A key part of the Civil Rights Act of 1964 was Title VII, which dealt with employment discrimination. Title VII applied only to intentional discrimination, but it didn’t take long for the Equal Employment Opportunity Commission (EEOC), the agency charged with administering Title VII, to find ways to expand the scope of its enforcement mandate under the law. The EEOC eventually managed to convince virtually all parties, including employers, employees, job applicants, attorneys, and even the courts, that the law prohibited employment practices having disparate impacts on groups protected from actual discrimination under the law. Predictably, this warped reinterpretation created severe distortions to the efficiency and fairness of labor market outcomes .

Another Rogue Agency

On the EEOC’s complete and erroneous reimagining of Title VII, Gail Heriot’s “Title VII Disparate Impact Liability Makes Almost Everything Presumptively Illegal” is a must read. Heriot is a Professor at the University of San Diego School of Law and is a member of the U.S. Commission on Civil Rights. This post attempts to summarize most of the important points in Heriot’s paper, so if you don’t have time for Heriot’s paper, read on. All errors are mine, of course!

Heriot provides an incredible case study on the dangers of regulatory overreach. She first discusses the EEOC’s blatant usurpation of Congressional power:

“It is hardly surprising that EEOC officials would undertake to publish answers to the questions they were hearing repeatedly…. But publishing such ‘guidances’ also had the potential to spin out of control. The temptation would always be to use them to establish what the EEOC staff wanted the law to be rather than what it was. Instead of interpreting Title VII in good faith, guidances would soon become quasi-legislation—disguised as interpretation, but in reality imposing new duties on employers not found in Title VII itself.

None of this should be surprising. It is in the nature of bureaucracy. It naturally seeks to expand its powers, often beginning by occupying niches that are otherwise unoccupied. Over time, a little power often becomes a lot of power. What is surprising is how upfront EEOC officials were about their tactics in accumulating that power.”

Having gone this far, one might be tempted to ask the EEOC what limiting principle they actually apply to determine whether various employment and hiring practices are permissible. Are level of education, industry experience, and tests of physical and cognitive faculties verboten? The answer that is there is no consistent, limiting principle. Instead, Heriot says the EEOC “picks its battles” (see below). She also describes the EEOC’s adoption of a so-called “four-fifths rule”, which is about as arbitrary as it gets. It means the EEOC will challenge an employment practice only if it leads to a selection of any protected group at a rate less than 80% of the most-selected group. That is, the “disparate impact” must be less than 20% to rule out a challenge. This rule appears nowhere in Title VII.

Job Qualifications? You’re Guilty!

Unfortunately, as Heriot takes pains to demonstrate, it’s virtually impossible to identify a hiring guideline or method of employee assessment that does not have a disparate impact. The examples she provides on pp. 34 – 37 of her paper, and on p. 40, are convincing. Furthermore, the EEOC’s “four-fifths” rule hardly narrows the potential for challenge at all.

“Selection rates of less than four-fifths relative to the group with the highest rate are extremely common. Just as everything or nearly everything has a disparate impact, everything or nearly everything has a selection rate that fails the ‘four fifths rule’ for some race, color, religion, sex, or national origin group.”

So the EEOC is allowed to operate with tremendous discretion. Again, Heriot says the agency “picks its battles”, focusing on challenges to screening tools like “written tests, physical strength and endurance tests, criminal background tests [sic], high school diploma requirements, personal credit histories, residency requirements, and a few others.”

This regulatory environment encourages employers to keep job requirements vague, sometimes to the point at which potential applicants might not be sure what the job qualifications really are, or exactly what the job function entails. One upshot is that this makes it harder to detect and prove actual discrimination, and it often leads to more arbitrary decisions by hiring managers, which may, in fact, involve real discrimination, including nepotism and/or cronyism.

Unbiased Intent Doesn’t Matter

Heriot points to a disastrous decision by the Supreme Court that, perhaps unintentionally, helped legitimize the concept of disparate impact as legal doctrine, and as a valid cause of action by plaintiffs against employers. In Griggs v. Duke Power Co. (1971), the Court rejected the premise that an employer’s innocence with respect to their intent to discriminate was an inadequate defense of an employment practice that had adverse consequences to a protected group. Heriot quotes the opinion of Chief Justice Warren Burger:

“… good intent or absence of discriminatory intent does not redeem…. Congress directed the thrust of the Act to the consequences of employment practices, not simply the motivation.”

It’s as if the Court convinced itself that adverse consequences prove actual discrimination, even when there is no intent to discriminate. The Court also emphasized that it’s decision was based on “general deference” to the EEOC! And this was years before the unfortunate Chevron Doctrine (judicial deference to administrative agencies on interpretation of law) was formally established by the Court. Heriot and others assert that the decision in Griggs would have astonished the authors of Title VII.

Heriot also discusses changes in the treatment of “business necessity” as a defense against complaints of disparate impact. It is generally the employer’s burden to show the “necessity” of a challenged hiring practice. “Necessity” was the subject of several Supreme Court decisions in the 1970s and 1980s, but the Court stopped short of requiring an employer to show that a practice was “essential”. In one case, the court shifted some of the burden back onto the plaintiff to show that a practiced lacked necessity. In 1990, there was concern in the Bush Administration and Congress that the difficulty of proving business necessity would eventually lead to the adoption of racial quotas by employers in order to prevent EEOC challenges, though the authors of Title VII had staunchly opposed quotas. While the original hope was that the Civil Rights Act of 1991 would resolve questions about “business necessity” and the burden of proof, it did not. Instead, it can be said that it legitimized disparate impact liability, with conditions. The standard for proving necessity, based on Court decisions, evolved to become more strict with time. There are cases in which courts seem to have left the EEOC to define “business necessity”, as if the EEOC would be in a better position to do that than the business itself!

Inviting Discrimination

Heriot devotes part of her paper to the perverse effects of disparate impact. When employers are faced with prohibitions or the threat of action against a certain practice, whether it be tests of aptitude, strength, or screening on criminal or credit records, they may abandon those devices and opt instead for “informal” proxies. The use of proxies, however, often leads to instances of actual discrimination, whether born of conscious or unconscious bias on the part of hiring managers.

Heriot provides a number of examples of the proxy phenomenon, some of which have been confirmed by empirical research. For example, an employer interviewing candidates for a job that requires math proficiency might reasonably use a test of math skill as a key criterion. If such a test is prohibited, the hiring manager might be tempted to hire an Asian candidate, since Asians have a reputation for good math skills. Similarly, an applicant of West European ancestry might be favored for a position requiring excellent grammar skills, absent the ability to explicitly test grammatical skill. Candidates for a job requiring a certain level of physical strength could be evaluated by various tests of strength, but barring that, a hiring manager might be inclined to hire based on gender.

When criminal background checks are prohibited, employers might be tempted to use proxies such as gender and race as a substitute. Likewise, if it’s forbidden to check a candidate’s credit record to gauge reliability, other proxies might lead to discrimination against members of protected classes. Needless to say, these kinds of outcomes are precisely the opposite of what the EEOC hopes to achieve.

As Heriot further notes, the outcomes can be much systematic and destructive than a bit of one-off discrimination in hiring, promotion, pay raises, or task assignment. These may inflict damage reaching well beyond having the wrong people gaining favorable labor market outcomes. For example, an employer might choose to relocate operations to a “safer” or more affluent community, barring an ability to perform criminal background or credit checks. Or businesses might decide to substitute capital for labor, given the interference in their attempts to identify the best job candidates. The difficulty in screening also creates an incentive to automate, just as premature automation is becoming more common with rising wage floors imposed by government.

Killing Jobs and Competition

Like many forms of regulation, however, large firms in less competitive industries are usually better positioned to survive EEOC scrutiny than smaller firms in competitive markets. Indeed, we often see large market players embrace regulation because it gives them a competitive advantage over smaller rivals. In this case, we see large firms adopting their own diversity, equity, and inclusion (DEI) goals. This is not solely related to the threat of EEOC challenges, however. Private lawsuits alleging discrimination or disparate impact are also a concern, as is pleasing activists inside and outside the company. Nevertheless, as Christopher Rufo reveals, there is growing push-back against the corporate DEI regime. Let’s hope it continues to gain traction.

Unconstitutional Executive Discretion

Heriot also dedicates part of her paper to constitutional issues related to the EEOC’s broad discretion in the application of disparate impact to employment practices. For one thing, disparate impact is a direct source of discrimination: when members of “protected groups” are awarded opportunities based on the possibility of disparate statistical outcomes, it means the majority candidates are denied those opportunities, no matter their qualifications. This is outright discrimination, and it’s instigation by a federal agency constitutes an explicit denial of equal protection under the law.

It should be no surprise that many consider disparate impact actions against employers to be denials of due process. Furthermore, when a federal agency like the EEOC exercises broad discretion, the so-called non-delegation doctrine should come into play. That is, the EEOC makes judgements on matters that are not necessarily authorized Congress. Thus, there are legitimate questions as to whether the EEOC’s discretion is a violation of the separation of powers. Granted, the courts have long deferred to administrative agencies in the interpretation of enabling statutes, but the Supreme Court has taken a new tack under Chief Justice Roberts. In some recent decisions, the Court has relied on a new “major questions” doctrine to place certain limits on executive discretion.

Conclusion

Hiring? Creating jobs? Better not get picky about checking your applicants’ skills and backgrounds or you risk liability for contributing to the statistical malaise of one, or of many, protected groups. That’s how it is under “disparate impact” rules imposed by the EEOC. The success of your business be damned!

Gail Heriot’s excellent paper details the way in which the EEOC transformed the meaning of its enabling legislation, expanding its reign over employment practices across the nation. She demonstrates the breadth of disparate impact rules with examples showing that virtually any attempt at systematic screening of job applicants can be held to be illegal. Your intent to hire the most qualified candidate without bias doesn’t matter, under an insane Supreme Court decision that buttressed the EEOC’s authority. As Heriot says, “… everything is presumptively illegal”. She also describes how disparate impact liability leads to employment decisions based on proxy criteria, which often lead to actual (even if unintended) discrimination. Further unintended consequences are the possibility of larger job losses in minority communities and less competition in product and labor markets. Finally, Heriot delineates several constitutional violations inherent in broad EEOC discretion and the enforcement of disparate impact.

One day a court challenge to the EEOC and disparate impact liability might rise to the level of the Supreme Court. Justice Antonin Scalia expected it, but it still hasn’t come before the Court. It should! Another way to do battle against the EEOC’s scourge is to challenge corporations who cow-tow to activists and to the EEOC with their own DEI initiatives. This manifestation of stakeholder capitalism is a cancer on the wealth and productivity of the U.S. economy, resting side-by-side with disparate impact liability.