By Gerald L. Maatman, Jr. and Jennifer Riley

On September 14, 2012, the U.S. Court of Appeals for the Third Circuit issued another opinion in EEOC v. Kronos, Inc., No. 2:09-MC-00079 (3d Cir. Sept. 14, 2012) (“Kronos II”), addressing an ongoing controversy concerning the scope of the EEOC’s subpoena power. (Click here for our previous post on this issue.) 

As the EEOC continues to ratchet up its systemic investigations, it increasingly issues requests to employers for nationwide data concerning their personnel and employment practices, and increasingly the Commission has resorted to its subpoena power to force employers to turn over their data. Third parties are not immune from these efforts.   

In a case of significant importance, the Third Circuit weighed in for a second time in Kronos II on the EEOC’s attempt to obtain broad discovery from a third party. In a mixed opinion, the Third Circuit upheld the EEOC’s efforts to subpoena a broad array of information and refused to cabin the EEOC’s use of such information to the operative administrative charge. 

On the bright side for employers, however, the Court approved broad confidentiality protections and an order directing the EEOC to share the cost of complying with its requests.  

Background

The EEOC’s investigation arose from a charge of discrimination filed by Vicky Sandy with the EEOC on June 30, 2007. Sandy, who is hearing and speech impaired, applied to work as a cashier, bagger, and stocker at a Kroger grocery store in West Virginia. As part of the application process, Sandy took a Customer Service Assessment test created by Kronos. Sandy received a score of 40%, and Kroger relied, at least in part, on the test when it decided to reject Sandy’s application. 

The Ruing In Kronos I

During its investigation of Sandy’s charge, the EEOC issued a third-party administrative subpoena to Kronos. The EEOC sought information regarding the nationwide use of Kronos’ assessment tests and information regarding their impact on both minority and disabled applicants. See EEOC v. Kronos, Inc., 620 F.3d 287, 294 (3d Cir. 2010) (“Kronos I”). After Kronos objected, the EEOC filed a motion to enforce the subpoena in the district court. 

The district court limited the scope of the subpoena to documents related to Kroger’s West Virginia operations, and the positions at issue, from January 1, 2006 to May 31, 2007, and refused to allow discovery related to racial discrimination. Id. at 295. 

The Third Circuit reversed the district court’s geographical, temporal, and position-related limitations, but agreed that the EEOC’s request for documents related to adverse impact on the basis of race was improper because Sandy alleged only disability discrimination. Id. at 301. The Third Circuit also vacated the confidentiality order entered by the district court and remanded for the district court to conduct a “good cause balancing test.” Id. at 301-02.

The Ruling In Kronos II

On remand, the district court entered an order directing Kronos to comply with a modified subpoena. Among other things, the district court limited production of nationwide data to studies or evidence that “were relied upon in creating or implementing the test for Kroger” and information that related to “disabilities, persons with disabilities, or adverse impact upon persons with disabilities.” Kronos II, at 11. It also entered a modified confidentiality order and a cost-sharing order that directed the EEOC to reimburse Kronos for 50% of the estimated $75,000 cost of complying with the subpoena. The EEOC subsequently appealed.

In Kronos II, the Third Circuit again rejected the limitations imposed by the district court. The Third Circuit held that documents discussing any potential adverse impact were relevant – even if not connected to Kroger –  because they could assist the EEOC in evaluating whether Kroger’s use of the test constituted an unlawful employment action. Id. at 17.  

The Third Circuit also held that communications between Kroger and Kronos regarding the test — or any other tests purchased by Kroger — were relevant even though they might not directly relate to any applicant’s disabilities. Id. at 20. The Court noted that, even though the EEOC could not target documents related to race, if the documents happened to reveal a racially-related impact, the EEOC need not ignore such evidence. Id. at 21.

The Third Circuit also upheld the district court’s decision to enter a confidentiality order, noting that the EEOC’s interest in information-sharing could not outweigh the tremendous harm to Kronos that could result from the disclosure of Kronos’ proprietary information. Id. at 26. The Court of Appeals, however, modified the order to remove any presumption that information disclosed by Kronos automatically would be exempt under FOIA, and it also removed any limitation on the EEOC’s use of the data disclosed by Kronos. Id. at 27-29. It reasoned that “once we have decided the documents sought are relevant to the charge of discrimination, any other improper behavior discovered during the course of the EEOC’s investigation may be pursed.” Id. at 29.

Finally, the Third Circuit upheld the district court’s order requiring the EEOC to reimburse Kronos for half the cost of producing the subpoenaed information. The Court of Appeals recognized that such a cost-sharing order was within the district court’s discretion and noted that, because its order likely would lead to additional costs, the district court could reconsider the allocation upon remand. Id. at 32-33. 

Implications

Kronos II is a mixed bag for employers and those unfortunate enough to be dragged into systemic investigations by the EEOC. Most notably, the Third Circuit reaffirmed the EEOC’s broad subpoena power and refused to limit Kronos’ production to information concerning the target of the investigation. On the upside for employers, however, the Third Circuit approved the bulk of the district court’s confidentiality order, as well as a cost-sharing plan that could shift upwards of $40,000 to the EEOC. While a bright spot, the Third Circuit noted Kronos’ “non-party” status, and it remains to be seen whether the courtesy of cost-sharing will be extended to others.

Readers can also find this post on our new EEOC Countdown blog here.