Wednesday, September 25, 2013

Risks to Kroger Shareholders

There is material risk to Kroger shareholders and other stakeholders that the company's use of the Kronos assessments over the past 7+ years has created millions of potential plaintiffs, including every person who has applied for a position at one of the many Kroger companies.

Kroger is being investigated by the Equal Employment Opportunity Commission (EEOC) as a consequence of multiple charges filed with the EEOC alleging non-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 Kroger and the employment assessment company it uses, Kronos, have sought to avoid disclosing information about the assessment and its impact on persons protected by the ADA.

These actions by Kroger and Kronos have generally been unsuccessful; the appellate court decisions have sided with the EEOC and have ordered Kronos to disclose massive amounts of information, including:

  1. Any and all documents and data constituting or related to validation studies or validation evidence pertaining to Kronos assessment tests purchased by Kroger, including but not limited to such studies or evidence as they relate to the use of the tests as personnel selection or screening instruments, even if created or performed for other customer(s).
  2. The user’s manual and instructions for the use of assessment tests used by Kroger.
  3. Any and all documents (if any) related to Kroger, including but not limited to correspondence, notes, and data files, relating to Kroger; its use of the assessment test; results, ratings, or scores of individual test takers; and any validation efforts made thereto.
  4. Any and all documents discussing, analyzing or measuring potential adverse impact on persons with disabilities.
  5. Any and all documents related to any and all job analysis performed by any person or entity related to any or all position(s) at Kroger.

 See Kroger and Kronos: Chaos and Disorder.

Claims and Damages

Claims against Kroger include:
  • Claims that the Kronos assessment is an illegal pre-employment medical examination whose use is prohibited by the ADA.
  • Claims that responses to the Kronos assessment, as a medical examination, are confidential medical information, subject to strict safeguards that Kroger has been recklessly ignoring.
  • Claims that the Kronos assessment illegally screens out persons with mental disabilities in violation of the ADA.
  • Claims that Kroger failed to ensure that the Kronos assessment results accurately reflect the skills, aptitude and other factors that the assessment purports to measure, rather than reflecting an applicant’s impairment.
As a medical examination, it is unlawful for the Kronos assessment to be administered by Kroger to any job applicant prior to a conditional offer of employment being made to that applicant.  Each time the Kronos assessment is so administered to any such applicant, Kroger is violating Title I of the ADA and subjecting itself to claims for back pay, front pay, compensatory damages and injunctive relief. Each person that has been subject to the illegal medical examination of Kroger under Article 1 of the ADA is entitled to seek compensatory and punitive damages of $600,000, in addition to back pay, front pay and recovery of attorneys’ fees.

An employer utilizing the Kronos assessment, like Kroger, is at risk for punitive damages where, as held by the court in Kolstad v. American Dental Association, the “employer has engaged in intentional discrimination and has done so with malice or reckless indifference to the federally protected rights of an aggrieved individual.”

Kroger’s unlawful use of the Unicru assessment subjects the company to material and publicly-disclosable liability and it shareholders to a potentially significant diminution in the value of their shares.

Ignoring EEOC Guidance

Reckless indifference may be show by a variety of methods, including an employer’s failure to comply with the EEOC guidance for testing and selection, pursuant to which employers are encouraged to:
  1. Administer tests without regard to race, color, national origin, sex, religion, age, or disability;
  2. Ensure that tests are properly validated;
  3. Ensure that tests are job-related;
  4. Ensure that tests are appropriate for the employer's purpose;
  5. If selection procedures screen out a protected group, determine whether there is an equally effective alternative selection procedure that has less adverse impact and adopt that alternative procedure;
  6. Keep abreast of changes in job requirements and update the test specifications or selection procedures accordingly; and
  7.  Ensure that tests and selection procedures are not adopted casually by managers who know little about these processes.
In a court filing submitted several years ago in connection with its ongoing EEOC litigation, Kronos stated that “[n]o adverse impact or validation studies have been performed by Kronos, or to Kronos’ knowledge, by or for Kroger with respect to potential adverse impact on individuals with disabilities.” This filing was served on both the EEOC and Kroger.

Consequently, Kroger cannot confirm that the Kronos assessments have been administered without regard to disability, nor can it confirm that the Kronos assessments have been properly validated. Even more recklessly, Kroger has known that the Kronos assessments have not been validated with respect to potential adverse impact on individuals with disabilities and yet has continued to use the unvalidated assessment for years.

Disregarding Industry Standards

Reckless indifference may also be shown by an employer’s failure to meet industry standards. The general counsel of the Equal Employment Advisory Council, an employer association comprised of more than 300 major corporations and staffed by experienced lawyers and HR professionals with in-depth knowledge in handling EEO and affirmative action compliance issues, set out the following industry standards in a statement made to the EEOC in 2007:
  • Tests are to be based on "objective" criteria
  • Tests are attractive screening methods "when administered properly"
  • A "carefully selected" test that is "properly validated" can provide a great deal of relevant information when "[u]sed in conjunction with other sources of information"
  • A few "basic principles that EEAC member companies strive to apply:“
    • Ensure each employment test has been properly validated.
    • Ensure that the validity study is current and properly documented.
    • Avoid overreliance on representations made by test manufacturers regarding test validity and suitability for a particular job.
    • Conduct periodic audits of employment selection testing procedures to monitor for
      • possible disparate impact
      • significant changes in jobs
      • outdated validity studies
      • other potential problems

As set out in the many documents filed in the ongoing litigation among the EEOC, Kroger and Kronos, few, if any, of these basic industry principles have been followed by Kroger. For example:
  1. Kroger was unable to provide the EEOC with any validation studies, whether current or not or properly documented or not; 
  2. There was no information provided that demonstrated periodic audits by Kroger of the Kronos assessment to monitor for possible disparate impact or outdated validity studies; and
  3. Kroger utilizes the Kronos assessment, on its own, as the basis for rejecting applicants – the assessment was not “used in conjunction with other sources of information.” 
  4. Kroger seemingly relied solely on the representations of Kronos regarding test validity and suitability.
Kroger’s knowing failure to meet many the basic principles set out by the industry and turning a blind eye towards the known discriminatory impact of the Kronos assessment is demonstrably reckless.

He Said, She Said

A key element in both the EEOC and EEAC guidance is the responsibility of the employer (Kroger) to independently review the assessment and avoid reliance on the representations of the assessment provider.  Did Kroger conduct such an independent review? It would appear not.

In a letter to the EEOC dated February 9, 2009, sent by Kroger’s counsel it states, “Unicru, the company that developed the assessment [and subsequently acquired by Kronos], has informed … [Kroger] that the assessment has been fully and appropriately validated, and that there is no disparate impact.” That statement admits a reliance on Kronos's representations and indicates no independent validation effort on the part of Kroger.

The quoted sentence from the February 9, 2009 letter of Kroger's counsel is puzzling, given the Kronos statement mentioned previously that it is “impossible” to measure disparate impact on people who have disabilities. Which is it? How can Kronos assure Kroger that there is no disparate impact, as Kroger’s counsel stated to the EEOC, if, according to Kronos, it is impossible to measure disparate impact?

Ignoring Supreme Court Precedent

In a petition to revoke an EEOC subpoena filed on October 16, 2008, Kronos claims that there is “no known method … to ascertain adverse impact against the entire generic category of disabilities.” As noted above, such a claim is a red herring. Given the wealth of scholarship and data concerning the interrelationship between the FFM model and diagnosing mental illness (please see ADA, FFM and DSM), it seems more likely that Kronos was unwilling to spend the money to determine the impact of the Unicru assessment on persons with disabilities.  Either that, or Kronos knows what the results would demonstrate – that the assessment is a medical examination and its administration by employers, including Kroger, results in disparate treatment of, and has a disparate impact on, persons with mental illness.

As evidenced by the scholarship on the use of the FFM to diagnose mental illness previously discussed, there are no barriers to testing the use of the FFM in the Kronos assessment to determine its impact on persons with mental illness. As noted by the authors of “Veiled Barriers: Pre-EmploymentTesting and Disability” published by the Journal of Rehabilitation Administration in 2006:
[S]tudies of sub-groups, such as individuals with mental illnesses or cognitive impairments could be conducted to determine the potential, and perhaps likelihood for, pre-employment test results unfairly penalizing these individuals in the employee selection and hiring stages …
In Albemarle Paper Company v. Moody, the Supreme Court addressed a case in which an employer implemented a test (Wonderlic) on the theory that a certain verbal intelligence was called for by the increasing sophistication of the plant's operations. The company made no attempt to validate the test for job-relatedness, and simply adopted the national "norm" score as a cut-off point for new job applicants. The Supreme Court cited the Standards of the American Psychological Association and pointed out that a test should be validated on people as similar as possible to those to whom it will be administered. The Court further stated that differential studies should be conducted on minority groups wherever feasible.

Substitute (i) Kroger for Albemarle Paper Company and (ii) Kronos assessment for the Wonderlic test in the Albemarle Paper Company decision and one sees few, if any, differences. Like Albemarle Paper Company, Kroger made no attempt to validate the test for job-relatedness and arbitrarily adopted cut-off points. Like Albemarle Paper Company, neither Kroger nor Kronos conducted validation studies on persons with mental illness.

Kroger’s failure to follow Supreme Court precedent that (i) requires validation of an employment test (Unicru assessment), (ii) prohibits arbitrary cut-off points, and (iii) requires differential studies of the impact of the test on protected classes (persons with mental illness)? Reckless.

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