

Let’s re-visit credit checking. The main reason why organizations only hire people with good credit scores is “everyone knows” they perform better. Right? Wrong? Maybe? Consider this: Low-income people usually have poor credit scores. High income people usually have better credit. But wait! Protected groups are usually low income. Knock, knock. Who is there? Audi! Audi who? Audi-tor! Open your wallet, and stop your clocks. This is going to hurt!

Unless you can document (using pencil and paper) how bad credit is directly related to job performance, you really don’t have a legal credibility (or job performance) leg to stand on. It makes as much sense as reading horoscopes and refusing to hire anyone other than a Gemini because you think he or she will give you twice the productivity.

Establishing Validity

You cannot just ask a credit report or test vendor for assurance his or her test works as promised. That’s a non-starter. Even if someone else already did all the validation work, you still have the responsibility to show your job is essentially the same as theirs … business necessity, job relatedness, and validity.

Making a strong case for credit checking as a hiring tool always starts with thoroughly understanding the job. It might be appropriate in jobs where employees or salespeople handle valuable goods or have ready access to cash. In this case, business necessity might be argued that employees with prior credit problems are more likely to steal than people with clean records.

We’re done now, right? Nope! The EEOC and OFCCP like to see something called criterion validity. That is, they want more than your opinion. They want proof that scores accurately predict job performance. This can either be present-day (concurrent validity) or future-oriented (predictive validity). Present-day validation studies compare today’s credit scores to today’s job performance. Future-oriented studies require collecting (and ignoring) credit scores, waiting long enough to get a good reading on performance, and then comparing them.

Next, we have to define job performance. In the case of salespeople who handle cash we might use shortages. Or, we might examine shrinkage if salespeople work around negotiable goods. Employees who may be tempted to give concessions or award services might require deeper investigation. Every job has different performance criteria. The golden rule is if you cannot define it, then your reason for using it becomes weaker and weaker.

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Scoring

Then we have the whole issue of how we use the scores we get. Should we use low, medium, or high bands? Maybe zero to one hundred? How about pass/fail? Do we look at only a few people or a whole gaggle? Banks for example, know sample-sizes can be misleading. They analyze huge numbers of borrowers and look for trends. Why do you think they ask you how long you lived at your last address or whether you owned a home? Taken alone, these tidbits provide little data, but when combined with other factors, they give the banks enough information to evaluate the risk of lending you money. (Contrary to what the media claim, the business of banking is lending money … they just want to get it back).

Just remember, every decision has its consequences.

Make Your Own Prediction

Here’s a prediction to think about. Which of the following organizations is more likely to be considered a socially bankrupt, adverse-impact, discrimination-monger? Company A that conducts traditional interviews and hires only applicants with good credit? Or, Company B that follows best practices by showing business necessity and job relatedness, uses validated tools, keeps documentation, tracks adverse impact, and makes ongoing efforts to reduce adverse impact?

Seems like a no-brainer to me.