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American Bar Association

ABA Section of Business Law

When a test turns into a trial
Things to keep in mind about psychological testing
By Larry R. Seegull and Emily J. Caputo
Since the earliest days of testing, it has been the test taker who is nervous, tense or riddled with anxiety. Today, employers who administer tests to employees in the hiring or promotion process may find themselves feeling anxious or nervous. Why? The legal obstacles and risks to employment testing are significant.

Most companies are realizing there is great value in using psychological tests as part of the employee selection and promotion process. A 2000 survey by the American Management Association found that 33 percent of employers surveyed used psychological testing with their applicants and employees. Psychological testing in the employment arena is also a booming $400 million industry and expanding annually at a rate of 10 to 15 percent. A case in point can be seen in the use of the Myers-Briggs Type Indicator, which is a popular personality test given to approximately 2.5 million people each year and is used by 89 of the companies listed on the Fortune 100.

So, why is knowing what is going on inside an employee or applicant's head so important? The answer is actually rather simple: money. Pre-employment testing weeds out poor matches whose personality likely would not mesh with the company culture. When a company's turnover is high, it must spend precious time and money retraining new recruits. When administered properly, psychological testing of employees can offer many financial rewards to a company. An appropriate test can dramatically reduce the time HR personnel use to interview applicants by automatically eliminating a percentage of the applicant pool.

Psychological tests are also a vital tool in the employer's arsenal of determining an employee or applicant's honesty and integrity. Integrity tests are written tests that predict whether an employee will engage in theft as well as their general trustworthiness and dependability.

Employers have turned to written integrity tests for two reasons. First, former employers are more reluctant to provide detailed references for applicants for fear of being sued for defamation. Second, with the passage of the Employee Polygraph Protection Act in 1988, as well as comparable state laws, employers are substantially limited in resources for determining an individual's integrity.

The federal Employee Polygraph Protection Act and most state laws prohibit employers, except under very limited circumstances, from requiring or even requesting an employee or applicant to take a lie detector test as a condition of employment or continued employment. Under the federal law, a lie detector test includes everything from an actual polygraph exam to psychological stress evaluators. With these limitations, an employer is left with few options to investigate an applicant or employee's honesty.

Enter integrity tests, which have already become commonplace in many companies. These tests are administered by an estimated 6,000 companies in the United States and are taken by as many as 5 million people each year. Employers realize the financial risks they take by not investigating an applicant or employee's honesty. Studies have estimated that employee theft costs companies $15-25 billion a year. In addition, experts suggest that employee theft accounts for up to 30 percent of all business failures.

At this point, employers may be thinking that psychological testing of applicants and employees is definitely the way to go. One wishes it were that simple. The truth is that there are serious legal implications in administering psychological tests to employees and prospective employees. It is essential that employers thoroughly examine whether testing is appropriate and whether their testing violates the law — otherwise they test at their own peril.

A case decided in 2005 in the Seventh Circuit Court of Appeals, Karraker v. Rent-A-Center Inc. , demonstrates one of the risks with psychological testing. The Rent-A-Center case held that administering certain psychological tests to employees violates the Americans with Disabilities Act (ADA). Specifically, the court found that the employer's use of the Minnesota Multiphasic Personality Inventory (MMPI) as part of its testing process for managers violated the ADA. The MMPI is a widely researched test for adult psychopathology and can measure such traits as depression, hysteria, paranoia and mania. High scores on the MMPI test can be used by medical professionals in the diagnosis of some psychiatric disorders.

Congress originally enacted the ADA in response to findings in studies and national polls documenting that individuals with disabilities occupy an inferior status in the United States and are severely disadvantaged socially, vocationally, economically and educationally. Congress intended the ADA to provide a national mandate for the elimination of discrimination against individuals with disabilities.

The ADA is relevant to psychological testing in the employment context because the act includes mental impairments in its definition of "disability." The court in the Rent-A-Center case particularly noted that people with psychiatric disabilities have suffered as a result of stereotypes, resulting in an employment rate that is drastically lower than people without disabilities.

Congress enacted three specific provisions limiting the ability of employers from using "medical examinations and inquiries" as a condition of employment. First, an employer cannot use medical examinations as pre-employment tests or before an offer of employment is made. Second, an employer cannot use medical tests that lack job-relatedness. Third, an employer cannot use medical tests that screen out or have the tendency to screen out people with disabilities. Under the ADA, the total prohibition against medical examinations is lifted once a conditional offer of employment is made. At that point, a medical test can be given provided that it is given to all similarly situated persons, the results are kept confidential, and the test is administered in accordance with the ADA.

In the Rent-A-Center case, three brothers were applying for manager positions within the company. In order to be considered for a promotion at Rent-A-Center, an employee was required to take an APT Management Trainee-Executive Profile, which consisted of nine tests designed to measure math and language skills as well as personality traits. In testing an applicant's personality traits, Rent-A-Center chose 502 questions from the MMPI. Rent-A-Center scored the nine tests together, and any applicant with more than 12 "weighted deviations" was not considered for promotion. It was, therefore, possible for an applicant to be denied promotion solely because of his responses on the MMPI portion of the test.

The Equal Employment Opportunity Commission defines "medical examination" as "a procedure or test that seeks information about an individual's physical or mental impairments or health." The EEOC lists several factors to consider when determining whether a test should be construed as a medical examination, any of which could be enough to determine that the test is medical. One such factor is whether the test is "designed to reveal an impairment of physical or mental health."

The issue that the court had to decide in Rent-A-Center was whether the MMPI was considered a "medical examination" under the ADA. Specifically, the court had to decide if the MMPI was designed to reveal a mental impairment. If such a determination was made, then Rent-A-Center would be liable for damages to the plaintiffs because it violated the ADA, which prohibits the use of medical examinations in a pre-employment context. The court decided to look at this as a pre-employment situation even though the brothers already were employed at Rent-A-Center because the brothers were essentially required to apply for new jobs within the company.

The Rent-A-Center decision can be distressing to companies that test applicants and employees because the court considered the MMPI portion of the test to be a "medical examination," which could not be given in a pre-employment situation. The court came to this conclusion even though Rent-A-Center took affirmative steps that had been suggested by the EEOC to ensure that psychological tests used by companies were not classified as medical examinations under the ADA.

In particular, the company did not have the MMPI portion of the managerial test administered by a psychologist nor was the test interpreted by a psychologist. In fact, there are two tools for interpreting the MMPI, a vocational measure and a clinical measure. Rent-A-Center specifically used the vocational measure rather than the clinical measure in grading the responses in order to prevent the appearance that it was administering a medical examination.

In the end, none of this mattered to the Seventh Circuit. Instead, the court articulated a distinction between psychological tests that are designed to identify mental disorders and impairments and those that measure personality traits like honesty; the former in the court's eye being classified as a medical examination under the ADA. Because the MMPI was designed, at least in part, to reveal mental illness, the Seventh Circuit found that it qualified as a medical examination that could not be administered in a pre-employment context regardless of whether the company took affirmative steps to ensure that it was used vocationally rather than clinically.

In contrast, the Eighth Circuit Court of Appeals decided differently when it examined the use of the MMPI in the context of testing police officer applicants. The plaintiff in Miller v. City of Springfield was a female applicant who applied for an officer position with the Springfield Police Department. The department required officer applicants to pass agility and psychological tests.

On the MMPI portion of the psychological test, Miller received a score of 66, which indicated above-normal depression. Based on these results, she was denied employment as a police officer. Miller sued the police department claiming she was screened out in violation of the ADA because of her psychological evaluation results. Unlike the Seventh Circuit in Rent-A- Center, the court in Miller found for the employer and determined that the MMPI was an appropriate job-related psychological screening tool that was consistent with a business necessity.

The differences between the Rent-A-Center and Miller decisions may simply be explained by the fact that courts may be more willing to accept certain psychological tests for applicants and employees when such tests serve a business necessity or are in the public interest. There is little doubt that a strong argument can be made that it is more necessary to determine the psychological well-being and honesty of an individual applying to be a police officer versus an individual applying to be a department store manager.

This business necessity/public interest reasoning is right in line with how federal and state governments regulate employers who wish to polygraph applicants or employees. Generally, such examinations are prohibited; however, police officers and those applying to become police officers are commonly exempt from federal and state polygraph protection statutes.

Though the Rent-A-Center and Miller cases only dealt with an employer's liability under the ADA, an employer who administers the wrong psychological test could face further legal action under varying federal and state laws. For instance, an employee could challenge a psychological test under Title VII of the Civil Rights Act. Title VII prohibits testing designed to, or that has a tendency to, discriminate based on race, gender, religion or national origin. Therefore, to the extent that a psychological test has a disproportionate adverse effect on minorities or women, the employer could face additional litigation under Title VII.

In addition, employers could face suits from employees who claim that confidentiality laws were violated in the handling of their test results. Employers have an obligation to maintain confidentiality of the test answers and to avoid providing information that could be deemed confidential without the employee's consent.

Certain states also have placed laws on their books prohibiting the psychological testing of employees. For example, Massachusetts has broadened its polygraph-protection law to prohibit employers from using any written examinations, which are used to render a diagnostic opinion regarding an individual's honesty. California and Rhode Island's polygraph-protection laws require that honesty and integrity exams not be the primary basis for making hiring, firing or promotion decisions. While less overt, Wisconsin has a statute in place that allows employees to challenge "unfair honesty tests."

Moreover, while some states have tightly worded statutes banning the use of lie-detector testing, other states have somewhat vague bans on such tests — Delaware and Idaho, for example. Ambiguous statutes could be interpreted to ban written psychological exams as well as polygraphs and other types of lie detector tests.

It is fair to say that increased use of any kind of testing of employees or applicants means an increase in the potential for litigation. An employer, however, can take special precautions in order to minimize the risk of litigation. Some things employers should consider before administering psychological tests to employees or applicants include:
  • Never using tests as the sole criterion for hiring or promotion decisions.
  • Avoid using tests that require analysis by a psychologist, psychiatrist or social worker.
  • Review existing tests to ensure that they do not include a psychological diagnostic component. In other words, make sure the test does not contribute to a finding of a particular mental impairment or psychological disorder.
  • Make sure that the test is statistically valid, reliable and devoid of cultural and ethnic bias.
  • Use tests that are job-related and of a business necessity. For example, tests for extroversion might be justified for people seeking sales positions, but not for people seeking positions that do not focus heavily on interaction with others. Similarly, an integrity test might be more justifiably job-related for financial and security positions.
  • Administer the test in a standardized fashion that ensures that all job applicants or employees are assessed in the same way.
  • Monitor the test results to ensure that there is not a disparate impact on women and minorities.
  • Take active steps to ensure the confidentiality of test responses.
  • Monitor workplace statistics on attrition, theft, turnover and production to determine whether the use of these tests has resulted in a reduction of identified counterproductive behaviors.
  • Consult a lawyer with expertise in the area of employment testing before going ahead with any test. At a minimum, an employer must comply with federal requirements, as well as additional requirements imposed by the particular state where the test is being administered.
Deciding whether to implement psychological testing with applicants and employees does not need to be an anxiety-riddled experience. With careful planning and execution, an employer should be able to use psychological testing as a way of efficient hiring and promotion without violating federal and state laws.
Seegull is a partner at DLA Piper Rudnick Gray Cary US LLP, in Baltimore. His e-mail is larry.seegull@dlapiper.com.

Caputo is an associate at the same firm. Her e-mail is emily.caputo@dlapiper.com.

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