SECOND CIRCUIT RULES THAT AT-WILL EMPLOYEES
MAY SUE UNDER SECTION 1981

            Joining the emerging consensus that an at-will employee may pursue a discrimination claim under 42 U.S.C. § 1981, the United States Court of Appeals for the Second Circuit has overturned a district court’s grant of summary judgment in favor of IBM in a case brought by one of its Directors of Human Resources.  Lauture v. IBM Corp., 99-7732, (2d Cir., June 20, 2000).

            Plaintiff, Jackie Lauture, worked her way through the ranks of IBM for 16 years, eventually rising to the position of Director of Human Resources for IBM’s division of Global Procurement.  IBM terminated her in 1998, allegedly for unsatisfactory job performance during her last three years of employment.  Ms. Lauture brought suit less than two weeks after being fired claiming that IBM had discriminated against her on the basis of her race (African descent) in violation of Section 1981.

Claims Under The Civil Rights Act of 1866

            Section 1981(a), which was originally enacted as the first section of the Civil Rights Act of 1866, provides that

All persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts, to sue, be parties, give evidence, and to the full and equal benefit of all laws and proceedings for the security of persons and property as is enjoyed by white citizens, and shall be subject to the like punishment, pains, penalties, taxes, licenses, and exactions of every kind, and to no other.[1]

In 1989 the Supreme Court limited the application of Section 1981 when it decided Patterson v. McLean Credit Union, 491 U.S. 164 (1989).  In Patterson, the Supreme Court held that Section 1981 was limited to the making and enforcing of contracts, but it rejected the notion that the law applied to “conduct by the employer after the contract relation has been established, including breach of the terms of the contract or imposition of discriminatory working conditions.”  491 U.S. at 177.  Thus construed, Patterson severely limited the application of Section 1981 to employment discrimination claims, where the overwhelming majority of claims deal with post-hire (and, therefore, post contract formation) conduct.

            In response to the Patterson decision Congress passed the Civil Rights Act of 1991.  Among other changes, the Civil Rights Act of 1991 added Section 1981(b), which states:

[f]or purposes of this section, the term “make and enforce contracts” includes the making, performance, modification, and termination of contacts, and the enjoyment of all benefits, privileges, terms, and condition of the contractual relationship.

            The 1991 amendments, however, did not address whether a non-contract employee could bring Section 1981 claims.  More than forty States adhere to common law employment at-will principles.  To be employed "at-will" means that an employee has no obligation or right to remain employed.  That is, an employee is free to quit at any time and an employer is free to terminate the employee "at any time, for any reason or no reason."  In general, an employee can gain the right to remain employed when he or she enters a contract to employ a person for a specified period of time, or the employer otherwise voluntarily limits it right to terminate the employee.  Employers can do this either directly with the employee (in an individual employment contract) or with an employee representative, such as a union (in a collective bargaining agreement).

            Nonetheless, the overwhelming majority of employment in the United States is at-will.  Thus, for example, if an employee files suit for breach of contract based on the termination of his or her employment, the Court will assume that the employment was at-will unless and until the employee can prove otherwise.  Ignoring all other claims, if the employee cannot overcome the at-will presumption, he or she cannot sue for breach of contract.

            Of course, an employer cannot terminate an employee in violation of an anti-discrimination statute.  However, by its terms, Section 1981 appears to require the existence of an enforceable employment contract, which an at-will employee does not have.

Proceedings Below

            Seizing on the lack of an enforceable contract between it and Lauture, IBM moved for summary judgment and convinced Judge Brieant that plaintiff could not maintain her Section 1981 claim.  Under New York’s well-settled employment at-will doctrine, IBM could terminate plaintiff at any time, with or without notice or reason.  New York State courts routinely dismiss claims by at-will employees based on contract theories, such as wrongful termination for breach of an personnel manual.  Likewise, a number of District Courts in the Second Circuit had squarely decided that at-will employees may not maintain claims under Section 1981.  See, e.g., Bascomb v. Smith Barney Inc., 96 CIV. 8747 (SDNY Jan 15, 1999); Moorer v. Grumman Aerospace Corp., 964 F. Supp. 665 (EDNY 1997), aff’d, 162 F.3d 1148 (2d Cir. 1998) (unpublished), but see, Hartzog v. Reebok Int’l Ltd., 77 F.Supp.2d 478 (SDNY 1999) (at-will employee may sue under Section 1981); Dew v. Health Ins. Plan of Greater New York, 97 Civ. 7006 (EDNY, July 15, 1999) (same), aff’d, 208 F.3d 202 (2d Cir. 2000) (unpublished); Harris v. New York Times, 90 Civ. 5235 (SDNY, February 11, 1993) (same).[2]

Second Circuit Reverses and Remands

            Settling the split between its District Courts, the Second Circuit joined the Fourth, Fifth and Tenth Circuits[3] in concluding that an at-will employee may sue for wrongful termination under Section 1981.  The Circuit Court flatly rejected the notion that claims under Section 1981 are constrained by state law.  That an at-will employee may be barred from suing under state law contract theories does not mean she is barred from suing under Section 1981.  As stated by the Court:

[i]n drafting § 1981, Congress did not seek to promulgate some specialized federal definition of contract law, but merely intended the term “contract” to have its ordinary meaning.  * * *  In this context, Lauturre’s promise to perform work for IBM, as consideration for IBM’s promise to pay her, was a contract.  (Citations omitted).

Likewise immaterial was the fact that Lauture’s contract was not for a specified period, which made her an at-will employee under New York law:

[i]n the context of a racial discrimination claim brought under federal law, the fact that employment was at will is simply not dispositive.  The New York Court of Appeals has noted that the doctrine is not a bar to actions by employees under certain circumstances: “[A]bsent a constitutionally impermissible purpose, a statutory proscription, or an express limitation in the individual contract of employment, an employer’s right at any time to terminate an employment at will remains unimpaired.”  Murphy v. American Home Prods. Corp., 58 N.Y.2d 293, 305 (1983) (emphasis added) [(citations omitted)].  Section 1981 is a statutory proscription against racial discrimination – a constitutionally impermissible purpose – in the making performance, modification, and termination of contracts, and thus falls within the limitations to the at will doctrine set forth in Murphy.

The Court also noted that the Supreme Court in Patterson would have allowed plaintiff to pursue a failure to promote claim, even though plaintiff was an at-will employee.  Thus, just as the absence of an employment contract for a fixed term did not bar Patterson from pursuing a Section 1981 claim, Lauture’s claim may proceed.

Lastly, the Court reasoned that IBM’s proposed interpretation of Section 1981 would “severely weaken” the statute.  Unlike Title VII of the Civil Rights Act of 1964, which requires that an employer have more than fifteen employees to be covered, Section 1981 does not contain jurisdictional prerequisites.  “Were the Court to exclude at-will employees from the scope of § 1981, at-will employees at small businesses would be left with no remedy for workplace discrimination.”

Lauture’s Lessons

            The Court of Appeal’s decision in Lauture is a certain boon for employees.  Obviously, an at-will employee that can maintain an analogous Title VII claim will also bring a Section 1981 claim.  Equally important, and an issue that the Second Circuit did not address, is the fact that many plaintiff-side employment lawyers will no longer be required to wait to file a federal discrimination claim.  Under Title VII, a claimant must exhaust his or her administrative remedies before filing in court.  In general, this includes filing first with the Equal Employment Opportunity Commission, waiting 180 days, and obtaining a Right To Sue letter.  Section 1981 does not contain any administrative processing or exhaustion requirements.  Consequently, employers will no longer enjoy a long complaint-filing cushion, which often allowed them to formulate their defense to a discrimination claim.