Co-authored by Christopher J. DeGroff and Gerald L. Maatman, Jr.

Joining a growing line of cases reflecting judicial intolerance for questionable litigation tactics, the recent ruling in EEOC v. Peoplemark, Inc. (W.D. Mich. Mar 31, 2011), represents solid support for employers targeted by questionable government-initiated litigation.

In EEOC v. Peoplemark, Inc., the EEOC alleged that the staffing company’s policy of not hiring individuals with a criminal record had a disparate impact on African-Americans.  Notably, the EEOC has repeatedly signaled that it intends to attack these blanket criminal background policies as disproportionally and discriminatorily affecting minorities.  Indeed, the Court in Peoplemark, Inc. noted that an EEOC Commissioner had even highlighted this case in a public meeting in 2008, noting that the Commission had unanimously approved the case against Peoplemark.

The problem with the EEOC’s theory was its assertion that Peoplemark’s had a blanket no-hire policy was simply not true.  In fact, of the 286 individuals the EEOC purported to represent in this case, only 22% actually had been hired and placed by Peoplemark.  Significantly, the Court found that even after the EEOC knew that was the case, it proceeded with the litigation anyway.

The EEOC based its claims on a three-year investigation into a charge filed by Sherri Scott.  Scott was a two-time felon with convictions for housebreaking and larceny who Peoplemark chose not to hire because of her criminal record.  After hotly contested subpoena enforcement actions, the company gave the EEOC over 18,000 pages of documents with the detailed personnel information of the group the EEOC sought to represent.  Based on its investigation, the EEOC filed suit on May 29, 2008 claiming that Peoplemark had a blanket policy of not hiring anyone with a criminal record.  Peoplemark denied that it had such a categorical policy.  The EEOC litigated the case for a total of 3 1/2 years, based almost exclusively on the fact that Scott had not been hired, and some “early statements” by a company witness.  In April 2009, the EEOC finally identified the 286 individuals it claimed it represented (and only after it was forced to do so by the Court).  Peoplemark’s expert was able to determine that 22% of these individuals had actually been hired and placed by the company.  Even after the EEOC had the materials showing that this was the case, it still pursued the matter.  It was only after the EEOC failed to designate a statistical expert per a scheduling deadline that it finally folded and agreed to dismiss the case. 

In its Motion for Fees, Costs, and Sanctions, Peoplemark argued that the EEOC had deliberately caused the company to incur attorneys’ fees and expert fees when it should have known that the company did not have the blanket no-hire policy.  The Court agreed.  Citing the longstanding case of Christiansburg Garment Co. v. EEOC, 434 U.S. 412 (1978), the Court noted that it had the authority to assess fees against the EEOC if the action it brought was “frivolous, unreasonable, or without foundation….”  In the Court’s view, if the EEOC had done the investigation it should have done with its own represented individuals, it should have known that Peoplemark had, in fact, hired a number of the allegedly injured individuals, thereby undercutting the EEOC’s central “blanket policy” position.  Indeed, the Court suggested that the EEOC should have known this critical flaw before it even filed the case, after three years of an intense administrative investigation. 

The Court’s decision found that the final nail in the EEOC’s coffin was its failure to identify a statistical expert to champion its disparate impact claim.  The Court noted that the EEOC knew from the day it filed this case that it would rely heavily on expert statistical testimony, and that it would “carry a major price tag for both sides.”  Nevertheless, the EEOC failed to identify an expert within the time period set in the Court’s schedule, even after receiving significant extensions.  The EEOC’s failure to pursue the statistical component of its case led the Court to find that an award of “attorneys’ fees is appropriate because of the unnecessary burden imposed on defendant.”

The remainder of the Court’s decision is a detailed analysis of how it would calculate the fees award.  After making some minor deductions for duplicative or vague requests, the Court awarded Peoplemark $219,350.17 in attorneys’ fees.  The larger component of the sanction, however, was $526,172.00 in expert fees.  The EEOC challenged the expert fees as being too high, citing what it had paid its (notably, unused) expert.  The Court found that the EEOC’s argument was like comparing “apples to oranges” and rejected its position.  After adding in some additional miscellaneous expenses, the Court ordered the EEOC to pay Peoplemark a total of $751,942.48. This is one of the largest sanction awards ever against the Commission.

EEOC v. Peoplemark, Inc. joins cases like EEOC v. Bloomberg L.P., EEOC o/b/o Serrano, et al v. Cintas Corp., and EEOC v. CRST that suggest a growing intolerance for the EEOC’s “shoot-first, aim later” tactics in large-scale pattern or practice cases.  The Court in Peoplemark concluded that the stakes in these systemic cases are high, and expense of litigating them should not be taken lightly.  Employers are well-served to pressure-test the EEOC’s theories from the onset of a case by requiring the EEOC to “show its work” in all aspects of its claims.  Faced with case authority like EEOC v. Peoplemark, Inc., however, the EEOC will find it far more difficult to stonewall the targets of its litigation.