Need to Know!

Avoid Unintentional (Disparate Impact) Discrimination – It is Good Business!!!

November 21, 2014 10:28 pm

Introduction

There is often a visceral reaction by landlords and employers to legislation or regulatory activity that would limit use of credit
and public records data for tenant and employee screening purposes – even when there is little evidence that doing so is effective.  

Limits these days are often associated with the disparate impact legal theory. Under this theory, a business practice that has a disproportionate (and negative) impact on protected individuals can form the basis of a (housing or employment) discrimination claim.  The defense against such claims is “business necessity”, but only when there is no practical alternative – no way to accomplish the same thing without (as HUD calls it) a discriminatory effect.

Analysis

Assume for the sake of argument, that the courts or regulators are right in entertaining certain claims based on the disparate impact theory – that there is no correlation between use of certain information and job or lease performance.  Assume further that there is an alternative to the practice that avoids the discriminatory effect. Are we not better off as landlords and employers knowing that and basing our decisions on factors that are truly predictive and not discriminatory?  Of course!

The tension that exists in this area is reminiscent of the 1970’s – when discrimination based on race and sex was (relatively) common – when in response to a combination of the Civil Rights Act of 1964 (as amended in 1972) and a rash of precedent setting lawsuits – companies began to rethink their hiring practices – to limit themselves to objective criteria and apply those criteria consistently. 

Rather than resulting in disaster as some predicted – we found that doing so made us better – expanded the pool of qualified candidates and resulted in better hiring decisions.  Who now would reject a well-qualified applicant simply because of their sex, race or national origin?

So the answer in the 70’s was to focus on objective measures and to apply those measures consistently.  Doing so became the gold standard – certainly among human resource professionals.  But now – after a closer look – it is clear that some of those “facially neutral” practices have a disparate impact on protected individuals – that there is little or no correlation between use of those practices and the quality of the selection process.

There are two practices that are getting the bulk of the attention these days – use of credit for employment screening purposes
and use of criminal records data for both tenant and employment screening purposes.

There is little doubt that use of credit information for employment purposes has a disparate impact on some protected
groups.  There is growing evidence that there is little or no correlation between credit standing and job performance.  Many states have passed legislation limiting use of credit for employment screening purposes for that reason. Others will soon follow.  Note that we might argue successfully, the value of credit information to underwrite the risk of fraud or dishonesty at the executive level or positions in finance.

Few would quarrel with the importance of reviewing credit history as part of the tenant screening process – since an individual’s
credit history reflects their ability (and willingness to some extent) to pay rent.  That said, there are those with marginal credit profiles who always pay their rent on time – those who notwithstanding overwhelming student debt or medical collections – always pay their rent on time.  Use of credit scores for tenant screening purposes may well represent a disparate impact legal exposure.  Basing your decision on credit detail, on the other hand, is both more predictive and less discriminatory.

Use of criminal records is a more complex issue.  Most agree that criminal records are pertinent to the tenant and employee
screening process.  Landlords and employers have a duty to protect themselves, residents, employees and customers.  Indiscriminate use of criminal records data, however – a blanket policy that denies tenancy or employment for any and all criminal convictions regardless of the nature of the offense and when it occurred – may well be a problem.  Use of records of arrests alone, is almost certainly a problem.

The bottom line is this.  Not all crimes are pertinent to the screening process.  The nature of the offense and when it occurred matter and should be considered.

Conclusion

Our goal as landlords and employers is to find and approve well qualified applicants – not to reject them.  It is in our interest,
therefore, to focus on data that is truly predictive – that is not directly or indirectly discriminatory – since doing so will keep us out of trouble with the courts and regulators AND drive superior results!

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