When 500,000 Job Applicants Become a Corporate Liability

 Employment Testing: Failing to Make the Grade — Ten Years Later, Part 5

Imagine a large corporation that uses a third-party automated screening system to evaluate 500,000 job applicants over two years.

The system promises to identify qualified candidates efficiently, reduce recruiting expenses, and apply consistent selection criteria. The employer relies on the vendor's assurances that the assessment is scientifically validated and legally compliant.

Now suppose the system is challenged as unlawfully excluding applicants with mental health disabilities.

Could a hiring technology designed to save money expose the employer to hundreds of millions of dollars in potential liability?

The answer depends on the system's operation, the legal violations established, and the remedies available. But the potential scale deserves attention.

Two Different ADA Protections

The Americans with Disabilities Act (ADA) contains two distinct protections particularly relevant to automated hiring.

First, 42 U.S.C. § 12112(b)(6) addresses employment tests and selection criteria that screen out, or tend to screen out, individuals with disabilities unless the employer establishes the applicable job-relatedness and business-necessity requirements.

An algorithm could raise concerns under this provision if it penalizes characteristics associated with disabilities without adequately measuring an applicant's ability to perform the job.

Consider a qualified applicant with depression who has an employment gap associated with treatment, or an autistic applicant whose communication style differs from the patterns preferred by an automated assessment.

The algorithm may disadvantage these applicants without explicitly identifying their conditions.

That does not automatically establish unlawful discrimination. But it raises an important question: Is the system measuring qualifications needed for the position, or excluding qualified applicants based on disability-related characteristics?

Second, 42 U.S.C. § 12112(d)(2) generally prohibits medical examinations and disability-related inquiries before an employer makes a conditional job offer.

This protection differs in an important respect: it can apply to applicants who do not have disabilities.

In Karraker v. Rent-A-Center, 411 F.3d 831 (7th Cir. 2005), the Seventh Circuit held that an employment assessment incorporating the Minnesota Multiphasic Personality Inventory constituted a prohibited medical examination because the instrument was designed, at least in part, to reveal mental illness.

The decision does not establish that ordinary personality assessments or automated screening algorithms necessarily constitute medical examinations. But it demonstrates that describing an assessment as a personality test does not determine whether it violates the ADA.

Return to the 500,000 Applicants

How substantial might the financial exposure become?

According to the Substance Abuse and Mental Health Services Administration (SAMHSA), 23.4% of American adults experienced a mental illness during 2024, including 5.6% who experienced a serious mental illness.

These national figures do not establish how many job applicants have ADA-qualifying disabilities, how many might be unlawfully excluded by a particular assessment, or how many could recover damages. Nevertheless, they illustrate why the potentially affected population should not be underestimated.

Now suppose that 5%–10% of the 500,000 applicants—25,000 to 50,000 people—could establish actionable disability discrimination arising from the employer's screening system.

These percentages are hypothetical assumptions, not estimates derived from mental illness prevalence or evidence about any particular employer.

The potential aggregate recoveries would be:

Successful claimants	$5,000 average recovery	$10,000 average recovery
25,000 (5%)	$125 million	$250 million
50,000 (10%)	$250 million	$500 million

These amounts are illustrative, not predictions. They assume 500,000 distinct applicants and that the specified number could establish compensable claims.

Actual liability would depend on disability status, unlawful screening criteria, causation, injury, filing deadlines, available defenses, and remedies. Compensatory and punitive damages have distinct requirements and statutory limits; back pay and equitable relief are governed by different rules.

When the same potentially unlawful screening process is applied hundreds of thousands of times, even a relatively small percentage of successful claims can create substantial corporate exposure.

An Even Broader Potentially Affected Population

Now change the hypothetical.

Suppose all 500,000 applicants were required to complete an assessment later determined to be a prohibited pre-offer medical examination.

The legal analysis changes because the ADA's restriction on improper medical examinations is not limited to applicants with disabilities.

Applicants without depression, anxiety, bipolar disorder, PTSD, or another qualifying condition may also be protected.

Consequently, the challenged practice could have affected the entire applicant population.

That does not mean all 500,000 applicants automatically possess viable claims for monetary damages. Standing, injury, procedural requirements, and available remedies would still have to be established.

But the potential reach of this statutory protection is broader than the population of applicants who have disabilities.

For employers and shareholders, the distinction between discriminatory screening-out and prohibited medical examinations could be financially consequential.

Why Vendor Assurances Are Not Enough

Employers cannot necessarily satisfy their legal obligations simply by purchasing a commercially developed screening system.

An assessment validated for one employer or occupation may not be appropriate for another. A system that predicts performance among existing employees may not reliably evaluate applicants with different backgrounds or experiences.

Employers should understand what their systems measure, examine whether the criteria are appropriate for the positions involved, consider disability-related barriers, and evaluate evidence of unlawful adverse effects.

A vendor's assertion that its algorithm is proprietary may complicate that process. It does not automatically excuse an employer from complying with employment discrimination laws.

This concern is hardly new.

In August 2013, this blog questioned the systemic consequences of widespread reliance on commercial employment assessments in When the First Domino Falls.

The difference today is the potential scale.

Workday and the Larger Question

The pending lawsuit Mobley v. Workday, Inc., No. 3:23-cv-00770, challenges automated applicant-screening practices under federal and state employment discrimination laws.

The court has permitted significant claims to proceed and conditionally certified a nationwide age-discrimination collective. Plaintiffs have also sought certification of additional classes, including a proposed disability-related class.

Workday disputes the allegations. No final judicial finding of unlawful discrimination has been made, and the litigation has not established that Workday's software constitutes a prohibited medical examination.

Nevertheless, the case illustrates how challenges involving a widely used employment platform can implicate large applicant populations and raise questions extending beyond a single employer.

The Financial Question Employers Cannot Ignore

Automated hiring tools may provide legitimate benefits. But efficiency does not replace legal compliance.

A company screening hundreds of thousands of applicants should understand the technology it uses, how it was evaluated, and whether it may unlawfully exclude qualified people.

The financial exposure from an improper assessment may depend less on the cost of the software than on the number of applicants affected.

When a single screening practice is repeated 500,000 times, even a relatively small proportion of successful claims can become a substantial corporate liability.

And that leads to another question:

If the employer purchased the system from a third-party vendor, who ultimately pays when the screening system violates the law?

Next: The Indemnification Illusion—Why a vendor's promise to cover legal liabilities may provide less financial protection than an employer expects.