EEO Compliance Dispatch

Building on the Trump Administration’s efforts to dismantle disparate impact as a basis for discrimination claims, the Office of Legal Counsel of the U.S. Department of Justice has said that the EEOC’s longstanding interpretation of disparate impact discrimination violates the Equal Protection Clause of the U.S. Constitution.

The Equal Employment Opportunity Commission recently indicated that it did not intend to pursue disparate impact claims, but it has not formally amended its guidance on this issue.

Disparate impact discrimination

The theory of disparate impact discrimination is that facially neutral policies that disproportionately affect members of a protected group are generally unlawful, even if the employer did not intend to discriminate.

This differs from disparate treatment discrimination, or an employer’s intent to discriminate based on a protected characteristic.

In a 1971 case involving an employer’s requirement that most employees have high school diplomas, which resulted in more limited opportunities for Black candidates, the U.S. Supreme Court held that disparate impact discrimination was unlawful. Congress later amended Title VII to expressly prohibit employment practices that have a disparate impact.

During the Carter Administration in 1978, the EEOC adopted the Uniform Guidelines on Employee Selection Procedures, outlining how employers can comply and how disparate impact claims should be analyzed. The section of the Uniform Guidelines that applies to disparate impact has not been formally withdrawn or amended.

Currently, disparate impact claims are analyzed in three steps:

• The plaintiff must show that a particular employment practice causes a disparate impact on the basis of a protected characteristic, such as race or sex.
• The employer has the burden of showing that the challenged practice is consistent with “business necessity.”
• The plaintiff has the burden of proving that the employer refuses to adopt an alternative that would reduce the disparate impact.

Position of the current DOJ

According to the DOJ, the disparate impact theory always raised “serious equal-protection concerns”:

The fundamental problem is that disparate-impact liability tends to incent – and even coerce – employers to make race-based decisions to avoid liability or the threat of liability. . . . [D]isparate-impact liability under Title VII “place[s] a racial thumb on the scales, often requiring employers to evaluate the racial outcomes of their policies, and to make decisions based on (because of) those racial outcomes.”

The DOJ says that disparate impact liability is appropriate only for “practices that reflect a significant likelihood of intentional discrimination” and not for “disparate effects alone.” The DOJ also says that the EEOC’s framework for evaluating disparate impact liability must be updated “‘to ensure a constitutional reading and application’ of Title VII.”

(The DOJ notes that “age is not a ‘suspect class,’” so it does not apply to disparate impact claims under the Age Discrimination in Employment Act.)

The DOJ proposes three “corrections” to avoid “a constitutional collision”:

• The plaintiff should be required to prove that the challenged employment practice actually caused the disparate impact. According to the DOJ, a “disparate-impact claim must satisfy a robust causality requirement to avoid reading Title VII as imposing an unconstitutional quota system.” A plaintiff must both plead and prove that a specific employment practice causes a disparate impact.
• The business necessity defense should be an easy standard for employers to satisfy. If disparate impact exists, and an employer contends that the challenged practice is a business necessity, the employer’s judgment should be given “significant leeway.”

According to the DOJ, “Employment practices are presumptively job-related, and only irrational or arbitrary practices with no plausible job-relatedness can create disparate-impact liability.”

• The plaintiff should be required to show that an alternative would eliminate the disparate impact and would be as effective in serving the employer’s legitimate business interests. Any proposed alternative must be “equally effective” in achieving the employer’s legitimate business goals, which includes cost and other burdens associated with the alternative.

An employer would have to refuse “to adopt an equally effective and administrable alternative ‘without a similarly undesirable racial effect’” for the employment practice to be considered a pretext for discrimination.

These “corrections” are more akin to minor tweaks and clarifications to the existing standard. The DOJ is not proposing to eliminate or to make wholesale changes to the disparate impact standard of liability, but rather is adding explanations to how the standard should be applied.

The most significant change is likely to be seen in what qualifies as “business necessity.” The DOJ opinion identifies the EEOC’s existing guidance on use of criminal background checks, issued in 2012 during the Obama Administration, as an example of guidance that “is inconsistent with the strong presumption of job-relatedness and the constitutionally mandated leeway for demonstrating business necessity.” The DOJ takes the position that employers should not have to provide validation of their practices through technical studies to show that their employment practices are lawful.

What does this mean for employers?

Based on the DOJ’s opinion, the EEOC is now likely to revise its existing guidance on the disparate impact theory of discrimination under Title VII.

On the federal enforcement front, not much is likely to change. As noted above, the Trump Administration has already voiced its disfavor of disparate impact liability.

Employers defending disparate impact claims – whether brought by the government or a private litigant – may argue that a court should apply the DOJ’s principles.

Employers will not know the position of the federal courts until courts begin to analyze disparate impact claims under any new guidance that may be issued. It typically takes years for a comprehensive body of case law to be developed on which employers can comfortably rely.

In addition, disparate impact under state laws may be analyzed differently. Some states, such as California, New York, and Texas, have enacted their own anti-discrimination laws that codify their own theories and burdens of proof related to disparate impact. The DOJ’s opinion may or may not have persuasive effect in those jurisdictions.

For now, employers are wise to consider the legal risks associated with both disparate treatment (intentional) discrimination and disparate impact.

That said, action to reduce potential disparate impact should be taken only after careful evaluation, the current law in relevant jurisdictions, and specific legal recommendations.

For guidance or assistance with the disparate impact theory of discrimination or the DOJ’s opinion, please contact a member of Constangy’s EEO/Contractor Compliance, Reporting & Analytics Practice Group.