By Laura Berndt, Beth Hanson and George Lenard

Introduction

Recently the EEOC held a public meeting to look into “the emerging practice of excluding unemployed persons from applicant pools” and whether such a practice is unlawful under federal discrimination laws.

The press release from the EEOC meeting questioned using “current employment as a sign of quality performance” (and thus a standard for hiring), stating that any such “correlation is decidedly weak” and that “blanket reliance on current employment serves as a poor proxy for successful job performance.”

Discrimination against the unemployed also has negative socio-economic impacts, most obviously on government efforts to lower the high unemployment rate.

Christine Owens, Executive Director of National Employment Law Project (NELP), said:

At a moment when we all should be doing whatever we can to open up job opportunities to the unemployed, it is profoundly disturbing that the trend of deliberately excluding the jobless from work opportunities is on the rise.

More importantly from the EEOC’s perspective, excluding unemployed persons from consideration for jobs may have a disparate impact on women and racial minorities and thus may be unlawfully discriminatory.

While full documentation of the written testimony on discrimination against unemployed applicants presented at the meeting can be found on the EEOC’s website, this post will summarize the highlights.

The Practice of Not Hiring Unemployed Applicants

According to the written testimony of Christine L. Owens, Executive Director of the National Employment Law Project (NELP):

Stories suggesting systematic exclusion, often blatant, of unemployed workers from consideration for jobs began to emerge early last summer.

Blatant Exclusions in Job Ads

The blatant exclusions include job ads explicitly stating, “Must be currently employed,” and the like.

Other bans on hiring unemployed applicants focus on length of unemployment, usually six months or more being the criteria. This can be described as a requirement of recent employment.  

According to Helen Norton, Associate Professor at the University of Colorado School of Law, employers and staffing agencies have publicly advertised jobs in fields ranging from electronic engineers to restaurant and grocery managers to mortgage underwriters with the explicit restriction that only currently employed candidates will be considered.

James Urban, a partner in the Jones Day law firm, disputed the prevalence of this practice, stating he believed it “is not a widespread practice among employers to disqualify applicants on the basis of unemployment.“ He mentioned having reviewed the “help wanted” sections from three major metropolitan newspapers, and not having found “one single advertisement in any of these publications stating that the unemployed need not apply [or] … anything remotely close to such a statement.”

Since Norton reached the opposite conclusion, perhaps she simply dug a bit deeper (taking a more thorough and professorial approach) and found information a cursory spot-check by a busy lawyer such as Urban could easily overlook.

HR Professionals Produce Evidence of Exclusion of Unemployed Applicants

Some employers openly admit they prefer employed applicants, even if they don’t go so far as to mention it in job ads. Unfortunately, experts believe there are many more employers who secretly practice the same favoritism. Owens of NELP testified:

There is no official data on how frequently unemployed workers are denied consideration for jobs because of their employment status, but the brazenness of the ads . . . and the experiences jobless workers shared with us suggest the practice is fairly common. That suspicion is borne out by comments of human resource consultants and recruiters willing to go on record about the practice.

Adecco Group North America’s Vice President of Learning and Performance Rich Thompson said that the practice of only hiring applicants who are currently employed is “more prevalent than it used to be.”

New Jersey-based human resources consultant Lisa Chenofsky Singer also has been quoted as saying that recruiters are not interested in applicants who are not currently working:

Most executive recruiters won’t consider a job applicant unless they are employed (although most won’t admit this.)

Isang Inokon, a health-care recruiter, said it is difficult to place the jobless because employers “want somebody who’s wanted,” (i.e., still employed.)

In its testimony before the EEOC, NELP provided the example of a 53-year-old woman from Illinois who lost her job of 19 years as an IT help supervisor in 2008, has been unemployed and unable to find a job since, and has currently exhausted her unemployment benefits and applied for food stamps.

On one occasion, several months into her job search, a headhunter who originally was excited about this woman’s qualifications told her he would be unable to interview her because she had been unemployed over six months, which was against his company’s policy.

Whatever the prevalence of policies of excluding unemployed applicants, recent data shows they have a harder time finding work the longer they are unemployed:

Just over 30 percent of unemployed people who had been out of work for under five weeks were hired in an average month in 2010, while that number dropped below 20 percent for those who had been unemployed for up to 14 weeks, below 15 percent for a jobless duration of 15 to 26 weeks, and so on.

Is Discrimination Against the Unemployed Unlawful Disparate Treatment?

As with any employment decision or practice, the lawfulness of not hiring an applicant because of their lack of current or recent employment must be considered under both of the main theories for proof of employment discrimination: disparate treatment and disparate impact.

The Disparate Treatment Theory of Discrimination

As its name suggests, the essence of the disparate treatment theory is that the complaining individual was treated differently than others because of their protected characteristic (race, sex, age, etc.).

Normally, proof under this theory focuses on:

• Comparisons to other employees who do not have the protected characteristic, and/or
• Challenges to the credibility of reasons the employer gives for its action. If the employer’s stated reason doesn’t hold water, it may be found to be a pretext, or lie, covering up intentional discrimination.

The bottom line under the disparate treatment theory is that the employer intended to treat someone differently for a discriminatory reason, i.e., because of their protected characteristic.

How Exclusion of Unemployed Applicants Might Be Disparate Treatment Discrimination

Helen Norton’s testimony at the EEOC meeting states there are at least two situations in which an employer’s requirement of current or recent employment might support a disparate treatment claim:

1. If the employer required this of some applicants but not others, based on a protected characteristic, e.g., screened out female applicants because of lack of current or recent employment, but ignored this factor when considering males.
2. If the employer used lack of current or recent employment as a pretextual reason to reject applicants when the true reason was their protected characteristic.

The distinction between the two is subtle. Either way, this would be intentional discrimination and the element of disparate treatment would be present. But in the first situation applicants would not necessarily know that their employment status was a decisive factor, whereas in the second they would be expressly told it was, as a false excuse for discriminatory exclusion based on a protected characteristic.

Does Discrimination Against the Unemployed Have Unlawful Disparate Impact?

In contrast to disparate treatment, under the disparate impact theory unlawful discrimination may be proven despite the absence of any intent to discriminate and despite the fact all individuals were treated the same.

Disparate impact occurs when the employer applies a uniform requirement, such as that all employees hired for a certain position must pass a test or possess a certain qualification.

This may seem to be the epitome of nondiscriminatory, neutral fairness, but the test or standard may disproportionately exclude people having certain protected characteristics. If it does so to a significant degree, and there is no adequate business reason for using it, or there is an alternative that would have a less severe impact, then its use is unlawful.

With respect to a requirement of current or recent employment, disparate impact refers to the possibility that applying this requirement identically to all applicants – e.g., rejecting all unemployed applicants regardless of age, race, sex – may be unlawful discrimination because while “facially neutral,” it may not be neutral in impact, disproportionately rejecting blacks, women and/or others with protected characteristics.

More information on disparate impact can be found in this earlier post, which highlights the Civil Rights Act of 1991’s amendments to Title VII dealing with disparate impact.

NELP found that older workers are more likely than their younger counterparts to be unemployed for long time periods. Bans on hiring those without current or recent employment also more significantly impact racial minorities, who experience higher rates of unemployment.

Disparate Impact on Racial and Ethnic Minorities

Algernon Austin, Director of the Program on Race, Ethnicity, and Economy at the Economic Policy Institute testified at the EEOC’s meeting concerning the impact of not hiring unemployed applicants on racial minorities, specifically African Americans, Hispanics, Asian Americans, and Native Americans. He cited these facts:

• The disparity between the unemployment rates of African American and white workers has been at a ratio of two to one since the 1970s. “[A]ll black workers, regardless of educational attainment, are more likely to be unemployed than white workers.”
• Throughout the past decade, Hispanics have faced an unemployment rate 1.5 times that of whites. As with African Americans, this rate is about the same among all levels of educational attainment.
• While the overall unemployment rate of Asian Americans is lower than whites, it is higher among college-educated Asian Americans. Additionally, Asian Americans have experienced a higher long-term unemployment rate than other racial groups.
• Native Americans have an overall unemployment rate 1.7 times that of whites. In some regions, such as Alaska, the rate is as high as three to one.

Austin concluded:

All of this means that any practice which disadvantages currently unemployed workers relative to similar employed workers will likely have a disproportionate negative impact on people of color.

Disparate Impact On Women

Given that women represented only three out of ten jobs lost in the recession, it may appear unlikely that exclusion of applicants based on lack of current or recent employment could have a disparate impact on women (if anything, it might seem to have a disparate impact on men).

But National Women’s Law Center Vice President Fatima Goss Graves testified in the EEOC meeting that women have fared far worse than men in the recovery.

According to Ms. Graves, between July 2009 and January 2011, men gained 438,000 jobs, while women lost 366,000.   One possible reason for this disparity in women’s hiring rate could be companies only hiring those who are currently employed.  This practice would have the effect of excluding women who have taken time off work to be caregivers to children or other family members and are now ready to re-enter the workforce.

Disparate Impact on Individuals With Disabilities

Joyce Bender, CEO of Bender Consulting Services — who has both professional and personal knowledge and experience regarding living and working with disabilities — said this about employers not hiring unemployed applicants:

[T]he practice of excluding persons who are currently unemployed from applicant pools is real and can have a negative impact on persons with disabilities. . . .

[N]early 80% of Americans with disabilities are not considered to be in the labor force . . . . Of the remaining 20%, 13.6% are unemployed.

The majority of applicants with disabilities do not have work experience, and even if they do, it is often not current work experience. . . .

For many Americans with disabilities, the closing of the door to employment does not occur after the interview, it occurs before it when human resources “gate screeners” prevent the person from even getting an interview. . . .

[C]ountless times I have heard the same excuse: “If only this person had current work experience, we would be happy to interview them.” Hiring managers call it seeking the “best qualified” talent for their company and no overt discriminatory comment is made, but I am concerned that for some of these employers discrimination is a factor [disparate treatment]. And even where it is not, the impact on workers with disabilities is the same; they are eliminated from the applicant pool [disparate impact]. . . .

I understand that for certain positions, experience is required; however, not every position with a specific employer requires current work experience, even in a high-tech industry. . . .

[O]ur national goals for increasing employment amongst Americans with disabilities will never be met if the only way to gain an interview is to be currently employed.

Is There a Business Justification for Excluding Unemployed Applicants?

In assessing the lawfulness of excluding unemployed applicants or those without recent work experience under the disparate impact theory, if a sufficient impact based on a protected characteristic is shown, the employer is liable for discrimination absent proof of a valid business justification.

Norton testified that in her opinion there is no valid business justification for making current or recent employment a requirement for hiring. She considered, and rebutted, three possible justifications:

1. Some employers may use current employment as a signal of quality job performance, believing that to have retained a position in such a tough economy is evidence of job success.
2. Others “may use current employment as a proxy for relevant experience,” believing those who lack current or recent employment must have outdated skill sets.
3. Some “might use a current-employment requirement simply to reduce the number of applications received” or to screen them down to a manageable number.

Norton addressed these in turn.

First, she noted there are multiple reasons for a person to be unemployed that have no correlation with job success, such as:

• Having been in school or in a training program.
• Having had to leave a job because of a spousal relocation.
• Having lost a job solely because lack of seniority during employer downsizing.
• Having lost a job solely because the employer eliminated an entire division or shut down altogether.
• Having left employment temporarily due to illness, injury, disability, pregnancy, or family caregiving responsibilities.

Second, current employment is not a valid measure of experience for entry-level jobs that do not even require previous experience. And for other jobs, “[m]ore accurate (and less discriminatory) alternatives include more individualized assessments, such as posing problems or questions in interviews or tests that measure relevant contemporary knowledge, as well as asking questions that reveal recent experience or recent education and training.”

Finally, if the purpose is simply the administrative benefit of reducing applications to a manageable number, Norton said this “has no relationship to candidates’ successful job performance, and thus is not job related for the position in question.”

The Counter-Argument

James Urban of the Jones Day law firm took issue with applying the disparate impact theory to practices of not hiring the unemployed.  He said:

[A]ccording to BLS statistics, the most recent unemployment rate for Hispanics is 11.9% percent; for whites the rate is 8 percent. This means that 88.1% percent of Hispanics and 92 percent of whites are employed. The four-fifths rule applied to these numbers reveals that the employment rate for Hispanics exceeds 80 percent of the employment rate for whites. In fact, it is more than 90 percent (88.1 divided by 92) of the rate for whites. The same holds true for the national unemployment rates for African-Americans. The BLS unemployment national averages do not establish disparate impact for any of the identified groups.

Urban appears to be far off the mark, at least if he is implying that “the same” is true of African-Americans’ unemployment rate as that of Hispanics. According to the BLS, the unemployment rate for African-Americans in March was 16.5%, close to twice the white rate of 8.7%.

Urban is applying an 80% rule of thumb for assessing the statistical significance of disparate impact that has long been in use, but is not recognized as an absolute by the courts or EEOC.

He is correctly pointing out that mere disparate impact is not enough; it must meet a standard of significance.

But the fact the EEOC held a meeting on this subject in itself indicates the agency is likely to have grave concerns about the extent of disparate impact that would follow from the racial and other disparities in unemployment discussed above, even if the 80% test is not quite met.

Certainly, Urban posits what could be put forth as a defense in litigation to a disparate impact claim in such situations. But it is far better for employers to avoid litigation by recognizing the weakness of potential business justifications for routinely excluding applicants who are unemployed or not recently employed — assuming the disparate impact of such a practice could be established.

Urban said “employers in most all circumstances are looking to hire the best candidate for the position that is being filled and, to that end, solicit, welcome and consider all qualified candidates regardless of their employment status.”

That is how it should be.

Conclusions

The Benefits of Hiring an Unemployed Candidate

Hiring an already-employed candidate does little to help the economy. While in some instances it may result in more productive use of labor, by placing people in jobs for which they are better suited, in large part it just churns the labor force, imposing hiring and training costs on the employers whose employees are hired away, without creating any net jobs to relieve the serious unemployment crisis.

We all have a stake in the economic recovery. Our current low-demand, low-consumer-spending situation continues to burden economic recovery, and increased employment is critical to increased demand and spending, not to mention deficit reduction.

For an employer with job openings, the masses of unemployed potential applicants provide an excellent opportunity to hire carefully, choosing among many highly motivated candidates. While it is true that some workers are unemployed due to their poor work ethic, the majority of unemployed people have simply fallen upon hard times.

In addition, unemployed applicants who are hired may well prove to be more loyal, longer-term employees, remaining grateful for the opportunity they received at a very difficult time in their lives.

What to Look for in Unemployed Job Applicants

When considering a job applicant who is currently unemployed, it is important for employers to consider the duration of the applicant’s unemployment and their reasons for leaving their last job. It is also important to evaluate the full extent of the applicant’s work history and, of course, their qualifications.

If an employer states that they will only consider currently employed job applicants, and this is found unlawful, both they and their recruiters could be liable. For more information, see our previous recruiter liability post.

Discrimination Against the Unemployed Poses Legal Risk.

The EEOC may well sue some employers over this issue in the months to come. It is important for employers to be cautious and fair during the hiring process, because the EEOC will continue to closely monitor this issue and related discrimination claims. It could also become the basis for individual or class-action lawsuits brought by private attorneys.