Kroger and Kronos: Chaos and Disorder

In classic Greek mythology, Kronos (also known as Cronus) was the leader of the first generation of Titans. Cronus was usually depicted with a sickle or scythe and the Greeks considered Cronus a cruel and tempestuous force of chaos and disorder.

Kronos, the company, is a U.S.-based workforce management software and services company. According to the company, tens of thousands of organizations in more than 100 countries - including more than half of the Fortune 1000 - use Kronos to control labor costs, minimize compliance risk, and improve workforce productivity.

In August 2006, Kronos acquired Unicru, Inc., a company specializing in software used to assess and hire hourly workers. At the time of the acquisition by Kronos, Unicru had as customers more than 140 leading companies and brands, including SuperValu, Kroger, Toys "R" Us, Best Buy, CVS, Borders, Lowe's, Caribou Coffee, and Marquis Healthcare.

The Unicru assessment consists of a number of statements, to which an applicant must answer “strongly disagree,” “disagree,” “agree,” or “strongly agree.” It includes statements such as the following: “You have confidence in yourself”; You are always cheerful”; “You try to sense what others are thinking and feeling”; “You always say whatever is on your mind”; and “It is easy for you to feel what others are feeling.”

Kroger, Kronos and the Unicru assessment are being investigated by the Equal Employment Opportunity Commission (EEOC) for compliance with labor and employment laws, including the Americans with Disabilities Act (ADA). The investigation has been ongoing for more than five years and has generated a number of district court and appellate court decisions as Kronos has sought to avoid disclosing information about the Unicru assessment and its impact on persons protected by the ADA.

Cloning Employees and Institutionalizing Biased Hiring Practices

According to Kronos, the Unicru assessment is an artificial intelligence test that uses neural networks to “learn” the characteristics of a customer’s “best” employees.  As stated by Kronos’ Chief Scientist and the developer of the Unicru assessment, Dr. David Scarborough, in chillingly Orwellian terms, "[o]ur system allows you to clone your best, most reliable people."

First used for engineering and industrial applications during the mid-1980s, neural networks evolved from early artificial intelligence research. Modeled on the function of the human brain, a neural network attempts to imitate human reasoning. Large amounts of data are fed into the network, which looks for relationships and reaches conclusions.

"There are a couple of dangers," states Jai Shekhawat, CEO of Chicago-based Fieldglass Inc., which develops software for managing workers. "Is something a correlation--a predictor--or merely a coincidence? At best, [these methods] are complementary to human judgment, not a substitute for it."

Notwithstanding such dangers, Kronos customers like Kroger are substituting this “coincidence” for human judgment. Based on the prospective employee's answers on the application, the Unicru assessment categorizes the applicant as red, green or yellow. In most cases, red is usually an automatic discard, or, as Dr. Scarborough stated “[m]anagers are strongly discouraged from hiring first quartile (“red”) applicants …”

There is no evidence that the Unicru assessment determines whether an employer’s hiring practices are biased or discriminatory. For example, if the Unicru assessment had been utilized fifty years ago, many companies’ “best” employees would have the personality traits of white males – persons of color, women and those with disabilities need not have applied.

The Unicru assessment embeds and industrializes existing stigma, bias and discrimination in the hiring process. As stated by Cynthia Dwork and Deirdre K. Mulligan in a recent Stanford Law Review article:

While automated decisionmaking systems “may reduce the impact of biased individuals, they may also normalize the far more massive impacts of system-level biases and blind spots.” Rooting out biases and blind spots in big data depends on our ability to constrain, understand, and test the systems that use such data to shape information, experiences, and opportunities.

As a “blind” tool that “learns” from the employer, the Unicru assessment replicates the existing bias of the employer and applies it on a massive scale. All applicants have their test responses fed through a discriminatory filter that is the Unicru assessment (a filter that is biased both on its own and in conjunction with its “learned” behavior). Hiring decisions are being made by Kroger and other Kronos customers based on this deeply flawed process.

Illegal Medical Examination

The ADA prohibits the use of pre-employment medical examinations. At the pre-offer stage, an employer, like Kroger, is only entitled to ask about an applicant's ability to perform the essential functions of the job. The ADA's prohibition against pre-employment examinations seeks to ensure that the applicant's disability is not considered prior to the assessment of the applicant's qualifications.

EEOC guidance provides a seven-factor test for analyzing whether a test or procedure qualifies as a “medical examination,” including:

• whether the test is designed to reveal an impairment of physical or mental health such as those listed in the Diagnostic and Statistical Manual of Mental Disorders (“DSM”); and
• whether the test is interpreted by a health care professional.

According to the guidance, the presence of any one of the seven factors is enough to support a finding that the test is a medical examination and the Unicru assessment meets the two factors listed above. 

Since the Unicru assessment is based on the five-factor model (FFM) of personality it meets the first factor listed above. As set out in previous posts -  ADA, FFM and DSM and Employment Assessments are Designed to Reveal an Impairment - assessments based on the FFM are designed to reveal an impairment of mental health, such as those listed in the DSM.

As to the second factor, whether the test is interpreted by a health care professional, the individuals who developed the Unicru assessment are psychologists, most of whom are members of the APA. In developing the Assessments, the psychologists establish the rules by which the assessments are to be interpreted (i.e., how the responses to the questions are to be scored, including whether the applicant receives a green, yellow or red rating).

According to the APA Model Act for State Licensure of Psychologists, “[t]he practice of psychology includes … (a) psychological testing and the evaluation or assessment of personal characteristics, such as intelligence; personality; cognitive, physical, and/or emotional abilities; … [and] (f) provision of direct services to … groups for the purpose of enhancing … organizational effectiveness, using psychological principles, methods, and/or procedures … for making decisions about the individual, such as selection …”

EEOC guidance states that psychologists are among the “variety of health professionals [that] may provide documentation regarding psychiatric disabilities” for ADA purposes. Accordingly, the psychologists who developed the Unicru assessment are "health care providers" for purposes of the ADA.

(Not) Walking the Talk

Kroger's Policy on Business Ethics states:

We are committed to a policy of equal opportunity for all associates without regard to race, color, religion, gender, national origin, age, disability or sexual orientation.

Kroger has six core values: Honesty; Integrity, Respect; Diversity; Safety; and, Inclusion. In a June 13, 2011 press release announcing the appointment of Kroger's chief diversity officer, Kroger's CEO is quoted as saying:

“Diversity is a core value at Kroger. We take our commitment to diversity seriously, both because it is right and because it makes us better at our business. When our decision-making is inclusive and reflects the diversity of our customers, we make better decisions.”

For job applicants with mental illness, there is no respect, no inclusion, no diversity, no honesty and no integrity. In the more than twenty years since passage of the ADA, there has been little positive movement in de-stigmatizing mental illness in the workplace (please see Mental Illness and Issues of Employment). People with mental illnesses identify employment discrimination as one of their most frequent stigma experiences. In its use of the Unicru assessment, Kroger, wittingly or not, continues the disturbing pattern of employment discrimination against citizens of the United States with mental illness.

Failing Customers and Shareowners

Kroger's Policy on Business Ethics also states:

As a retailer providing millions of Americans with their daily food and as a publicly owned company, The Kroger Co. has a special obligation to comply with the law and deal ethically with customers, suppliers, associates, and shareowners. 

Psychiatric medications are among the most widely prescribed and biggest-selling class of drugs in the U.S. In 2011, Americans spent $18.2 billion on antipsychotics to treat depression, bipolar disorder and schizophrenia, $11.0 billion on antidepressants and $7.9 billion on treatment for ADHD, according to IMS Health, which tracks prescription-drug sales. These three categories of prescription drug sales accounted for approximately 11.6% of all prescription drug sales in the U.S. for 2011

Kroger is the fifth-largest pharmacy operator in the United States, operating retail pharmacies in over 1,948 stores. During fiscal 2011, Kroger pharmacists filled over 146 million prescriptions at a retail value of approximately $7.3 billion. Assuming 11.6% of Kroger prescription drug sales were for antipsychotics, antidepressants and ADHD medications, prescription drugs for persons with mental illness accounted for approximately $847 million of Kroger prescription drug sales in 2011, some two-thirds of the amount of Kroger’s operating profit for that year.

Persons who have their prescriptions filled at Kroger, their family members and other loved ones also shop at Kroger for other products and services. Those persons, their family members and other loved ones provide a material percentage of Kroger’s overall revenue each year. How does Kroger repay this customer loyalty? By utilizing an unlawful pre-employment assessment to eliminate from consideration for employment persons with mental illness.

Why should persons with mental illness, their family members and other loved ones continue to shop at Kroger? Good question. 

Kroger's continuing use of the Unicru assessments calls into question Kroger's "special obligation to comply with the law and deal ethically" with its shareowners, As previously noted, Kroger and Kronos have been engaged in litigation with the EEOC for more than five years over legality of the Unicru assessment. To be precise, the five years of litigation have primarily addressed the unwillingness of Kroger and Kronos to provide information requested by the EEOC in order to conduct its investigation into the Unicru assessment. Two appellate courts, the latest in September 2012, have ruled decisively in favor of the EEOC and its right to investigate a broad set of nationwide and historical data from Kroger and Kronos.

At anytime over the past five years, Kroger could have ceased using the Unicru assessment, if only as a risk mitigation strategy for its shareowners. As noted in the Challenges to Pre-Employment Assessments posting, in July 2011, CVS and the Rhode Island Civil Liberties Union (ACLU) entered into a voluntary settlement addressing the ACLU’s complaint challenging CVS’s use of a pre-hire questionnaire that the ACLU claimed could have a discriminatory impact on people with certain mental impairments or disorders. Pursuant to the settlement agreement, CVS agreed to permanently remove the questions at issue from its online application.

Each day Kroger continues to use the Unicru assessment, there are thousands more potential plaintiffs with claims against Kroger. By now, the aggregate number of potential plaintiffs numbers in the millions - with each job applicant over the past 5+ years having a number of claims against Kroger.

Under the ADA, Kroger may use a third party like Kronos to undertake the assessment of Kroger job applicants. The use of a third party, however, does not insulate Kroger from any claims arising from the assessment usage. Under the ADA, Kroger is responsible (and liable) for any failures on the part of Kronos and the Unicru assessment to comply with the provisions of the ADA.

Any comfort Kroger or its shareowners take in the indemnification provided by Kronos should be tempered by the recognition that such indemnification may prove illusory. Kronos and its insurers may not have the capital necessary to indemnify Kroger and its shareowners for all claims arising from Kroger's continuing use of the Unicru assessment. Please see Damages and Indemnification Challenges for Employers.

So Many Job Openings, So Little Hiring

In a recent Bloomberg View opinion piece, Peter Orszag, vice chairman of corporate and investment banking and chairman of the financial strategy and solutions group at Citigroup and former director of the Office of Management and Budget, wrote about an odd puzzle taking shape in the labor market: Over the past three years, the number of job openings has risen almost 50 percent, but actual hiring has gone up by less than 5 percent. 

Qualified Workers

Mr. Orszag posited several possible reasons for the puzzling labor market. One is that there is a mismatch between the work that companies need done and the skills that workers have. While such a structural mismatch may explain part of the gap, it seems unlikely to explain most of it. After all, job openings in the retail trade have doubled over the past three years, while hiring has been flat. Mr. Orszag asked, "Is it plausible that we lack qualified workers for these jobs?"

The expected response to Mr. Orszag's question is "no," we do not lack qualified workers for jobs in retails trades like fast food restaurants, home improvement centers and grocery stores. The reason "no" is the expected response is because the typical requirements for those jobs are met by many applicants.

The unexpected response to Mr. Orszag's question may well be "yes," we lack qualified workers, but not in the sense of applicants failing to have the posted job requirements (education, legal employability, etc.). Instead, retail employers have created a large number of "hidden" job requirements the impact of which is to substantially reduce the number of "qualified" applicants.

Hidden Job Requirements

Hidden job requirements, by definition, are not listed in any job posting. They arise primarily from the use by employers of workforce analytics, including data obtained from pre-employment assessments and personal information of applicants obtained as part of the job application process.

There are a variety of pre-employment assessments, including intelligence tests, personality tests, job fit tests, interest inventories and work skills tests. Personality tests are designed to measure an individual’s emotional, motivational, interpersonal and attitudinal characteristics, as opposed to abilities. Personality tests are “growing like wildfire,” said Josh Bersin, principal and founder of Bersin by Deloitte. Bersin estimated that this kind of pre-hire testing has been growing by as much as 20 percent annually in the past few years. Industries that are flooded with resumes such as retail, food service and hospitality are among the ones that use such tests most often, he said. (Please see What Are the Issues? for a look at the challenges to applicants and employers arising from the use of pre-employment personality tests.)

In addition to the responses to the personality tests, applicants provide a significant amount of personal information as part of the application process - names, addresses, employment (and unemployment) history, education, commute times and more. 

All this information is compared to "the characteristics of the most qualified, productive employees within an hourly workforce" and applicants are given a rating of red, yellow or green. Green-rated applicants make it past this first hurdle in the hiring process; red-rated applicants are usually eliminated from further consideration.  

This process, referred to as workforce science, is illustrated in the graphic below created by Evolv, a workforce science company). (Please see Workforce Science: A Critical Look at Big Data and the Selection and Management of Employees)

Impact of Workforce Science on Applicant Pool

Some 60% of American workers earn hourly wages. Of these, about half change jobs each year. According to Evolv, the cost to U.S. businesses of worker attrition and lost productivity is $350 billion annually. 

What should an employer do? Increase starting pay? Raising the wage floors can help offset the costs of worker attrition and lost productivity by making easier to recruit, train, and hold onto workers.  There are numerous studies showing that labor turnover has decreased substantially following an increase in the wage floor.

What do many employers do? Retain workforce science companies to administer personality tests and analyze applicant data. The workforce analytics are designed to screen out applicants based on a variety of factors, including personality, current employment status, commute times and time at current address (looking at frequency of moves). (Please see From What Distance is Discrimination Acceptable for a critical looks at the risks posed to the applicant and employer by certain of these screens.)

The graphic below illustrates the impact of these various workforce science "screens" on the size of the applicant pool (assuming 100 applicants as the starting pool size):

This graphic provides insight as to why the number of job openings has risen almost 50 percent, but actual hiring has gone up by less than 5 percent over the past three years. The application of the various screens significantly reduces the size of the applicant pool for each employer.

The screening "insights" are not unique to each employer, as each workforce science company has multiple clients (sometimes in the thousands) who apply the insights. Similarly, the insights themselves, for the most part, are not unique to a single workforce science company. Thus, many employers are chasing the same subset of the aggregate potential pool of applicants and ignoring all other applicants. Consequently, while the number of unfilled job applications is significant, the positions are all trying to be filled from the same relatively small pool of "green" applicants.

In a perfect market, reducing the supply (number of potential employees) would lead to an increase in prices (wages). As shown in the graphic to the left, shifting the supply curve to the left (from S1 to S2) - the impact of screening the applicant pool - would lead to an increase in price (from P1 to P2). The lower wage labor market, however, is not a perfect market; it is a dynamic monopsony.

In the dynamic monopsony model, employers are unlikely to pay higher wages in order to fill vacancies because they would then have to raise the pay of their existing workers to match the pay offered to their last hire. As a result, in monopsonistic settings, employers habitually operate with unfilled vacancies, rather than raising the wage for their entire workforce.

The dynamic monopsony model results in a workforce that is paid below market wages, as compared to a competitive market, and overworked (as employers habitually operate with unfilled vacancies). Consequently, employee turnover in the hourly workforce market averages approximately 50% a year.

A Different Model

According to "Why "Good Jobs" Are Good for Retailers," an article in the January-February 2012 edition of the Harvard Business Review:

Almost one-fifth of American workers have bad jobs. They endure low wages, poor benefits, schedules that change with little—if any—notice, and few opportunities for advancement. The conventional wisdom is that many companies have no choice but to offer bad jobs—especially retailers whose business models entail competing on low prices. If retailers invest more in employees, customers will have to pay more, the assumption goes. Indeed, it is easy to conclude that employee-friendly Wegmans and the Container Store can offer great jobs only because their customers are willing to pay higher prices.

The presumed trade-off between investment in employees and low prices can be broken. Highly successful retail chains—such as Quik­Trip convenience stores, Mercadona and Trader Joe’s supermarkets, and Costco wholesale clubs—not only invest heavily in store employees but also have the lowest prices in their industries, solid financial performance, and better customer service than their competitors. They have demonstrated that, even in the lowest-price segment of retail, bad jobs are not a cost-driven necessity but a choice.

Employees of these retailers have higher pay, fuller training, better benefits, and more-convenient schedules than their counterparts at the competition. Store employees earn about 40% more at Costco than at its largest competitor, Walmart's Sams Club. At Trader Joe's, the starting wage for a full-time employee is $40,000 to $60,000 per year, more than twice what some competitors offer.

Not surprisingly, employee turnover is low. Quik-Trip's 13% turnover rate among full-time employees is substantially lower than the 59% average rate in the top quartile of the convenience store industry. At Trader Joe's, turnover among full-time employees is less than 10%. At Mercadona, it's a mere 4%.

Taxpayer Subsidization of Lower-Wage Employers

The use of workforce science has created separate and unequal classes of low-income job applicants For those that make it through the screening, jobs are readily available; however, due to the dynamic monopsony model, wages and benefits offered for those jobs are less than what would be experienced in a free and competitive market. 

Widespread use of the workforce science screening process results in the creation of an "economic underclass" comprised of those applicants whom the screening process eliminates from employment consideration. Consequently, taxpayers provide significant support to those applicants rejected by workforce science in the form of social support programs like Medicaid, SSDI, SSI and SNAP. This, notwithstanding that the insights utilized by workforce science discriminate against lower-income workers, including blacks, Hispanics and persons with mental illness (including returning veterans, new and expectant mothers and LGBT persons). (Please see From What Distance is Discrimination Acceptable, Tests Discriminate Against Returning Veterans, Tests Discriminate Against New and Expectant Mothers and Tests Discriminate Against LGBTs.)

Even those who made it through the workforce science screens and find employment are supported by taxpayer-funded public benefit programs. These programs make up the difference between the low wages and the costs of subsistence.

As an example, after analyzing data released by Wisconsin's Medicaid program, the Democratic staff of the U.S. House Committee on Education and workforce released a report in May 2013 estimating that, at the low end, a single 300-person Walmart Supercenter store in Wisconsin costs taxpayers more than $900,000 per year.

Wisconsin released data on Medicaid enrollment by employer as of the fourth quarter of 2012. Walmart ranked first on the list with 3,216 of its employees enrolled in the state's Medicaid program, BadgerCare+. Including the children and adult dependents of these employees, Walmart accounts for more than 9,200 enrollees in the program.

The cost to taxpayers arises from the following programs utilized by low-income Walmart workers: BadgerCare+, reduced lunch prices under the National School Lunch Program, reduced breakfast prices under the School Breakfast Program, subsidized housing assistance under the Section 8 Housing Program; Earned Income Tax Credit, Low-Income Home Energy Assistance Program, Supplemental Nutrition Assistance Program, and Wisconsin Shares Child Care Subsidy program.

Employers paying minimum wage or slightly more rely on taxpayers to subsidize their payroll. Taxpayers cover the cost of workers' health care and significant portions of their housing and food costs.

When the First Domino Falls: Consequences to Employers of Embracing Workforce Assessment Solutions

The success of workforce science companies in developing employment personality and assessment tests over the past twenty years has created "systemic risk" for their employer customers. If one employer has violated the law and subjected itself to significant liability as a consequence of its use of an assessment provided by a workforce science company, then all customers of that company are similarly at risk. Workforce science companies provide their services to thousands of employers, including many of the largest employers in the U.S. 

The lack of diversity in the psychological model underlying many of the personality tests offered by workforce science companies (the five-factor model of personality or Big Five) also means that if one workforce science company's personality tests that use the Big Five is found to be an illegal medical examination under the Americans with Disabilities Act (ADA), all workforce science companies that use the Big Five (and, more importantly, their customers) are similarly at risk. Please see ADA, FFM and DSM.

Sizing the Risks

There are multiple risks to employers arising from the use of personality tests and workforce assessments, including: 

1. Claims under the ADA and the Rehabilitation Act of 1973 that the personality tests are illegal medical examinations or that they illegally screen out persons with mental illness (as set out above); 
2. Claims under the ADA and the Rehabilitation Act of 1973 that the employer fails to select and administer the assessment in the most effective manner to ensure that the assessment results accurately reflect the skills, aptitude or whatever other factor that the assessment purports to measure, rather than reflecting an applicant’s impairment; 
3. Claims that employers and workforce assessment companies fail to properly safeguard confidential medical information obtained from the personality tests and illegally use that confidential medical information in violation of the ADA; and
4. Claims under Title VII of the Civil Rights Act that the workforce analytics cause there to be a disparate impact on the hiring of blacks and Hispanics.

As to the potential size of the plaintiff classes for the claims listed above, they range from a percentage of all applicants (in the case of claims that the tests illegally screen out persons with mental illness and claims of disparate impact under Title VII) to all applicants over the past 12 months (in the case of claims that the personality test is an illegal medical examination) to all applicants, employees and ex-employees over a longer period of time (in the case of claims that employers and workforce assessment companies failed to safeguard confidential medical information).

For some employers, the potential class size can be measured in the millions of plaintiffs. Consistent with the 2011 Supreme Court decision in Wal-Mart Stores, Inc. v. Dukes, plaintiffs in a class action suit predicated on the use of personality tests and workforce analytics will be challenging a uniform, company-wide practice. The uniform use of testing by an employer demonstrates that "there are questions of law or fact common to the class," or commonality, as required by the rules governing class actions.

Brand Damage and Lost Revenues

Employers who continue to use personality tests and workforce assessment tools to illegally screen out persons with mental illness and other disabilities risk losing the significant revenue opportunity associated with the largest “niche” market in the U.S.

Some numbers: (i) there are more than 37.3 million persons with disabilities; (ii) 58 percent of persons with disabilities own their own homes; and (iii) there are more than 20 million families in the United States that have a member with a disability. 

As an example, psychiatric medications are among the most widely prescribed and biggest-selling class of drugs in the U.S. In 2011, Americans spent $18.2 billion on antipsychotics to treat depression, bipolar disorder and schizophrenia, $11.0 billion on antidepressants and $7.9 billion on treatment for ADHD. These three categories of prescription drug sales accounted for approximately 11.6% of all prescription drug sales in the U.S. for 2011.

Persons with mental illness, their family members and other loved ones provide a material percentage of the pharmacy companies' overall revenue each year. How do some of these companies repay this customer loyalty? By utilizing an unlawful personality tests and workforce assessments to screen out persons with mental illness from consideration for employment. Why should persons with mental illness, their family members and other loved ones, and other concerned persons continue to shop at their stores? Good question. 

The CVS Example

In July 2011, CVS and the Rhode Island Civil Liberties Union (ACLU) entered into a voluntary settlement addressing the ACLU’s complaint challenging CVS’s use of a pre-hire questionnaire that the ACLU claimed could have a discriminatory impact on people with certain mental impairments or disorders. 

The CVS questionnaire contained statements to which applicants were required to respond, including: “You change from happy to sad without any reason,” “You get angry more often than nervous,” “Your moods are steady from day to day,” and “There’s no use having close friends; they always let you down.”

Responding to a complaint filed by the ACLU, the Rhode Island Commission for Human Rights had issued a finding in February 2011 that there was "probable cause" to believe that the questionnaire used by CVS violated state anti-discrimination laws that bar employers from eliciting information that pertain to job applicants' mental or physical disabilities.

Although employers may legally ask questions designed to help determine an applicant’s personality or aptitude for a job, the ACLU’s complaint argued that questions found in the CVS pre-offer assessment “could have the effect of discriminating against applicants with certain mental impairments or disorders, and go beyond merely measuring general personality traits.” 

Pursuant to the settlement agreement, CVS agreed to permanently remove the questions at issue from its online application.

Illusory Indemnification?

The potential size of the liability will be something that captures the attention of the senior management of employers. It will not be a matter addressed internally by the HR departments, in part because the employer’s finance and control group will need to determine whether and to what extent to accrue for the damages as contingent liabilities under GAAP.

While the EEOC and court processes may take years, it seems reasonable to believe that the market will speak much more quickly. To meet their fiduciary obligations, senior management will need to review the testing and workforce assessment processes and, in relatively short order, make a decision as to whether to continue with their usage.  There are several options, including continuing on with no change (in which case each applicant - of which there are thousands a day for some companies - will have a potential claim against the employer) and stopping the use of the personality testing and workforce assessments (which will cap the number of potential plaintiffs, as no new ones are being added).

Senior management will be influenced by a number of factors, including the workforce assessment company's ability to provide indemnification. As noted above, the success of workforce assessment companies in marketing personality tests and workforce analytics over the past twenty years has created "systemic risk" for its customers. If one employer has violated the law and subjected itself to significant liability as a consequence of its use of a solution provided by a workforce assessment company, then all customers of that workforce assessment company are similarly at risk.

Even assuming workforce assessment companies are willing to provide indemnification to all customers, those employers to independently assess whether the workforce assessment companies and their insurers have adequate resources to indemnify all customers. 

As Kenexa, an employment assessment company, consistently noted in its annual 10-K risk factor disclosures prior to its December 2012 acquisition by IBM:

The failure of our solutions to comply with employment laws may require us to indemnify our customers, which may harm our business. Some of our customer contracts contain indemnification provisions that require us to indemnify our customers against claims of non-compliance with employment laws related to hiring. To the extent these claims are successful and exceed our insurance coverages, these obligations would have a negative impact on our cash flow, results of operation and financial condition.

Litigation Benchmarks

Personality testing and workforce assessment testing litigation will have many parallels with asbestos litigation and Fair Labor Standards Act (FLSA) litigation, but on an even larger scale because: (i) there are potentially tens of millions of plaintiffs (any person who takes an assessment will be a plaintiff if the assessment is determined to be a medical examination); (ii) there are potentially hundreds of thousands of employer defendants – any company that utilizes pre-employment assessments; (iii) there are potentially hundreds of thousands of claims against assessment companies, both by the applicants and by the employers (seeking indemnification); and, (iv) there are potentially hundreds of thousands of claims against insurers who underwrote general liability and employment practices liability insurance (EPLI) coverages for employers and testing companies.  

Costs to employers, testing companies and their insurers will be in the tens (if not hundreds) of billions of dollars, including: (A) defense transaction costs (i.e.,outside counsel, internal management and employee time, public relations, lobbying); (B) gross compensation, including awards to applicants and payment of costs and fees (i.e., counsel, expert witnesses, e-discovery costs); and, (C) reputational costs, including lost/reduced sales and brand damage. 

In addition, if personality tests are found to be illegal “medical examinations” under the ADA, most of the information collected from the applicant would be confidential medical information and subject to a variety of safeguards and use restrictions (including no disclosure to third parties or use for any other reasons by the employer). Employers and testing companies have freely passed this information back and forth among themselves. In a sense, the information is a “virus” that has “infected” many databases, systems and solutions of employers and assessment companies.  If the information is confidential medial information, there will be massive business “disinfectant” costs, as companies are forced to “scrub” their systems. 

Top 10 Dangers of Using Employment Personality Tests and Other Workforce Analytics

Job applicants are required to take personality tests and submit personal data before any contact with a real person at an employer. One problem is that the personality tests and data analyses are illegally screening out certain classes of job seekers, including blacks, Hispanics, LGBTs, new mothers and veterans. 

A second problem is that personality tests and workforce analytics have failed to address the issues of employee turnover and lost productivity. Some 60% of American workers earn hourly wages. Of these, about half change jobs each year. The cost to U.S. business of worker attrition and lost productivity is $350 billion annually.

Set out below are the top ten dangers of using personality tests and other workforce analytics:

1.   

Employment personality tests discriminate against applicants with mental illness. These applicants are ready, willing and able to work, but are being illegally screened out from employment consideration by personality tests that use a non-validated stereotype of the capabilities of persons with mental illness. Please see What Are The Issues, ADA, FFM and DSM, and Employment Assessments Are Designed to Reveal an Impairment.

2.   

Employment discrimination on the basis of mental illness affects all demographic groups. Mental illness is no respecter of age, gender, geography, income, occupation, military status, race, religion or sexual orientation. Persons with mental illness include military veterans returning to the civilian workforce, new and expectant mothers, LGBTs and young adults. An estimated 26.2% of Americans ages 18 and older - about one in four adults - suffer from a diagnosable mental disorder in a given year. Please see Tests Discriminate Against Returning Veterans, Tests Discriminate Against New and Expectant Mothers and Employment Tests Discriminate Against LGBTs.

3.   

The illegal screening out of applicants with mental illness has come at a cost of tens of billions of dollars to taxpayers and the U.S. Treasury.  The prevalence of mental disorders has generally remained unchanged over the past 15 years and substantially increased rates of treatment should have resulted in a decline in the percentage of persons receiving disability awards who are diagnosed with mental illness. Sadly, no. People with psychiatric impairments constitute the largest and most rapidly growing subgroup of income support program awards (SSDI, SSI). Please see Costing Taxpayers Billions of Dollars Each Year.

4.

Every year since 1999, more Americans have killed themselves than the year before, making suicide the nation’s greatest untamed cause of death. Being unemployed is associated with a 2-3X increase in the relative risk of death by suicide, compared with being employed. Given that more than 90% of persons who attempt suicide have mental illnesses, a tool like personality testing that illegally excludes persons with mental illness from employment consideration leads to an increase both in perceived burdensomeness and thwarted belongingness/social alienation, two critical elements tied to the risk of suicide. Please see Does the Rising Use of Employment Personality Tests Contribute to An Increase in Suicides?

5.

The validity of personality measures to predict job performance is disappointingly low.  If you took all the personality factors, measured well, you corrected for everything using the most optimistic corrections you could possibly get, you could account for about 15% of the variance in performance between projected and actual performance. You are saying that if you take normal personality tests, putting everything together in an optimal fashion and being as optimistic as possible, you’ll leave 85% of the performance variance unaccounted for. Please see Science or Snake Oil?

6.

Correlation is not causation.  The existence of a correlation between A and B does not mean A caused B. Instead, B could cause A, A and B could be caused by C.  According to Kenexa, the correlation between (A) persons who move and (B) shorter job tenure is that A causes B. However, a 2011 study by the Center of Public Housing showing that more than 76% of involuntary moves were a result of job loss. Kenexa’s insight of A causing B, which is factored into their assessment scoring, may well be completely wrong – B, instead, may cause A.  Also, Kenexa’s assessment makes no inquiry into the individual circumstances of an applicant; thus, a person who has moved to escape an abusive relationship or a person who has moved to get their child into a better school will be penalized for those actions in the hiring assessment process. Please see Big Data and Employment Testing: Corrrelation is Not Causation and Workforce Science: A Critical Look at Big Data and the Selection and Management of Employees.

7.

Workforce science insights discriminate against low-income applicants, including blacks, Hispanics and persons with mental illness. Assessment companies, like Evolv and Kenexa, provide insight to their employer customers that employees who live closer to the job or have shorter commutes will have greater longevity. Thus, distance from the job site/commute time is a factor in determining whether to interview, let alone hire, an applicant. Are there any groups of people who might live farther from the job site or who may have longer commutes? Yes, lower-income persons, disproportionately black, Hispanic and the mentally ill. They can't afford to live where the jobs are and public transportation is unavailable or unreliable. This insight, in effect, electronically redlines certain protected classes from hiring consideration. Please see Workforce Science: A Critical Look at Big Data and the Selection and Management of Employees.

8.

For employers, assessment testing litigation will have many parallels with asbestos and FLSA litigation, but on an even larger scale because: (i) there are potentially tens of millions of plaintiffs (any person who takes an assessment, if the assessment is determined to be a medical examination will be a plaintiff); (ii) there are potentially hundreds of thousands of employer defendants – any company that utilizes pre-employment assessments; (iii) there are potentially hundreds of thousands of claims against assessment companies, both by the applicants and by the employers (seeking indemnification); and, (iv) there are potentially hundreds of thousands of claims against insurers who underwrote policies for employers and testing companies.  Costs to employers, testing companies and their insurers will be in the tens (if not hundreds) of billions of dollars, including: (A) defense transaction costs, including the costs of outside counsel, internal management and employee time, public relations, lobbying, etc.; (B) gross compensation, including awards to applicants and payment of costs and fees (i.e., counsel, expert witnesses, e-discovery); and,  (C) reputational damage costs, including lost/reduced sales and brand damage. Please see The Next Asbestos? The Next FLSA?

9.   

A similarly material risk to employers arises from the potential classification of personality assessments as being illegal “medical examinations” under the Americans with Disabilities Act. In such case, most of the information collected from the applicant, including test responses,  would be confidential medical information and subject to a variety of safeguards and severely limited use restrictions (including no disclosure to third parties or use for any other reasons by the employer). Employers and testing companies have freely passed this information back and forth among themselves. In a sense, the information is a “virus” that has “infected” many databases, systems and solutions of employers and assessment companies.  If the information is confidential medial information, there will be massive business restructuring and/or “disinfectant” costs, as companies are forced to “scrub” their systems. Please see Risks to Employers - Damages, Reputational Harm and Federal Lawsuits and Damages and Indemnification Challenges for Employers.

10. 

Employers who continue to use assessments and data analytics to illegally screen out persons with mental illness and other disabilities risk losing the significant revenue opportunity associate with the largest “niche” market in the U.S., as: (i) there are more than 37.3 million persons with disabilities; (ii) 58 percent of persons with disabilities own their own homes; and (iii) there are more than 20 million families in the United States that have a member with a disability. As an example, psychiatric medications are among the most widely prescribed and biggest-selling class of drugs in the U.S. In 2011, Americans spent $18.2 billion on antipsychotics to treat depression, bipolar disorder and schizophrenia, $11.0 billion on antidepressants and $7.9 billion on treatment for ADHD. These three categories of prescription drug sales accounted for approximately 11.6% of all prescription drug sales in the U.S. for 2011. Persons with mental illness, their family members and other loved ones provide a material percentage of the companies' overall revenue each year. How do some of these companies repay this customer loyalty? By utilizing an unlawful pre-employment assessment to screen out persons with mental illness from consideration for employment. Why should persons with mental illness, their family members and other loved ones continue to shop at their stores? Good question. Please see Welcomed as Customers; Rejected as Employees.

*******

In terms of human resources, the corporate diversity initiatives that opened the doors to many minorities have largely excluded the applicant with a disability. The consumer recognition that kicked in after the civil rights battle over the right to work was won never materialized for people with disabilities – at least not yet. … [D]iscrimination rooted in fear has subverted what mechanisms are in place to advance the prospects of workers with disabilities. … Decades ago the barriers hampering women and racial minorities were broken down through legal and political activism. Fearing the stick of lawsuits, fines, and boycotts, corporations complied with the laws generated in the sixties. The secondary wave of thinking on diversity has long since been apparent: profits are reaped by tapping minority markets. Once the carrot of sales joins the stick of regulation, the business case for [disability] diversity is solidly made.

 Disability and Business: Best Practices and Strategies for Inclusion

Charles A. Riley, II, 2 (2006)

From What Distance is Discrimination Acceptable?

Some 60% of American workers earn hourly wages. Of these, about half change jobs each year, so firms that employ lots of entry-level workers, such as call centers, supermarkets, home improvement stores and fast-food chains, have to vet million of applications every year.

Xerox Evolv(ing)

A recent article in MIT Technology Review reports that Xerox is screening tens of thousands of applicants for low-wage jobs in its call centers using software from a startup company called Evolv. According to its website, Evolv “is a workforce science software company that harnesses big data, predictive analytics and cloud computing to help businesses improve workplace productivity and profitability” and its customers include 20 of the Fortune 100.

Working with Xerox, Evolv found that one of the best predictors that a customer-service employee will stick with a job is that he lives nearby and can get to work easily.  As Evolv states in its Q3 2013 Workforce Performance Report:

The distance that employees live from work affects how long they choose to stay at a job. Unsurprisingly, employees that live 0-5 miles from their place of work have the longest median tenure. They remain at their jobs 20% longer than employees with the shortest median tenure.

Although it still sells photocopiers, Xerox has also become one of the world’s largest outsourcing companies. It provides services like running customer service centers, handling health claims, and processing credit-card applications that brought in $11.5 billion in revenue last year.

That business relies on a huge workforce of 54,000 customer service agents, and because of high attrition in hourly jobs, Xerox will have to replace 20,000 of them this year, says Teri Morse, vice president for recruiting at Xerox Services.

The Dictatorship of Data

Morse says Xerox today won’t even look at resumes of those who score in the “red” category of Evolv’s initial behavioral assessment, a 30-minute online exam that workers fill out at home. Early on, while piloting the system, Morse says Xerox still hired against the advice of the data. Now, she says, “people who do poorly we no longer hire.”

As stated by the authors in Big Data: A Revolution That Will Transform How We Live, Work, and Think:

We are more susceptible than we may think to the “dictatorship of data” — that is, to letting the data govern us in ways that may do as much harm as good. The threat is that we will let ourselves be mindlessly bound by the output of our analyses even when we have reasonable grounds for suspecting something is amiss. Or that we will become obsessed with collecting facts and figures for data’s sake. Or that we will attribute a degree of truth to the data which it does not deserve.

For more and more companies, like Xerox, the hiring boss is an algorithm. Jobs that were once filled on the basis of work history and interviews are left to personality tests and data analysis. The new hiring tools are part of a broader effort to gather and analyze employee data.

The risks to employers of utilizing online personality tests in their employment application process have been set out in a number of prior posts, including What Are the Issues, Courts Find Tests to be Illegal, The Next Asbestor? The Next FLSA?, Damages and Indemnification Challenges to Employers, and Welcomed as Customers; Rejected as Employers. The remainder of this post sets out the employment discrimination litigation risks to employers (and society) of blindly following the "insights" of Kenexa and Evolv in distance from job site and housing mobility.

Interestingly, while Evolv now touts the distance from job insight for use by its clients, the company expressed a different view in a 2012 Wall Street Journal article, which reads;

Evolv is cautious about exploiting some of the relationships it turns up for fear of violating equal opportunity laws. While it has found employees who live farther from call-center jobs are more likely to quit, it doesn't use that information in its scoring in the U.S. because it could be linked to race.

From What Distance is Discrimination Acceptable?

Kenexa, purchased by IBM in December 2012, will test approximately 40 million applicants this year for thousands of clients. Kenexa believes that a lengthy commute raises the risk of attrition in call-center and fast-food jobs. It asks applicants for call-center and fast-food jobs to describe their commute by picking options ranging from "less than 10 minutes" to "more than 45 minutes."

The longer the commute, the lower their recommendation score for these jobs, says Jeff Weekley, who oversees the assessments.Applicants also can be asked how long they have been at their current address and how many times they have moved. People who move more frequently "have a higher likelihood of leaving," Mr. Weekley said.

Painting with the broad brush of distance from job site, commute time and moving frequency results in well-qualified applicants being excluded, applicants who might have ended up being among the longest tenured of employees. The Kenexa and Evolv findings are generalized correlations (i.e., persons living closer to the job site tend to have longer tenure than persons living farther from the job site). The insights say nothing about any particular applicant.

As a consequence, employers will pass over qualified applicants solely because they live (or don't live) in certain areas. Not only does the employer do a disservice to itself and the applicant, they increase the risk of employment litigation, with its consequent costs. 

Distance From Jobsite

A recent New York Time article, "In Climbing Income Ladder, Location Matters," reads, in part:

Stacey Calvin spends almost as much time commuting to her job — on a bus, two trains and another bus — as she does working part-time at a day care center.  ...

Her nearly four-hour round-trip [job commute] stems largely from the economic geography of Atlanta, which is one of America’s most affluent metropolitan areas yet also one of the most physically divided by income. The low-income neighborhoods here often stretch for miles, with rows of houses and low-slung apartments, interrupted by the occasional strip mall, and lacking much in the way of good-paying jobs

This geography appears to play a major role in making Atlanta one of the metropolitan areas where it is most difficult for lower-income households to rise into the middle class and beyond, according to a new study that other researchers are calling the most detailed portrait yet of income mobility in the United States.

The dearth of good-paying jobs in low-income neighborhoods means that residents of those neighborhoods have a longer commute. The 2010 Census showed that poverty rates are significantly higher for blacks and Hispanics. Consequently, hiring decisions predicated on distance from job site, intentionally or not, discriminate against certain races.

Housing Mobility

As shown in the table below, poor and near-poor families tend to move much more frequently than their higher income neighbors and the general population.

According to a 2011 study by the Center for Public Housing, entitled "Should I Stay or Should I Go? Exploring the Effects of Housing Instability and Mobility on Children," a wide range of often complex forces appears to drive frequent mobility, and residential instability in general — the formation and dissolution of households, an inability to afford one’s housing costs, the loss of employment, the lack of a safety net, lack of quality housing or a safer neighborhood.

Correlation Is Not Causation

When two variables, A and B, are found to be correlated, there are several possibilities:

1. A causes B
2. B causes A
3. A causes B at the same time as B causes A (a self-reinforcing       system)
4. Some third factor causes both A and B

The correlation is simple coincidence. It is wrong to assume any of these possibilities.

Kenexa, Evolv and their clients, however, assume that A (proximity to job site) causes B (reduced attrition and better performance). That assumption leads them to disfavor otherwise qualified applicants who do not live within a five-mile radius.

The correlation could also demonstrate B (reduced attrition and better performance) is caused by C (proximity of job site to applicants homes). Instead of being a hiring insight, the correlation might function better as being a job site location insight. Given the relative immobility of persons and companies, locating a job site (call center, etc.) close to communities with high numbers of lower-income persons could lead to a more sustainable competitive advantage.

Per Kenexa, the correlation between (A) persons who move and (B) shorter job tenure is that A causes B. However, per the 2011 study by the Center of Public Housing, it may well be that (B) shorter job tenure causes (B) persons to move. As shown in the table below, taken from the 2011 study, more than 76% of involuntary moves were a result of job loss.

Although data does give rise to information and insight, they are not the same. Data's value to business relies on human intelligence, on how well managers and leaders formulate questions and interpret results. More data doesn't mean you will get "proportionately" more information. In fact, the more data you have, the less information you gain as a proportion of the data (concepts of marginal utility, signal to noise and diminishing returns).

Maybe It's the Work, Not the Workforce, That Need Analysis ...

Some 60% of American workers earn hourly wages. Of these, about half change jobs each year. The cost to U.S. businesses of worker attrition and lost productivity is $350 billion annually. How much is that?

What should an employer do? Increase starting pay? Since most people work, at least in part, for the money - giving them more money might encourage them to stay longer and work harder. It seems to work reasonably well with corporate executives.  Top executive compensation averaged $9.4 million last year at the 50 largest employers of low-wage workers.

What do many employers do? Retain "workforce science" companies like Evolv and Kenexa to administer personality tests and analyze applicant data in order to address the employee turnover issue.

As noted above, working with Xerox, Evolv found that one predictor that a customer-service employee will stick with a job is that s/he lives nearby and can get to work easily. Kenexa had a similar "insight," and added that people who move more frequently have a higher likelihood of leaving.

Are there any groups of people who might live farther from the work site and may move more frequently than others? Yes, lower-income persons, disproportionately women, black, Hispanic and the mentally ill. They can't afford to live where the jobs are and move more frequently because of an inability to afford housing or the loss of employment.

So, not only are low-income persons poorly paid, many are electronically redlined from hiring consideration. What type of “workforce science” fails to take into account the most important variable (pay) and yet offers “solutions” based on this flawed science?

Are Employer Referral Programs Encouraging Discriminatory Hiring Practices?

According to Evolv, it recently “used rich data on hundreds of thousands of employees to demonstrate that referred workers show measurably better productivity and retention.” The research showed that 65 percent of companies have a referral program and 36 percent filled their last opening through an employee referral. A primary insight from Evolv is that, when it comes to retention, referred workers were around 13 percent less likely to quit.

As noted above, previous insights of Evolv and Kenexa – distance from work and housing mobility – lead to workforce selection processes that discriminate against blacks and Hispanics. Combining the employer referral program insight with the distance from work and housing mobility insights likely exacerbates the discriminatory impact of workforce science and its use in the hiring process.

About 40 percent of white Americans and about 25 percent of non-white Americans are surrounded exclusively by friends of their own race, according to an ongoing Reuters/Ipsos poll. Even looking at a broader circle of acquaintances to include coworkers as well as friends and relatives, 30 percent of Americans are not mixing with others of a different race, the poll showed.

The workforce insights regarding distance from job and employee mobility results in fewer blacks and Hispanics being hired. Consequently, if 36% of job openings are filled by referrals from employees and 30% of those employees do not have friends or relatives of another race, blacks and Hispanics will be underrepresented in the workforce hired as a result of referrals.