Less than three weeks after oral argument, the Sixth Circuit affirmed a lower court order granting summary judgment in favor of Kaplan in one of the EEOC’s most high profile cases – EEOC v. Kaplan Higher Education Corp.

The EEOC brought suit against Kaplan for using credit-checks in its hiring process – “the same type of background check that the EEOC itself uses” the Sixth Circuit pointed out – claiming that the practice had a disparate impact on African Americans.

On Jan. 28, 2013, Judge Patricia A. Gaughan of the U.S. District Court for the Northern District of Ohio granted summary judgment in favor of Kaplan, finding that the EEOC’s statistical evidence of disparate impact was not reliable and not representative of Kaplan’s applicant pool as a whole. (Read more about that ruling here.)

The Sixth Circuit found no abuse of discretion. The EEOC’s “homemade” methodology for determining race – by asking its “race raters” to label photographs – was, in the Sixth Circuit’s words, “crafted by a witness with no particular expertise to craft it, administered by persons with no particular expertise to administer it, tested by no one, and accepted only by the witness himself.”


The EEOC filed suit against Kaplan alleging that Kaplan’s use of credit-checks causes it to screen out more African-American applicants than white applicants, creating a disparate impact in violation of Title VII.

In support of its allegations, the EEOC relied on statistical data compiled by Kevin Murphy.  Because Kaplan’s credit check process was race-blind, the EEOC subpoenaed records regarding Kaplan’s applicants from state departments of motor vehicles. Thirty-six states and the District of Columbia provided color copies of approximately 900 drivers’ license photos.

Murphy assembled a team of five “race raters” and directed them to review the photos and classify them as “African-American,” “Asian,” “Hispanic,” “White,” or “Other.” Murphy also provided the raters with applicant names.

Based on the results of this “race rating,” Murphy opined that, in a sample of 1,090 (out of 4,670 applicants), the percentage of black applicants who were flagged for review based upon their credit histories was higher than the percentage of white applicants who were flagged.

The district court excluded Murphy’s testimony as unreliable for two reasons. First, the EEOC presented “no evidence” that Murphy’s methodology satisfied any of the factors that courts typically consider in determining reliability under Federal Rule of Evidence 702; and second, as Murphy himself admitted, his sample was not representative of Kaplan’s applicant pool as a whole. The district court granted summary judgment in favor of Kaplan, and the EEOC appealed.

The Sixth Circuit’s Opinion

The Sixth Circuit affirmed. The Sixth Circuit noted that, as the proponent of expert testimony, the EEOC bears the burden of proving its admissibility. It determined that the district court did not abuse its discretion in finding that the EEOC failed to make such a showing.

The EEOC argued that the district court erred in finding that it had “wholly fail[ed]” to provide evidence that its technique had been tested or had any “known or potential rate of error.” The EEOC contended that it provided such support in the form of “anecdotal corroboration.” That is, as to 57 applicants, Murphy cross-checked his raters’ classifications with racial identifications provided by a DMV or Kaplan.

The Sixth Circuit noted that the EEOC’s cross-check yielded an 80% match – “an unimpressive correlation in case where a few percentage points (in credit-check fail rates for blacks and whites) might make the difference between significant liability and none.” In any event, as Murphy himself conceded, a mere 57 instances of anecdotal corroboration is “not enough” to establish the reliability of his photo rating methodology.

As the Sixth Circuit found, “[t]he EEOC’s case goes downhill from there.” The EEOC failed to present evidence that its technique was subjected to peer-review or publication, failed to show that Murphy employed standards to control “the technique’s operation,” and presented no evidence that Murphy’s race-rating methodology was “generally accepted in the scientific community.” The raters themselves “had no particular standard in classifying each applicant; instead, they just eyeballed the DMV photos.”

Finally, as an independent ground for excluding Murphy’s testimony, the district court found “no indication” that Murphy’s group of 1,090 applicants was representative of the applicant pool as a whole. The Sixth Circuit noted that, “[i]nstead there is a strong indication to the contrary: Murphy’s group had a fail rate of 23.8%, whereas the GIS applicant pool had a fail rate of only 13.3%.” It held that an unrepresentative sample “by definition” might skew the respective fail rates of black and white applicants in the larger pool – “and thus is not a reliable means to demonstrate disparate impact.”


In its opinion, the Sixth Circuit staunchly critiqued the EEOC’s “do as I say, not as I do” litigation tactics. It noted (in the first line of its opinion) that the EEOC “sued the defendants for using the same type of background check that the EEOC itself uses.” It also noted, as the district court observed, that “the EEOC itself discourages employers from visually identifying an individual by race and indicates that visual identification is appropriate ‘only if an employee refuses to self-identify.’”

This blog was previously published by Seyfarth Shaw LLP.


 Captive legislation signed into law late last week, among other provisions, creates a “dormant” status for captives, allowing a captive that has ceased insurance operations to cost-effectively retain its license so that it can eventually resume operations.

The new legislation, which takes effect immediately, offers a feasible option to closing a captive, said David Provost, deputy commissioner of Vermont’s captive division, who worked with the Legislature on the new changes.

He told Risk Management that the state currently has about 10 captives that fall into this category. “There are a number of situations that could prompt a company to close its captive,” he said. For example, the captive’s parent company could be in a net-loss situation for an extended period of time and “any tax benefit they had with the captive disappears and so they close the captive.”

Another example is a merger, “where the acquiring company says, ‘We’re not in the insurance business.’” The new law allows management to keep the captive “until it realizes the benefits it provides,” he said. “This is an option to very inexpensively keep their license active. They can pay the license fee, skip the taxes, and then if they are ready to resume the captive, it’s already here.”

Holding onto the captive’s license means the parent company can avoid reincorporating or going through the application process again. What’s more, the captive managers and other business relationships are already in place. Controls are also built into the legislation, so that even though the captive is an “empty shell,” the company still provides regular reports to the domicile, Provost said.

The legislation was crafted with input from the Vermont Captive Insurance Association. A complete copy of the bill will be posted on the Vermont Legislature’s website, a copy of the bill as passed with amendments is available at: http://www.leg.state.vt.us/docs/2014/bills/Passed/H-563C.pdf.



A majority of organizations plan to grow in 2014 (71%), with almost one-third of companies with 4,000 or more employees predicting their staff will grow by 6% or more, according to the “Employment Screening Benchmark Report” by HireRight.

Employers cited acquiring talent as a core business challenge. The majority, more than three-quarters, said they prefer traditional methods for recruiting, such as online job boards. However, they could be missing hiring opportunities by not using social media. Nearly 60% of those surveyed said they are not using Twitter, LinkedIn or other means to find qualified candidates, the study found.

The study also found that (83%) of companies screen their potential employees. Of those, almost three-quarters, said they discovered issues that would not have been uncovered otherwise and more than half reported that screening improved the quality of their hires. The top benefits of screening were reported as:

• A better quality of employees hired (56%)

• More consistent safety and security (52%)

• Improved regulatory compliance (48%)

• Better company reputation (22%)

• Greater employee retention (17%)

But while a majority of respondents screen prospective employees, some organizations may have gaps in their screening programs. According to HireRight:

Contingent workers often represent a significant part of an employer’s workforce, and can include those in critical positions, so failure to screen these workers at the same standard employees are screened can present a substantial risk for organizations…The lack of a contingent workforce screening program has the potential to lead to workplace violence or fraud and can result in negligence claims. Negligent hiring cases have had verdicts of up to $45 million, and the average negligent hiring lawsuit settlement is nearly $1 million.



Ernst & Young has released its new 2014 insurance CRO survey, “Increasing authority and higher organizational profiles,” highlighting top trends and challenges reported by chief risk officers and senior risk executives from more than 20 top American insurance companies. Top themes in this year’s results were the expansion of CRO authority, the challenge of managing the “tsunamis” of effects stemming from new domestic and international regulation, and shifts in CRO focus from survival to effectiveness. Those surveyed also reported that they are spending more time with the board and senior business leaders, and that they are becoming involved in more types of business issues. ERM was also a top accomplishment and key priority for risk managers looking ahead to 2014 challenges.

Some particularly interesting responses to the new study include:

What was your most important accomplishment over the past year?

EY Question 1 Graph

To which will you devote significantly more attention in the next 12 months, compared with the last 12?

EY Question 2

How do you know your risk function is creating value?

EY Question 4

Other than the four main risk categories (credit, market, insurance and operational risks), what risk management areas are you responsible for?

EY Question 10

What is your access to the board?

EY Question 11

Click here for the full report.

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