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April 25, 2005
Supreme Court gets 42 USC 1981 case
Section 1981 prohibits race discrimination in the formation, termination, and performance of contracts. Can a person who is not a contracting party recover under 1981?
That's what the US Supreme Court will decide in Domino's Pizza v. McDonald, Docket No. 04-593, certiorari granted April 25, 2005.
The allegations were: McDonald, an African American, was the president and main shareholder of JWM, a corporation. JWM entered into contracts with Domino's. Domino's made it difficult or impossible for JWM to perform, propelling JWM into bankruptcy. JWM and Domino's settled. McDonald sued Domino's under Section 1981 claiming financial and emotional loss. He claimed that the downfall of JWM was caused by racial discrimination on the part of Domino's. The allegation have not been proved. The trial court granted summary judgment for the Domino's.
The 9th Circuit reversed, saying that McDonald, even though he personally had no contractual relationship with Domino's, had standing to sue Domino's for alleged injuries that he personally suffered. The 9th Circuit's decision (06/18/2004) was not reported. See 2004 WL 1380296.
The 9th Circuit relied on its earlier case Gomez v. Alexian Bros. Hosp., 698 F.2d 1019 (9th Cir 1983). The Circuits are split on this theory. See Guides Ltd v. Yarmouth Group, 295 F.3d 1065 (10th Cir 2002).
Posted April 25, 2005 by Ross Runkel, Editor at LawMemo, publisher of Employment Law Memo. Try it.
April 22, 2005
This corporation was a 42 USC 1981 "person"
Section 1981 prohibits race discrimination relating to contract formation and performance. A corporation does not have a "race" so you would think a corporate independent contractor could not be a "person" under 1981. Usually true, but here's an exception.
Bains LLC was a corporation, and all the stock was owned by three brothers who were US citizens born in India. The brothers and many of the corporation's employees were religiously observant Sikhs who wore turbans and long beards.
Bains LLC contracted with ARCO to haul fuel to ARCO's Seattle terminal. Bill Davis was ARCO's lead man at the terminal, and he made life difficult for Bains' drivers - verbally harassing them, slowing them down, making them stand in the rain, etc. Bains complained to Davis' boss, the abuse continued, Bains complained again. Then ARCO terminated Bains LLC without giving a reason and without the required 30 day notice.
A jury returned a verdict for Bains: ARCO breached the contract - damages $50,000. ARCO discriminated on account of race - nominal damages $1 plus punitive damages of $5,000,000. Yes, five million dollars punitive damages on top of a one dollar compensatory damages, but 9th Circuit ordered the punitives reduced to no more than $450,000. Bains LLC v. ARCO Products (9th Cir 04/19/2005).
How can a corporation prevail under Section 1981? The 9th Circuit explains that Bains LLC "acquired an imputed racial identity." This was the theory used in Thinket Ink v. Sun Microsystems (9th Cir 2004).
My view: Perhaps a small corporation whose shareholders are all of one race should be treated as a Section 1981 "person," but not for the reasons given in the Thinket case. In Thinket the 9th Circuit analyzed whether a corporation could have "standing," and relied on the classical standing cases. Those cases might be relevant if the corporation is suing to redress injuries to others (e.g., shareholders, employees), but not so relevant when the corporation sues to redress an injury to itself. In those cases, the more relevant inquiry is one of pure statutory interpretation: Did Congress intend for a corporation to be a "person" under Section 1981? Perhaps, given 1981's history as a post-Civil War statute designed to eradicate the badges and incidents of slavery. In any event, the Bains case appears to be the prevailing view.
Posted April 22, 2005 by Ross Runkel, Editor at LawMemo, publisher of Employment Law Memo. Try it.
April 21, 2005
Do volunteers get statutory protection?
Lorraine Lowery claimed a co-worker sexually harassed her. Peter Mendoza claimed he was discharged because of his disability. Each was an unpaid volunteer worker. Can they get legal relief?
It depends on what state they live in, and also depends on whether or not the claim is for sexual harassment.
Mendoza's case follows the prevailing viewpoint that a volunteer worker who is not being compensated does not get the benefit of employment discrimination statutes. Mendoza v. Town of Ross (California Ct App 04/19/2005).
Mendoza was volunteer community service officer who worked a regular schedule and took two weeks vacation per year. Please note: he was not paid any money and not covered by any employer insurance plans. He claimed he lost this position because he was disabled, and sued under California's anti-discrimination statute (FEHA).
The California court gave a bunch of reasons for concluding that Mendoza was not an "employee" under the statute. First, the court deferred to the administrative rule which defined an "employee" as an "individual under the direction and control of an employer under any appointment or contract of hire or apprenticeship." Then the court found there was no formal "appointment," no "contract," and no "apprenticeship." It was also significant that unpaid volunteers are specifically excluded from the worker comp statute.
Finally, the practically uniform interpretation of Title VII has been that unpaid volunteer workers are not protected.
Lowery's case is different, and clearly hinges on a specific Massachusetts statute. Lowery v. Klemm (Massachusetts Ct App 04/21/2005).
Lowery worked daily as a volunteer at a "swap shop" operated as part of a municipality's landfill. Please note: she was not paid any money and not covered by any employer insurance plans. She claimed sexual harassment by a co-worker, and sued under (this is important) G. L. c. 214 Section 1C(1).
The Massachusetts court allowed this suit to go forward, concluding that the statute covers a volunteer worker who is sexually harassed. The statutory structure in Massachusetts is important here. There is a general non-discrimination statute that was amended in 1986 to add sexual harassment as a prohibited employment practice. However, that statute will not cover Lowery because the general statute gets interpreted in the traditional way, and excludes Lowery because she is a volunteer.
G. L. c. 214 Section 1C(1) was adopted in 1986, and is entitled "an act directed to prohibiting sexual harassment." It applies to many situations where the general statute does not apply, for example, to cases where an employer has fewer than the six employees needed for coverage. The court gave many reasons for extending coverage to unpaid volunteers, and perhaps the most persuasive was that the specific statute (G. L. c. 214 Section 1C(1)) grants rights to "persons" rather than to "employees."
My view: Both courts are really following the traditional view that anti-discrimination statutes do not protect unpaid volunteers. That may offend some observers, but these statutes were designed to target the employment relationship and that relationship involves an exchange of services for remuneration. Massachusetts, on the other hand, simply has a unique statute targeted at sexual harassment - and that statute extends beyond the traditional notions of employment. Don't expect to see that happen anywhere else.
Posted April 21, 2005 by Ross Runkel, Editor at LawMemo, publisher of Employment Law Memo. Try it.
April 14, 2005
Class Action Fairness Act does not apply . . .
. . . to pending state cases that are removed after the effective date of the Act.
A class action claiming violation of state law overtime requirements was pending in state court at the time the Class Action Fairness Act of 2005 went into effect on February 18, 2005.
The employer removed the case to federal court under the Act's provision that expanded the subject matter jurisdiction of federal courts to cover class actions in which at least one plaintiff class member is diverse in citizenship from the defendant and where the amount in controversy exceeds $5 million.
The federal district court remanded the case back to state court. The 10th Circuit agreed that federal courts have no jurisdiction. Pritchett v. Office Depot (10th Cir 04/11/2005).
Section 9 of the Act provides that "[t]he amendments made by this Act shall apply to any civil action commenced on or after the date of enactment of this Act."
Pritchett's case was filed in state court prior to the effective date of the Act, but the employer's petition for removal was filed after the effective date of the Act. The employer argued that Pritchett's case was "commenced" under Section 9 as of the date that it was removed to federal court. Pritchett argued that the case was "commenced" under Section 9 as of the date it was filed in state court. The court agreed with Pritchett, observing that "[t]raditionally, a cause of action is commenced when it is first brought in an appropriate court, which here was when it was brought in state court.... When a matter is removed to federal court, it is not traditionally viewed as recommenced, nor as a new cause of action."
My view: A strained argument by the employer. The court knows how to read a statute.
Posted April 14, 2005 by Ross Runkel, Editor at LawMemo, publisher of Employment Law Memo. Try it.
April 12, 2005
Four-fifths test is not a safe harbor
"A selection rate for any race, sex, or ethnic group which is less than four-fifths (or eighty percent) of the rate for the group with the highest rate will generally be regarded by the Federal enforcement agencies as evidence of adverse impact, while a greater than four-fifths rate will generally not be regarded by Federal enforcement agencies as evidence of adverse impact." So says the EEOC regulation.
How does a Memphis police sergeant to get promoted to lieutenant? First pass a written test (whose cut-off score was never validated), and then move on to three other requirements.
The City had required a passing score of 70, but that resulted in a greater than 4/5 impact on African-American applicants, so the City reduced the passing score to 66. Black applicants who failed the test sued under Title VII claiming race discrimination, using the disparate impact theory.
The City's defense: No disparate impact proved because under the new cut-off score the impact was less than the four-fifths required by the EEOC regulation. In other words, there was some impact but not enough to trigger a requirement that the cut-off score be validated.
The trial court used other statistical methods as evidence of adverse impact. (a) The "T-test" which measures the difference in mean (i.e. - average) scores between minority and non-minority candidates. (b) The "Z-test" which measures statistical success among groups (i.e. - it computes the average scores of the passing candidates for each group and then compares those group averages).
The 6th Circuit (2-1) affirmed the trial court's finding of adverse impact, rejecting the City's argument that disparate impact could not be proved unless the impact satisfied the four-fifths rule. Isabel v. City of Memphis (6th Cir 04/11/2005).
The dissent was quite sure that previous authority in the circuit meant that no other statistical methods could be used if an employer satisfied the four-fifths rule. She thought the City properly "relied on the bright line four-fifths rule" and that plaintiffs should not be allowed to use "the newest statistical flavor of the month."
My view: It's too late in the day to argue that only one method of statistical analysis can be used to prove disparate impact. These cases are won or lost at the trial level, by persuading the court that one or another statistical method is truly indicative of whether the measured impact is merely a matter of chance.
Posted April 12, 2005 by Ross Runkel, Editor at LawMemo, publisher of Employment Law Memo. Try it.
April 05, 2005
Physicians' non-compete clause OK in New Jersey
Although lawyers' non-compete agreements are per se unreasonable and unenforceable, the same arrangements for physicians are OK. "Disfavored," said the New Jersey top court, but still enforceable.
The Community Hospital Group v. More (New Jersey 04/05/2005).
The court applied a fairly typical analysis to the reasonableness of the restrictive covenants, but with a heavy reliance on protecting the public interest.
The court found that it was reasonable for the covenant to prohibit the practice of neurosurgery for a period of two years. However, the court wanted the geographic area narrowed to no more than 13 miles. Most notably, the court found that there was a shortage of neurosurgeons in one emergency room, so in order to protect the public's interest the covenant could not include that emergency room.
My view: Nice job of balancing interests. Poor job of explaining why such restrictions are per se illegal for lawyers and not for physicians.
Posted April 05, 2005 by Ross Runkel, Editor at LawMemo, publisher of Employment Law Memo. Try it.
