Courts typically have dismissed discrimination claims under Title VII if those claims were made by an independent contractor, rather than by an “employee” of the company. However, 42 U.S.C. §1981 (“Section 1981”), which prohibits racial discrimination in the formation of contracts, states that “all persons” shall have the same right “to make and enforce contracts as is enjoyed by white citizens.” In a case of first impression for the 3d U.S. Circuit Court of Appeals, that court has followed prior decisions of three sister-appellate courts in holding that an independent contractor may sue for race discrimination under Section 1981.

There appears to be a sharp increase in lawsuits filed against franchisors alleging race discrimination under Section 1981 of the Civil Rights Act of 1866 (codified at 42 U.S.C. § 1981, "Section 1981"). This is a Reconstruction-era statute providing all people, including recently freed slaves, with the same right as white people to make and enforce contracts. In the 1970s, plaintiffs' lawyers began to use the statute to prosecute discrimination in the workplace based on an employee's race. While race-based discrimination was already made illegal by Title VII of the Civil Rights Act, Section 1981 was attractive to plaintiffs' lawyers because it: (1) has a longer statute of limitations (four years versus approximately one year); (2) does not require employees who sue under this claim to file a charge of discrimination with the Equal Employment Opportunity Commission or administrative agencies before instituting such an action in court (unlike Title VII); (3) has no requirement for a minimum number of employees (unlike Title VII); and (4) has unlimited compensatory and punitive damages (unlike Title VII), while still providing for an award of attorney fees. Therefore, plaintiffs' employment lawyers began to add Section 1981 claims to their Title VII race claims, at a minimum, to pursue greater damages than would otherwise be available under just Title VII.

On May 27, 2008 the Supreme Court issued its opinion in CBOCS West, Inc. v. Humphries, 128 S.Ct. 1951 (2008). The Court held, for the first time, that plaintiffs may bring claims for race-based retaliation under Section 1981 of the Civil Rights Act of 1866. Retaliation claims already are available under Title VII of the Civil Rights Act of 1864, but that statute imposes significant limits on damages and requires plaintiffs to submit their claims for review by the Equal Employment Opportunity Commission (EEOC) before they may file suit. The CBOCS ruling will have substantial consequences for employers, including exposure to unlimited damages, and perhaps a longer time period for employees to file retaliation suits.

The U.S. Supreme Court has further expanded the ability of employees to sue for retaliation - an area of employment law that has exploded in recent years. Specifically, the Court held that a federal statute enacted shortly after the Civil War granting all citizens the right to enter into and enforce con-tracts (referred to as "Section 1981") can be used to bring a claim of employment-related retaliation.

The number of retaliation claims filed against employers has grown rapidly in the last few years, and a recent decision by the United States Supreme Court is likely to further increase that growth. On May 27, 2008, the U.S. Supreme Court held in CBOCS West Inc. v. Humphries, No. 06-1431, that employees may bring retaliation claims under 42 U.S.C. § 1981.

On May 27, 2008 the Supreme Court issued its opinion in CBOCS West, Inc. v. Humphries. The Court held, for the first time, that plaintiffs may bring claims for race-based retaliation under Section 1981 of the Civil Rights Act of 1866. Retaliation claims already are available under Title VII of the Civil Rights Act of 1864, but that statute imposes significant limits on damages and requires plaintiffs to submit their claims for review by the Equal Employment Opportunity Commission (EEOC) before they may file suit. The CBOCS ruling will have substantial consequences for employers, including exposure to unlimited damages, and a longer time period for employees to file retaliation suits.

In an important case closely watched by civil rights and business groups, the U.S. Supreme Court ruled on May 27, 2008, that the 19th-century civil rights statute commonly referred to as "Section 1981" provides a cause of action for retaliation. In CBOCS West, Inc. v. Humphries, a decisive majority of seven justices rejected arguments that 42 U.S.C. § 1981 should be interpreted narrowly. In an opinion by Justice Stephen G. Breyer, the Court chose to construe Section 1981 as not only prohibiting racial discrimination in the making and enforcing of contracts, but as also prohibiting retaliation against persons who complain of such discrimination.

In its 2006 Burlington Northern decision, the U.S. Supreme Court adopted a relatively easy standard for stating a retaliation claim under Title VII. On May 27, 2008, it issued two decisions which, in effect, enable more employees to bring retaliation claims. Although the decisions come as no surprise, they highlight the increasing risk that employers face for retaliation claims.

Today, the U.S. Supreme Court further expanded the ability of employees to sue for retaliation – an area of employment law that has exploded in recent years. Specifically, the Court held that a federal statute enacted shortly after the Civil War granting all citizens the right to enter into and enforce contracts (commonly referred to as "Section 1981") can be used to bring a claim of employment-related retaliation.

In separate decisions issued the same day, the Supreme Court has given employees the okay to bring retaliation claims against their employers under anti-discrimination statutes, even though the laws make no mention of a retaliation cause of action. In CBOCS West, Inc. v. Humphries, the Court held by a 7-2 vote that a Reconstruction-era civil rights statute prohibiting race discrimination permits retaliation claims. No. 06-1431, 553 U.S. ____ (May 27, 2008). In the other case, Gómez-Pérez v. Potter, the Court ruled by a 6-3 vote that federal employees who complain about age discrimination are protected from retaliation by their employers under the Age Discrimination in Employment Act (“ADEA”). No. 06-1321, 553 U.S. ____ (May 27, 2008).

The Supreme Court delivered its decision in CBOCS West, Inc. v. Humphries holding that Section 1981 of the Civil Rights Act of 1866 unequivocally includes claims of retaliation by those pursuing race and color claims under the statute. The Court's ruling has significant consequences for employers, including a longer period of time in which aggrieved employees may file suit, exposure to uncapped damages, as well as providing federal remedies for a greater number of employees who, until this decision, may not have been covered by federal anti-retaliation statutes.

The Supreme Court heard oral arguments February 20 from an employer seeking to overturn the vast majority of federal appellate court rulings that a post Civil War-era civil rights statute prohibiting race discrimination allows claims for retaliation, even though the statute is silent on the question. Several Justices appeared concerned about the lack of any provision authorizing such claims. CBOCS West, Inc. v. Humphries, No. 06-1431.

The U.S. Supreme Court has held that a corporate officer cannot sue for race discrimination in his own right under 42 U.S.C. § 1981 based on a contract between his corporation and the company sued. Among other things, § 1981 protects the right of all people "to make and enforce contracts" without respect to race. The statute protects not only the right to enter into a contract, but all the rights and benefits inherent in the contractual relationship, including performance, modification and termination.

A post-Civil War statute referred to as “Section 1981” forbids discrimination against black citizens’ right to form contracts. The statute is often invoked in discrimination lawsuits brought by employees and, less frequently, by retail customers.

Discussion of Lauture v. IBM Corp., 99-7732, (2d Cir., June 20, 2000), in which the court held that an at-will employee may proceed with a Section 1981 claim.