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Equal Employment Opportunity Commission v. Kronos Incorporated

September 14, 2012

EQUAL EMPLOYMENT OPPORTUNITY COMMISSION, APPELLANT
v.
KRONOS INCORPORATED



On Appeal from the United States District Court for the Western District of Pennsylvania (No. 2-09-mc-00079) District Judge: Honorable Arthur J. Schwab

The opinion of the court was delivered by: Chagares, Circuit Judge.

PRECEDENTIAL

Argued June 26, 2012

Before: SLOVITER, CHAGARES, and JORDAN, Circuit Judges

OPINION

This is our second encounter with this case, which again requires us to consider the enforcement of an administrative subpoena issued by the Equal Employment Opportunity Commission ("EEOC") seeking to compel Kronos Incorporated ("Kronos"), a non-party to the underlying action, to disclose information about its employment tests. The EEOC issued the disputed subpoena as part of its investigation into an allegation that Kroger grocery store violated the Americans with Disabilities Act ("ADA"), 42 U.S.C. § 12101, et seq., by failing to hire a disabled applicant after she took an employment test created by Kronos. We previously held that the EEOC was entitled to Kronos's data without the geographic, temporal, and topical restrictions originally imposed by the District Court except insofar as the EEOC sought discovery regarding racial discrimination. We also remanded for the District Court to conduct a good cause balancing test to determine if a confidentiality order was warranted.

On remand, the District Court expanded the scope of its original order, but again placed certain limitations on the disclosure of information related to the Kronos tests.

Regarding Kronos's request for a confidentiality order, the court found there was good cause to enter a modified version of the order we previously reviewed. Finally, the District Court required Kronos and the EEOC to split evenly the costs of production.

Although the District Court's thoughtful handling of this case reflects its efforts to comply with our mandate and to strike a balance between the burden on a non-party and the EEOC's need for information, we must reverse and remand for the reasons that follow. We note, however, that we agree with much of the District Court's discussion regarding the need for a confidentiality order, and our remand on this issue is solely for the purpose of allowing the District Court to consider how the specific limitations it ordered are tied to Kronos's justifiable fears regarding the disclosure of proprietary information. Similarly, we are reversing the District Court's cost-sharing order not because we necessarily disagree with the result, but to allow the court to make an individualized determination of whether the costs of production under the newly expanded subpoena are outside the scope of what Kronos can reasonably expect to bear as the cost of doing business.

I.

The underlying facts of this case relate to a charge of discrimination Vicky Sandy filed with the EEOC on June 30, 2007. Sandy, who is hearing and speech impaired, applied to work as a cashier, bagger, and stocker at a Kroger grocery store in West Virginia. As part of the application process, Sandy took a Customer Service Assessment (the "Assessment") created by Kronos and received a low score of 40%. Kroger admitted it relied, at least in part, on the Assessment when it decided not to hire Sandy.

A.

During the course of its investigation into Kroger's hiring practices, on March 11, 2008, the EEOC issued a third-party administrative subpoena to Kronos. The subpoena initially sought documents solely related to Kroger, including any validity studies related to the Assessment. The EEOC later expanded the scope of the subpoena to include the nationwide use of Kronos's assessment tests and the tests' impact on both minority and disabled applicants (like the District Court, we refer to the modified subpoena as "Subpoena 2"). Specifically, Subpoena 2 directed Kronos to:

1. Produce any and all documents and data constituting or related to validation studies or validation evidence pertaining to Unicru [a Kronos subsidiary] and/or Kronos assessment tests purchased by The Kroger Company, including but not limited to such studies or evidence as they relate to the use of the tests as personnel selection or screening instruments.

2. Produce the user's manual and instructions for the use of the Assessment Tests used by The Kroger Company[.]

3. Produce any and all documents and data, including but not limited to correspondence, notes, and data files, relating to the Kroger Company; its use of the Assessment Tests; results, ratings, or scores of individual test-takers; and any validation efforts made thereto.

4. Produce any and all documents discussing, analyzing or measuring potential adverse impact on individuals with disabilities and/or an individual[']s race.

5. Produce any and all documents related to any and all job analyses created or drafted by any person or entity relating to any and all positions at The Kroger Company.

6. Furnish a catalogue which includes each and every assessment offered by Unicru/Kronos. Additionally provide descriptions of each assessment.

EEOC v. Kronos Inc., 620 F.3d 287, 294 (3d Cir. 2010) ("Kronos I").

Kronos objected and filed a Petition to Revoke the Subpoena with the EEOC. Kronos claimed that the information sought by the EEOC included data that was irrelevant to Sandy's charge and that much of the information sought by the EEOC constituted valuable trade secrets that would be at risk of further disclosure if revealed. The EEOC denied the petition and, after Kronos failed to provide the requested information, filed a motion to enforce the subpoena in district court.

The District Court granted the motion in part, but limited the scope of the subpoena to documents related to Kroger's West Virginia operations and the positions of cashier, bagger, and stocker, from January 1, 2006 to May 31, 2007. The District Court also refused to allow discovery related to racial discrimination, since it was not a part of Sandy's charge. In sum, the District Court ordered Kronos to do the following:

1. Produce any user's manual and instructions for the use of the Assessment Tests provided to the Kroger Company.

2. Produce any and all documents and data, including but not limited to correspondence, notes, and data files, relating to The Kroger Company; The Kroger Company's use of the Assessment Tests; results, ratings, or scores of individual test-takers at The Kroger Company; and any validation efforts performed specific[ally] for and only for The Kroger Company.

3. Produce any and all documents discussing, analyzing or measuring potential adverse impact on individuals with disabilities, relating specifically to and only to the Kroger Company.

4. Produce any and all documents related to any and all job analyses created or drafted by Kronos relating to the bagger, stocker, and/or cashier/checker positions at The Kroger Company.

5. Furnish any catalogue provided to The Kroger Company.

6. Items 1 through 5 are limited to the time period of January 1, 2006 through May 31, 2007, in the state of West Virginia, for the positions of bagger, stocker, and/or cashier/checker.

Id. at 295. At Kronos's urging, the District Court also entered a confidentiality order confining the EEOC's use of discovery materials obtained from Kronos. The EEOC appealed the District Court's decision to us.

B.

In Kronos I, we reversed the District Court's geographic and temporal restrictions, as well as the restrictions related to job description, and affirmed the District Court's refusal to allow discovery into racial discrimination. We also vacated the confidentiality order and remanded so that the District Court could conduct the proper good cause balancing test, noting that the District Court should keep in mind the requirements of the Federal Records Disposal Act, 44 U.S.C. § 3314. Since the exact language of our opinion is important for determining whether the District Court complied with our mandate, a detailed discussion of that opinion is necessary.

Kronos I required us to consider the scope of the EEOC's investigatory power. As we explained, "The EEOC is empowered to investigate charges of discrimination to determine whether there is reasonable cause to believe that an employer has engaged in an unlawful employment practice." Id. at 296. This power is not without limits. Instead, "the EEOC is entitled to access only evidence 'relevant to the charge under investigation.'" Id. (quoting 42 U.S.C. § 2000e-8(a)). We went on to explain:

The relevance requirement is not particularly onerous. Courts have given broad construction to the term relevant and have traditionally allowed the EEOC access to any material that might cast light on the allegations against the employer. Nonetheless, the EEOC's power of investigation is anchored to the charge of discrimination, and courts must be careful not to construe the charge and relevance requirements so broadly as to confer unconstrained investigative authority upon the EEOC. The relevance requirement is designed to cabin the EEOC's authority and prevent fishing expeditions. The EEOC bears the burden of demonstrating relevance.

Id. at 296-97 (citations and quotation marks omitted). We further explained that the concept of "relevance" may change during the course of an EEOC investigation, as the EEOC is permitted to pursue leads that arise during the course of an investigation even when that new evidence reveals "a broader picture of discrimination" than the original charge. Id. at 297 (quotation marks omitted).

In examining what constituted relevant evidence for Sandy's charge, we noted that the ADA prohibits employment tests of the type Kronos makes (and Kroger used in its hiring decisions) when such tests "'screen out or tend to screen out'" disabled people and the use of the test is not "'job-related for the position in question'" and "'consistent with business necessity.'" Id. at 296 (quoting 42 U.S.C. § 12112(b)(6)). Tests of this type may be impermissible under both disparate treatment and disparate impact theories. Id. Thus, evidence that would "cast light on" either a claim for disparate treatment or disparate impact caused by the use of the Kronos assessments would be relevant. Id.

The EEOC argued that all job types, geographic areas, and time periods were relevant, as well as all "Kronos Assessment instructions and manuals . . . (regardless of whether Kronos actually provided them to Kroger), [and] materials related to validation studies and potential adverse impact based on disability, even if such materials are not specific to Kroger's use of the test." Id. at 297. We agreed, holding that the District Court had employed "too restrictive a standard of relevance in limiting the information related to geography, time, and job position." Id. Moreover, we held, "the District Court erred in limiting the EEOC's access to user's manuals and instructions, validation information, and materials pertaining to potential adverse impact on individuals with disabilities." Id. We determined that such information would aid the EEOC by providing "useful context and important comparative data" for its investigation of Kroger's use of the Assessment. Id. at 298 (quotation marks omitted).

We rejected Kronos's assertion that Subpoena 2 sought "information or materials related to assessment tests Kroger has never purchased and has never used," and instead held that the materials sought by the EEOC in Subpoena 2 were "not so broad as to render the relevance requirement a 'nullity.'" Id. at 299 (quoting EEOC v. Shell Oil, 466 U.S. 54, 69 (1984)). Specifically, we held that "[t]he District Court's decision denying the EEOC access to particular materials unless they relate only to Kroger was an improper use of its discretion" because any information in Kronos's possession regarding whether the Assessment had an adverse impact on disabled people, or the validity of the Assessment, "certainly might shed light on the charge of discrimination." Id. We further rejected Kronos's argument that Sandy's charge failed to allege disparate impact, thereby confirming that evidence related to any disparate impact of the Assessment on disabled people would be relevant to the EEOC's investigation. We summarized our holding on these issues as follows:

[W]e will reverse the District Court's judgment insofar as it limited the scope of the EEOC's subpoena in terms of geography, time, and job description. We will also reverse to the extent that the District Court's order limits the EEOC's access to validation efforts conducted solely on behalf of Kroger, documents relating to potential adverse impact on disabled individuals to those relating specifically and ...


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