Fall, 2000
CLAIMS LAW UPDATE
EMPLOYMENT DISCRIMINATION
[Ref. Employment Practices Liability, Para. 2.01]
Not too long ago, if you asked a claims professional how often the Civil Rights Act of 1964 came up in the course of claims work, he or she might look at you as if you had just stepped off a flying saucer. Even when employment practices liability (EPL) claims began appearing in the 1980s, employers responded mostly by attempting to comply with the Act through employee sensitivity training and by establishing employee complaint procedures. However, the number of EPL claims continued to rise. With Congress authorizing compensatory and punitive damages for discrimination claims in 1991, and with the U.S. Supreme Court expanding the scope of employer liability for sexual harassment in 1998 (See Claims Law Update, Spring, 2000), many employers have looked for protection against this liability risk, seeking coverage under CGL, WC/EL, and D&O policies. The insurance industry has responded with Employment Practices Liability Insurance policies. Consequently, state and federal anti- discrimination statutes are becoming as relevant to day-to-day claims work as the law of negligence. This article will discuss two theories available under the employment discrimination section of the Civil Rights Act of 1964 known as “Title VII.”
DISPARATE TREATMENT
Intentional discrimination under Title VII is known as “disparate treatment.” The Act, which applies to employers with 15 or more employees, provides that:
It shall be an unlawful employment practice for an employer:
(1) to fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s race, color, religion, sex, or national origin; or
(2) to limit, segregate, or classify his employees or applicants for employ- ment in any way which would deprive or tend to deprive any individual of employ- ment opportunities or otherwise ad- versely affect his status as an employee, because of such individual’s race, color, religion, sex, or national origin.
An employee can prove a Title VII violation with evidence that clearly shows discrimination, such as a statement by the employer to a female job applicant that “We do not hire women for this job.” Such evidence, however, is hard to come by, and employers generally are careful to avoid such statements. The difficulty of proving a discriminatory intent led the Supreme Court to establish two separate lines of analysis for disparate treatment cases: the “indirect evidence” approach and the “direct evidence” approach.
The indirect method of proof was established in McDonnell Douglas Corp. v. Green, 411 U.S. 792 (1973). Green, a black mechanic and lab technician, was laid off as part of a general reduction in the employer’s work force. He protested his discharge as racially motivated, and his protest included unlawful activities such as obstructing traffic. About a year later, McDonnell Douglas advertised job openings for mechanics, but Green’s application was rejected. Green sued, alleging that the failure to re-hire him was intentional racial discrimination under Title VII. The employer alleged that its rejection of Green was based solely on his earlier unlawful activities against the company.
The Supreme Court established a three-part test for disparate treatment cases where direct evidence of discriminatory intent is unavailable. First, the employee or applicant must establish: (1) that he is a member of a class of persons protected by the statute (as an African American, Green was a member of a racial minority; others may show that they are female or belong to religious or ethnic minorities); (2) that he applied for or held a position with the employer, for which he was qualified; (3) that he was adversely affected by an employment decision by the employer (Green was not hired; others may show that they were not promoted, were demoted or discharged, or otherwise received unfavorable treatment in terms of job benefits); and (4) that other persons having the same qualifications as the employee, but not members of the protected group, were not adversely affected by the employer’s actions (Green showed that McDonnell-Douglas continued to seek applications from persons similarly qualified). Proof of these elements creates a presumption of discrimination, and if the employer offers no evidence to the contrary, the plaintiff will prevail.
Second, to rebut this presumption, the employer must “articulate” a non-discriminatory reason for its action. The employer only needs to produce evidence of a non-discriminatory reason for its action. The court or jury does not determine whether the employer’s evidence is true at this point. Where the employer produces a non-discrimatory reason for its action, the presumption of unlawful discrimination disappears. If the employee offers no further evidence of discrimina- tion, judgment will be entered for the employer.
Third, the employee can still win the case by proving that the employer’s purported legitimate reason for its action was a pretext for unlawful discrimination. Note, however, that the court or jury must find not only that the employer’s purported reason was false, but also that the real reason was discrimination. In Reeves v. Sanderson Plumbing Products, Inc., 120 S.Ct. 2097 (2000), the Court noted the possibility, perhaps somewhat remote, that an employer might give a false explanation of its action “to conceal something other than discrimination.” If an employee could prevail in such a case simply by proving that the employer’s explanation was false, he or she would win the case without ever proving discrimination. Thus, the court ruled that, while an employee may prevail in some cases by proving a prima facie case and producing evidence sufficient for a jury to disbelieve the employer’s purported reason, this will not always be so, and the employee may have to produce additional evidence of the employer’s “discriminatory animus.” The lower federal courts have not been able to formulate a clear rule as to when such additional evidence may be required.
The leading “direct evidence” Title VII case is Price Waterhouse v. Hopkins, 490 U.S. 228 (1989). Ann Hopkins, a senior manager for Price Waterhouse, was nominated for a partnership in 1982. Her candidacy was put on hold for a year, but the following year, the partners refused to resubmit her name in nomination. In a Title VII action, Hopkins showed that sexual stereotyping pervaded the partnership nominating process. Perhaps the most persuasive proof of discrimination came from the spokesman for the group that decided on partnership nominations. He advised Hopkins that, to improve her chances of a partnership, she should “walk more femininely, talk more femininely, dress more femi- ninely, wear make-up, have her hair styled, and wear jewelry.” The Court ruled that, if the employer offers no defense, such statements are sufficient proof that the employer’s action was based on unlawful discrim- ination.
While Hopkins was able to prove that her sex was a reason for the partnership decision, Price Waterhouse was able to prove that Hopkins had a host of personal shortcomings that affected her job performance, including her rude and abrasive treatment of company personnel. There clearly were legitimate as well as improper reasons for the ultimate rejection of her candidacy. The court ruled that, where an employee proves that the employer’s decision was based partly on illegitimate factors, the burden of persuasion (not just the burden of producing evidence) shifts to the employer. The employer must prove that it also considered legitimate factors that would have caused it to make the same decision, even if it had not considered the employee’s race, religion, sex, or national origin.
Under amendments to Title VII enacted in 1991, proof of a legitimate motive that would have led the employer to make the same decision merely limits the remedies available to the employee. The key remedies under the original Title VII were back pay and the hiring, reinstatement or promotion of the plaintiff. Com- pensatory or punitive damages were not available. Under the 1991 amendments, courts can award compensatory damages (such as emotional distress) and punitive damages, subject to statutory limits, in cases of intentional discrimination. However, the 1991 amend- ments also provide that, if the employer proves the defense outlined in Price Waterhouse, the court may award back pay but cannot award any other damages or order the hiring, reinstatement or promotion of the employee. If the employer fails to prove a legitimate reason for its action, these additional remedies may be awarded.
What kind of evidence is “direct” enough to trigger the Price Waterhouse direct evidence analysis? The federal appellate courts are not in agreement on this issue. While true direct evidence (“We do not hire women”) will always trigger Price Waterhouse, statements that suggest that the employer may have been motivated by discrimination (“walk more femininely,” etc.) may also qualify. However, “stray remarks in the workplace” are not sufficient. For example, in Standard v. A.B.E.L. Services, Inc., 161 F3d 1318 (11th Cir. 1998), a reverse racial discrimination case brought by a white employee, various members of management had told the employee that the company intended to staff its production facility with Hispanic workers, who allegedly would be more likely to work long hours without complaint. The court ruled that the statements did not qualify as direct evidence because the employee could not show that they were made by persons involved in the decision to terminate his employment in the process of making that decision.
Religious discrimination is accorded special treatment under Title VII. Title VII provides that “religion” includes all aspects of religious belief, observance and practice, “unless an employer demonstrates that he is unable to reasonably accommodate to an employee’s or prospective employee’s religious observance or practice without undue hardship on the conduct of the employers’ business.” This has created a “failure to accommodate” theory of discrimination. In Chalmers v. Tulon Company, 101 F3d 1012 (4th Cir. 1996), the court ruled that an employee can establish a prima facie religious accommodation claim by proving that (1) he has a bona fide religious belief that conflicts with an employment requirement, (2) he informed the employer of this belief, and (3) he was disciplined for failure to comply with the conflicting employment requirement. The burden then shifts to the employer to prove that it could not accommodate the plaintiff’s religious needs without undue hardship.
The court in Chalmers used the example of an employee whose religious beliefs do not permit him to work on Sundays. The employee is terminated because the company has a particular need for people to work on Sundays. If the employee had advised the employer that his faith prohibited working on Sundays, he clearly would be able to establish the prima facie case described in Chalmers. If the employer fails to prove that the employee’s needs could not be accommodated without undue hardship, the employer will be in violation of Title VII.
It is not unlawful for an employer to hire and employ employees on the basis of their religion, sex, or national origin “in those certain instances where religion, sex, or national origin is a bona fide occupational qualification [BFOQ] reasonably necessary to the normal operation of that particular business or enterprise.” The employer must prove that the essence of its particular business operation would be undermined if it were forced to abandon its discriminatory policy. However, a BFOQ defense cannot be based on stereotyped characteriza- tions of the group involved. For example, a company cannot justify a male-only policy in its sales force on the basis of its belief that women tend to be less aggressive than men. The BFOQ defense applies only to discrimination based on sex, religion, or national origin. It cannot be used to justify racial discrimination. Also, the defense does not apply to discrimination in pay or benefits.
In sex discrimination cases, courts rarely find that only men are capable of performing a given job. Sex discrimination can be justified, however, for a particular position under particular circumstances. For example, in Robino v. Iranon, 145 F3d 1109 (9th Cir. 1998), the court upheld a policy of assigning only female corrections officers to six specified positions in a women’s correctional facility. Men were not barred from working in the facility as a whole. Rather, the policy applied only to six positions that required the officers to observe inmates in the showers and toilet areas or permitted unsupervised access to inmates in the residential areas of the facility. The policy was justified as a means of protecting the inmates’ privacy as well as protecting the facility itself from allegations of sexual misconduct.
DISPARATE IMPACT
Under the disparate impact theory, an employer can be held liable for discrimination even in the absence of an intent to discriminate. Say a municipality requires its employees to live in town, and will not hire non- residents. The town has hired residents of all races, religions, and ethnic backgrounds, and does not intentionally discriminate against minorities. One might think that the town is safe from liability under Title VII. However, suppose the population of the town is 80% white, while the population of the county in which it is located is 55% white. If the town’s workforce is also 80% white, its practice of hiring only residents has a “disparate impact” on minority job applicants in the area. If the town cannot justify its residency requirement, it may indeed be found guilty of discrimination.
The U.S. Supreme Court created the disparate impact theory of discrimination in Griggs v. Duke Power Co., 401 U.S. 424 (1971). Duke Power required a high school education and the passing of an intelligence test for promotion from the “labor” department to positions in the higher-paying “operating” departments. Although the requirements applied equally to employees of all races, it was shown that, while 34% of white males in the state had completed high school, only 12% of blacks had done so. Also, whites passed the intelligence test at a substantially higher rate than blacks. The Court, applying Title VII, ruled that:
The Act proscribes not only overt discrim- ination but also practices that are fair in form, but discriminatory in operation. The touchstone is business necessity. If an employment practice which operates to exclude Negroes cannot be shown to be related to job performance, the practice is prohibited.
The court ruled that the employer had violated Title VII because “neither the high school completion requirement nor the general intelligence test is shown to bear a demonstrable relationship to successful performance of the jobs for which it was used.”
The federal courts have developed a test for disparate impact claims. First, the plaintiff must prove that the employer uses a particular employment practice that causes a disparate impact on the basis of race, color, religion, sex, or national origin. These may be “objective” criteria such as standardized tests, height and weight restrictions, or residency requirements, but they may also consist of “subjective” factors such as the judgment of supervisors regarding the employee or applicant’s good judgment, common sense, loyalty, or creativity.
The plaintiff must then show that the challenged practices have an adverse impact that falls more heavily upon members of the protected class than they do on others. Statistical proof is often used to establish this. For example, in Ward’s Cove Packing Co. v. Atonio, 490 U.S. 642 (1989), the plaintiffs were unskilled “cannery job” workers at the defendant’s salmon canneries in Alaska. These jobs were filled primarily by nonwhites, while the “noncannery jobs,” mostly skilled positions, were filled primarily by whites. The Supreme Court ruled that a comparison of the proportions of members of the protected group in different jobs (cannery jobs vs. noncannery jobs) was not relevant. Rather, the comparison should be between the proportion of members of the protected group in the jobs at issue (the noncannery jobs) vs. their proportion of the qualified population in the relevant labor market. Thus, if the plaintiffs in Ward’s Cove had shown that nonwhites were, say, 40% of the local labor pool qualified for noncannery jobs but that they only held 30% of those jobs, disparate impact would have been established.
The plaintiff must also show that the challenged employment practice caused the disparity. Thus, the disparity must be large enough that it cannot reasonably be the result of chance but more likely was caused by the challenged employment practice. Many courts apply a “four fifths rule,” under which an employment practice that selects employees of any race, sex, or ethnic group at a rate that is less than four fifths (80%) of the selection rate for the group with the highest rate is generally regarded as evidence of adverse impact. In Pietras v. Board of Fire Commissioners, 180 F3d 468 (2nd Cir. 1999), female applicants to a volunteer fire department showed that, while 95% of men passed the department’s physical agility test, only 57% of women passed. Since the pass rate for women was only 60% of the pass rate for men, the test was held to have a disparate impact on female applicants.
If the plaintiff establishes a prima facie case of disparate impact discrimination, the defendant must then prove that the challenged practice has a manifest relationship to the job in question and is necessary to the achievement of the employer’s legitimate business purpose. For example, in Smith v. City of DeMoines, 99 F3d 1466 (8th Cir. 1996), the DeMoines Fire Department required that all firefighters of the rank of captain or below pass physical tests to determine whether they were capable of fighting fires while wearing a self contained breathing apparatus. Smith, a fire captain, failed the test and eventually was discharged as a result. In Smith’s suit under the Age Discrimination in Employment Act, the court, applying a Title VII analysis, held that the city had established a business necessity defense by proving that fire captains often participate in fire suppression activities and that the use of the breathing apparatus was necessary to safe and effective job performance.
Even where the employer establishes the business necessity defense, the employee can still prevail by proving an “alternative employment practice.” The employee must prove the existence of an alternative practice that would serve the employer’s legitimate purpose but not have the disparate impact on the group in question. In Smith, the fire captain was unable to offer an alternative means of ensuring safe and effective job performance that would not have a disparate impact on older firefighters.
CONCLUSION
It is expected that employers will continue to see increasing numbers of EPL claims in coming years. With the development of the EPLI form designed specifically to provide a defense and indemnification in such cases, insurance claims professionals will need to become familiar with the legal bases for EPL claims against their insureds. These include common law doctrines such as wrongful or retaliatory discharge, as well as statutes such as the Americans with Disabilities Act, the Age Discrimination in Employment Act, and, of course, Title VII of the Civil Rights Act of 1964. All of these legal theories, as well as coverage issues, are discussed in detail in the newest course offering from American Educational Institute: Employment Practices Liability.
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