U.S. Supreme Court Reverses Wal-Mart Class Certification

The largest class action ever certified in a discrimination claim is history.  The decision is interesting if you like issues that arise under the federal rules of civil procedure class action but that makes it pretty wonkish from the employer's point of view.  At first read, the Court's decision (it was unanimous in part) will spell doom for large employment based class actions where the evidence does not present a policy or practice of intentional discrimination or a practice that unintentionally causes a disparate impact.

What really hurt the employees trying to get their claims certified was that they took inconsistent positions in trying to establish that their claims of discrimination had an important point in common.  They claimed Wal-Mart had a policy of providing store management with unchecked discretion.  The Court didn't buy it, saying the employees failed to identify "a common mode of exercising discretion that pervades the entire company:"

we have recognized that, “in appropriate cases,” giving discretion to lower-level supervisors can be the basis of Title VII liability under a disparate-impact theory—since “an employer’s undisciplined system of subjective decision making [can have] precisely the same effects as a system pervaded by impermissible intentional discrimination.” Id., at 990–991. But the recognition that this type of Title VII claim “can” exist does not lead to the conclusion that every employee in a company using a system of discretion has such a claim in common. To the contrary, left to their own devices most managers in any corporation—and surely most managers in a corporation that forbids sex discrimination—would select sex-neutral, performance-based criteria for hiring and promotion that produce no actionable disparity at all. Others may choose to reward various attributes that produce disparate impact—such as scores on general aptitude tests or educational achievements, see Griggs v. Duke Power Co., 401 U. S. 424, 431–432 (1971). And still other managers may be guilty of intentional discrimination that produces a sex-based disparity. In such a company, demonstrating the invalidity of one manager’s use of discretion will do nothing to demonstrate the invalidity of another’s. A party seeking to certify a nationwide class will be unable to show that all the employees’ Title VII claims will in fact depend on the answers to common questions.

The decision reduces the risk that an employer will have a class action filed against it alleging all of its decisions are discriminatory.  This decision will require a pretty good showing that the discrimination claims have facts or decision making in common.  As I said earlier, employers that have discriminatory policies or who permit neutral practices to have a discriminatory effect are still at risk. 

EEOC Proposes Definition of "Reasonable Factor Other Than Age"

In light of recent Supreme Court decisions construing disparate impact liability under the ADEA, the EEOC has issued a proposed rule meant to define what is a "reasonable factor other than age" or RFOA.  (This is one of the potential rules I mentioned in December.)

The EEOC's definition won't have a significant impact on the routine age discrimination claim most employers face.  It could, however, result in an increase in the number of disparate impact claims asserted in ADEA lawsuits, particularly in IRIF claims.

The RFOA defense only applies when the proof establishes that the employer has engaged in conduct that is "otherwise prohibited" by the ADEA.  In an intentional discrimination claim it will be unusual (but not theoretically impossible) for an employer to be able to show that its conduct is intentionally discriminatory but yet reasonable.  (Some "reasonable" factors are hard wired  into the ADEA and implementing regulations, most relate to employment benefits, allowing employers to "discriminate" against older workers in end result where the cost of providing the benefit is equal to what it costs for a younger employee).

So, the RFOA defense will appear most in disparate impact claims, where the employer has a facially neutral practice that adversely affects older workers.

The EEOC says that "a reasonable factor is one that an employer exercising reasonable care to avoid limiting the employment opportunities of older persons would use."  To decide this you look to various criteria.  I won't go deep into these criteria here.  They can be summed up as follows: An employer taking action that adversely affects employees should (1) make sure it is aware of the effect of the decision on older workers (indeed, on all classes), (2) evaluate the severity of the impact on older workers, (3) consider whether there is some other, less harmful, means of achieving the same goal, and (4) conduct training of managers on how to avoid age-stereotyping.

I said at the outset that the RFOA defense will apply primarily in disparate impact cases.  But as I was reading through the EEOC's comments, what struck me was that this rule will have a significant impact on reduction in force litigation when older employees are disproportionately laid off.

Employers need to realize that disparate impact age claims can be brought (in the same complaint that alleges intentional age discrimination) to challenge the result of any "practice" the employer adopts, including "practices" the employer does not "officially" adopt.   If there is a statistical disparity, it won't be too hard for an employee to argue that there is a  "practice" that causes the skewed statistics.  (One practice can be, the EEOC says, where the employer gives "supervisors unchecked discretion to engage in subjective decision making.")

At that point, the employer will need to be able to show, in an IRIF case, that the criteria used to select employees to be laid off were  "reasonable" and based on some factor other than age.  While the employer does not have to adopt an employment practice that has the least severe impact on older workers,ignoring ways to lessen the impact will not look good.  Employers must also remember that under existing EEOC regulations (not modified by this proposed rule): "A differentiation based on the average cost of employing older employees as a group is unlawful" (with certain exceptions for benefit issues).

New Regulations to Look for From the EEOC

On Monday, December 7, 2009, a number of federal agencies issued their "regulatory plans." A law called the Regulatory Flexibility Act requires agencies publish semiannual regulatory agendas in the Federal Register describing regulatory actions they are developing that may have a significant economic impact on a substantial number of small entities. These take two forms, a Regulatory Plan and a Regulatory Agenda, with the Regulatory Plan being a list of the most significant regulations the agency expects to issue in some form at some point in the future. The Regulatory Agenda/Plan are not used for announcing new rules (or pending rules). Rather, it is a complete list of what to expect from the agency.

The Agenda and Plan for each federal agency can be found at reginfo.gov. The site then links to the "Regulation Identifier Number" or "RIN" for the regulatory action.

The EEOC doesn't issue a great number of regulations. Half of the regulations under consideration are intended to modify existing regulations to conform to or clarify the effect of Supreme Court decisions. The other half implement new Acts of Congress.

One proposed rule the EEOC expects to issue will address "Reasonable Factors Other Than Age Under the Age Discrimination in Employment Act." The EEOC describes the rule it is considering as:

On March 31, 2008, the EEOC published a Notice of Proposed Rulemaking (NPRM) concerning disparate impact under the Age Discrimination in Employment Act. 73 FR 16807 (March 31, 2008). In addition to requesting public comment on the proposed rule, the Commission asked whether regulations should provide more information on the meaning of "reasonable factors other than age" (RFOA) and, if so, what the regulations should say. After consideration of the public comments, and in light of the Supreme Court decisions in Smith v. City of Jackson, 544 U.S. 228 (2005), and Meacham v. Knolls Atomic Power Lab., 554 U.S. ___, 128 S. Ct. 2395 (2008), the Commission believes it is appropriate to issue a new NPRM to address the scope of the RFOA defense. Accordingly, before finalizing its regulations concerning disparate impact under the ADEA, the Commission intends to publish a new NPRM proposing to amend its regulations concerning RFOA.

On a related matter, the EEOC also expects to issue a final rule addressing the "Disparate Impact Burden of Proof Under the Age Discrimination in Employment Act." The EEOC explained:

the EEOC is revising this regulation [29 CFR 1625.7(d)] to conform to both Smith and Meacham. In the March 2008 NPRM, the Commission also asked whether its ADEA regulation should provide more information on the meaning of RFOA and, if so, what the regulations should say. After consideration of the public comments, and in light of the Supreme Court decisions in Smith and Meacham, the Commission believes it is appropriate to issue a separate NPRM to address the scope of the RFOA defense. This new NPRM will be titled "Reasonable Factors Other Than Age Under the Age Discrimination in Employment Act." A Final Rule to be issued in October 2010, will cover the issues addressed in both NPRMs.

The EEOC expects to issue the RFOA and Disparate Impact rules in October. It will first, however, issue a proposed rule on the RFOA.

Turning to the ADA Amendments, I posted in September that the EEOC had issued a proposed rule on the new definition of "disability" added by the 2008 Amendments. The EEOC describes the regulatory action as:

The Americans With Disabilities Act Amendments Act of 2008 ("the Amendments Act") was signed into law on September 25, 2008, with a statutory effective date of January 1, 2009. EEOC proposes to revise its Americans With Disabilities Act (ADA) regulations and accompanying interpretative guidance (29 CFR part 1630 and accompanying appendix) in order to implement the ADA Amendments Act of 2008. Pursuant to the 2008 amendments, the definition of disability under the ADA shall be construed in favor of broad coverage to the maximum extent permitted by the terms of the ADA, and the determination of whether an individual has a disability should not demand extensive analysis. The Amendments Act rejects the holdings in several Supreme Court decisions and portions of EEOC's ADA regulations. The effect of these changes is to make it easier for an individual seeking protection under the ADA to establish that he or she has a disability within the meaning of the ADA.

The EEOC expects to issue the final rule in July.

Finally, the other significant regulation to look for will concern the Genetic Information Nondiscrimination Act ("GINA"). The EEOC issued a proposed rule in March but unfortunately failed to issue a final rule before GINA took effect on November 21, 2009. According to the agenda, the final rule should be issued this month.

I will try to cover the DOL's Regulatory Agenda/Plan in a later post.

Constitutionalizing Title VII - Ricci v. DeStefano

Yesterday's decision in Ricci v. DeStefano probably received more publicity than it's due because Supreme Court nominee Sonia Sotomayor was on the panel that decided the appeal in the court of appeals. Nevertheless, the decision is an important one under Title VII for any employer who would avoid disparate impact liability.

In reading Ricci, I was reminded of a remark in Personnel Adm'r of Massachusetts v. Feeney, 442 U.S. 256, 277-79 (1979), that "Discriminatory intent is simply not amenable to calibration." Ricci demonstrates this point perfectly and the difference between intentional discrimination (also called "disparate treatment") and unintentional discrimination (called "disparate impact) continues to confound courts, lawyers and employers.

The facts in Ricci can be simply stated. The city gave a test to those who wanted to be promoted in the fire department. While the test was constructed to be racially neutral, it ended up favoring whites over blacks to a statistically significant degree. After deliberations, the city junked the test results. (This is an oversimplification. Other relevant facts will be added when the discussion warrants.)

The first question the Court decided was whether the City's rejection of the test results was "because of race." The majority got straight to the point and held that it was:

The City rejected the test results solely because the higher scoring candidates were white. The question is not whether that conduct was discriminatory but whether the City had a lawful justification for its race based action.

Slip op. at 19-20

Having decided the city's action amounted to overt racial discrimination, the only other issue was whether the decision was nevertheless justifiable because the city feared a disparate impact lawsuit from the black employees who fared worse than whites on the exam.

Employers take action based upon the fear of lawsuits all the time. Nor is the subject a new one for the Court. One of the statutory defenses in Title VII lets an employer make a decision because of sex but it is nevertheless a lawful on if sex is a bona fide occupational qualification ("BFOQ") for the job. Successful BFOQ defenses are rare, however, as Johnson Controls found out a number of years ago when it unlawfully prohibited females (unless they were infertile) from working on an assembly line making car batteries. UAW v. Johnson Controls, 499 U.S. 187 (1991). One of the more commonly permitted BFOQs is to require guards who have contact with male prisoners to be male. Dothard v. Robinson, 433 U.S. 321 (1977). But Title VII limits the BFOQ defense to sex, religion and national origin. It is not available for race discrimination claims. 42 U.S.C. § 2000e-2(e).

Without any statutory authority to guide it, the Court had to hold that the employer's fear of a disparate impact lawsuit could only justify a decision when (1) the city would be actually liable for a disparate impact or (2) under some lesser threshold than actual liability. It chose the latter, adding to Title VII a standard the Court had adopted in constitutional challenges. Government decisions based upon race, the Court explained, "are constitutional only where there is a 'strong basis in evidence' that the remedial actions were necessary." Slip op. at 22 (citing Richmond v. J. A. Croson Co., 488 U. S. 469, 500 (1989)). There is much that could be said about the reasoning behind this part of the Court's decision – I won't go into it here.

Under the Court's adopted standard, caving to political pressure is not a defense to a Title VII lawsuit. Carried to its logical conclusion, the decision means that an employer (public or private) cannot reject results derived from validly established criteria simply because the results show a statistically significant disparity. The Court explained: "The problem for [the City] is that a prima facie case of disparate-impact liability—essentially, a threshold showing of a significant statistical disparity, Connecticut v. Teal, 457 U. S. 440, 446 (1982), and nothing more—is far from a strong basis in evidence that the City would have been liable under Title VII had it certified the results." Slip op. at 28. What the City had to do was honestly analyze whether it had (or lacked) a valid defense to a disparate impact lawsuit. While the City argued it had a valid concern, the Court rejected these arguments as being "based on a few stray (and contradictory) statements in the record." (The Court's reasons for rejecting the City's arguments are interesting but I won't go into those because they are case specific and any employer who needs to determine whether it has a valid defense to a disparate impact claim should hire qualified counsel.)

From the standpoint of advising employers, what is most troubling about the Ricci is the lack of protection it gives employers who face the difficult choice of being sued no matter what the employer does. (The Court did say that because New Haven should not have thrown out the test results, it could not be liable when the results are implemented. Slip op. at 34. That is a small consolation to New Haven and no help at all to other employers). So, an employer that concludes it lacks a "strong basis in the evidence" for refusing to throw out a test cannot prevent the filing of a disparate impact lawsuit nor can it be assured it will win that lawsuit. Nothing in Ricci requires any court or a jury to defer to an employer's findings. The best (and perhaps only) thing an employer can do is to accurately and honestly assess the merits of the disparate impact claim.

To be sure, Ricci does not invalidate "an employer's affirmative efforts to ensure that all groups have a fair opportunity to apply for promotions and to participate in the process by which promotions will be made." Slip op. at 25. Nor does Ricci preclude so called "voluntary compliance efforts."

Many Tennessee employers will never have to be concerned about the impact of Ricci. At its foundation, the decision means that Title VII does not permit an unfounded fear of a lawsuit to justify an otherwise discriminatory decision. As I said, that is not a new concept. The decision could, however, invalidate any employment decision that is intended to alleviate a statistical imbalance within a hiring pool or other employee population "absent a strong basis in evidence of an impermissible disparate impact." So, any employer that develops a pool of applicants (or employees) and makes a decision (or avoids making a decision) based upon the perceived statistical impact of the decision should consult with counsel before taking any action.

The Attitude of EEOC Counsel

I recently posted about a Seventh Circuit decision that held an employer that settles a charge of discrimination must still comply with an EEOC subpoena. As I said there, the employer stood on principles and lost only because agencies have power that, while not absolute, is substantial and courts have no basis, short of a showing that the EEOC request is unduly burdensome or otherwise inappropriate, to refuse enforcement. It is better, I said, to cooperate even if you are sure you are right.

I should rest on my prior comments about the decision. After all, it is a pretty unique situation and not likely to re-occur. I can't held but comment, however, on the EEOC's press release about the decision (I will explain why in a minute). The EEOC quotes its lead attorney in the case as cautioning:

• Some recalcitrant employers and their counsel attempt to avoid accountability for employment discrimination through adoption of what they consider effective counter-strategies. Such strategies may include filing lawsuits against those who complain of discrimination, conducting endless discovery so as to draw out litigation for years, and, as in this case, getting one or two possible victims of the discrimin­ation which may have been visited upon a class to cut a quick and often cheap deal. Those strategies are, in the final analysis, never really effective against the EEOC. We’re pleased to see that point made once again made so forcefully in this important decision by the Seventh Circuit. (My emphasis.)
  

Remember, this is the case where the employer implemented a policy of refusing to hire anyone who had been convicted of a violent crime after two of its employees were murdered in violent confrontations in the workplace. The employer didn't ban applicants simply because of prior arrests, it didn't ban applicants because of prior convictions, its policy focused on convictions for violent crimes.

The decision, moreover, made it clear that the EEOC was not investigating a case of intentional discrimination. The EEOC was looking to see whether the policy was unintentionally discriminatory, on the assumption that some races might be more heavily impacted by the policy than others. Now, I am prepared to assume that the employer's practice might have led to a statistical disparity merely because there are more minorities than non-minorities convicted of violent crimes. (To know for sure, we would have to look at several factors and that isn't the point of this post.)

Even if there is a disparity, as the court recognized at oral argument and in its decision (both available through this page) there is a substantial question as to "whether the EEOC is acting prudently by devoting time of both its staff and Watkins to shortlived practices by an entity that is no longer an operating company, and whose rule may well be amply supported by 'business necessity' given its history of workplace violence."

So, the clear message the EEOC's counsel (and the reason I am saying something further here) is sending employers is that the EEOC presumes you are trying to undermine your employee's rights. Even when you are trying to protect your employees from workplace violence, the agency stills believes you are out to do the wrong thing toward your employees.

I am not saying the agency should blindly trust employers and forgoe discrimination investigations. Simply that, if you are ever inclined to think that the EEOC investigator is "your friend," don't. They aren't.