From the April 2011 issue of Treasury & Risk magazine

Unemployed Not Wanted?

With an estimated 13.7 million Americans out of work, the federal government is investigating reports that some companies are saying in job ads that they won't consider applicants who are unemployed. There are no statistics on the extent to which this is happening, only anecdotal reports, but the Equal Employment Opportunity Commission's interest suggests companies should tread carefully. While there's no law that prohibits employers from refusing to consider job applicants who are unemployed, the EEOC is considering whether the practice discriminates by having a "disparate impact" on certain groups. At an EEOC hearing in February, witnesses argued that excluding the unemployed could have an outsized effect on groups including blacks, Hispanics, women, older workers and the disabled.

Lawyers say the inquiry about policies on unemployed applicants is similar to the EEOC's approach to hiring practices such as credit checks and criminal records checks.

"They have brought significant claims on those theories, and I think that's where the concern is for employers," says Amy McAndrews, a labor and employment attorney at the law firm of Pepper Hamilton."When the EEOC seizes onto one of these issues, chances are they're going to follow through and find a company or companies to make an example of." She notes that in December, the EEOC filed a lawsuit against Kaplan Higher Education, charging that its use of credit checks discriminated against black applicants.

Litigation isn't the only risk; there's also the possible damage to a company's reputation. David Gallai, a partner at the law firm of Chadbourne & Parke, cites the media coverage about this issue. "Putting aside the liability question, I don't know how many companies want to be associated with what's now viewed as a negative hiring practice," he says.

"This is something that should be on employers' radar screens," McAndrews says. "I would tell my clients, 'Don't put this in your advertisements. You don't want to do anything that's going to garner unnecessary attention.'"

"If I were a company and I were thinking about implementing this practice, I would think twice," Gallai says. "Given that they've had this hearing, employers who advertise in this way may just be putting a target on their backs to have the EEOC come knocking on their doors."

Gallai says a pick-up in the economy might eliminate the problem. "Once you have a lot more hiring out there, companies won't be able to do this because they'll have to reach into the pool of unemployed to get good candidates," he says. "It's probably cyclical."

While restrictions on hiring may raise legal issues, layoffs also pose risks. See Layoffs Spur Lawsuits.

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