Legal Updates

United States Supreme Court Update: Decision in Mixed-Motive Case Is Bad News for Employers

In Desert Palace, Inc. v. Costa, 123 S. Ct. 2148, the Supreme Court attempted to clarify the long-standing confusion about the burden of proof necessary for employees to prevail in mixed-motive cases under Title VII of the Civil Rights Act of 1964.   The term mixed-motive refers to situations in which both legal and illegal considerations played a role in an employer’s decision.  In the past, employees generally had to present direct evidence (e.g., discriminatory statements by decision-makers) of discrimination to get their cases to a jury in mixed-motive cases.  Pursuant to the Court’s decision in Desert Palace, employees need not present direct evidence, but rather can rely upon evidence of any sort.

In Desert Palace, Catharina Costa, a female warehouse worker, claimed that her employment was terminated for two reasons: (1) because she got into a physical altercation with a male co-worker; and (2) for her gender, because her male co-worker was simply disciplined, while she was discharged and because she had historically been more harshly disciplined than her male co-workers.  Ms. Costa presented indirect evidence that she was terminated on the basis of her gender by showing the differential treatment between herself and her male co-workers.  The trial court instructed the jury that Ms. Costa could prevail if: “the plaintiff’s sex was a motivating factor in the defendant’s treatment of plaintiff… even if you find that defendant’s conduct was also motivated by a lawful reason.”  Ms. Costa prevailed at trial, and was awarded $365,000 in back pay, compensatory damages and punitive damages.  Desert Palace appealed, arguing that pursuant to the Civil Rights Act of 1991, Ms. Costa was required to present direct evidence that sex was a motivating factor in her discharge.  In affirming the jury verdict for Ms. Costa, the Ninth Circuit Court of Appeals held that the Civil Rights Act of 1991 does not require an employer to introduce direct evidence that an impermissible consideration was a motivating factor in an adverse employment action.  In affirming the Ninth Circuit, the Supreme Court held that plaintiffs must prove their cases by a preponderance of the evidence, using either direct or circumstantial evidence.

Luckily, even after Desert Palace, an employer may still limit its liability to attorneys’ fees and costs by proving it is “more likely than not” that it would have taken the same action absent the unlawful discriminatory factor.  Unfortunately, however, the decision is likely to encourage employees to bring mixed-motive cases, and will make obtaining summary judgment and employer verdicts in mixed-motive cases more difficult.  Finally, it is unclear whether courts will apply this decision to claims brought under the Age Discrimination in Employment Act and the Americans with Disabilities Act.

Are Corporate Owners Also Employees?

In Clackamas Gastroenterology Associates P.C. v. Wells, 123 S. Ct. 1673, the United States Supreme Court found that shareholders of professional corporations can be “employees” for purposes of federal employment discrimination laws.  Deborah Wells sued her former employer, Clackamas Gastroenterology Associates (“CGA”), alleging disability discrimination in violation of the Americans with Disabilities Act (“ADA”).  CGA moved for summary judgment, claiming that the ADA was not applicable because the four physician-owners of CGA were not employees, and thus CGA did not employ “15 or more employees for each working day in each of 20 or more calendar weeks in the current or preceding calendar year.”

The United States District Court for the District of Oregon ruled that the physicians were not employees under the ADA, and granted CGA’s Motion for Summary Judgment.  A divided Ninth Circuit reversed the decision of the District Court, ruling that it would be unfair to allow a professional corporation to have its cake and eat it too by reaping the tax and liability advantages afforded to corporations while avoiding the employment discrimination laws.  The Supreme Court, however, did not adopt the Ninth Circuit’s arguments.  Rather, the Supreme Court held that the common law concept of control should be the principal consideration in deciding whether shareholders are to be counted as employees under the federal discrimination laws, and endorsed the Equal Employment Opportunity Commission’s (“EEOC”) position that: “if the shareholder-directors operate independently and manage the business, they are proprietors and not employees; if they are subject to the firm’s control, they are employees.”   In making this determination, the Court cited the six-factor test enumerated by the EEOC:

(1)                                       Whether the organization can hire or fire the individual or set the rules and regulations of the individuals’ work;

(2)                                       Whether and, if so, to what extent the organization supervises the individual’s work;

(3)                                       Whether the individual reports to someone higher in the organization;

(4)                                       Whether and, if so, to what extent the individual is able to influence the organization;

(5)                                       Whether the parties intended that the individual be an employee, as expressed in written agreements or contracts; and

(6)                                       Whether the individual shares in the profits, losses and liabilities of the organization.

In light of the Supreme Court’s decision, smaller employers and professional corporations should re-assess their obligations under the federal employment discrimination laws.  In this regard, the decision will likely be applied to permit a discrimination lawsuit by a shareholder alleging that the employer discriminated against the shareholder in violation of federal anti-discrimination laws.

Will Your Diversity Initiatives Hold Up Under Strict Scrutiny?

In Grutter v. Bollinger, 123 S. Ct. 2325 (2003), the Supreme Court recently approved the use of the University of Michigan Law School’s approach to obtaining racial diversity in admissions, but in Gratz v. Bollinger, 123 S. Ct. 2411 (2003), the Court rejected the point system used by the University of Michigan undergraduate school because it was not narrowly tailored to serve a compelling state interest.

In Grutter, an applicant who was denied admission to the University of Michigan Law School challenged the Law School’s policy of considering race as a “plus” factor.  Specifically, the Law School’s admissions policy evaluated an applicant’s standardized test score, undergraduate grade point average, letters of recommendation, essays and difficulty of undergraduate programs in determining which students to admit.  In addition, although the Law School did not establish a quota for minority students, it did seek to admit enough minority students to help achieve the Law School’s goal of having a diverse student body.

In reviewing the lower court’s decision, the Supreme Court held that a diverse student body is a compelling state interest that can justify the use of race in university admissions, so long as the use of race is  narrowly tailored.  To be narrowly tailored, a race-conscious admissions program cannot use quotas.  Instead, a university may consider race or ethnicity as a “plus” in making an individualized assessment of whether to admit a particular candidate.  Moreover, the Court rejected the notion that using race as a factor is permissible only when necessary to remedy past discrimination.  Rather, the Court endorsed the Law School’s belief that diversity is essential to its educational mission.  Finally, the Court stated that race-conscious admissions policies must be limited in time and periodically reviewed to determine whether they are still necessary to achieve a diverse student body.

In Gratz, several white students filed a class action lawsuit after they were denied admission to the University of Michigan, based on the University’s use of a point system in evaluating candidates for admission.  Pursuant to this system, underrepresented minorities automatically received an additional 20 points.  The Supreme Court found the undergraduate admissions program’s reliance on race to be unconstitutional because the school automatically assigned 20 points to every “underrepresented minority applicant” and did not consider each applicant’s background, experiences and capabilities.  As a result, the automatic point system was not narrowly tailored to achieve a compelling state interest.

While these decisions did not address race as a factor in employment situations, these decisions are likely to impact the way courts approach affirmative action and diversity issues in the employment context.  Thus, employers should review their voluntary diversity and affirmative action programs to evaluate the propriety of using a quota system to consider whether the programs are designed to remedy past or present discrimination and whether the programs have a time limit or should be dismantled once diversity has been achieved.