SUPREME COURT REJECTS “PRETEXT PLUS” FOR DISCRIMINATION CASES

Twenty-seven years after the Supreme Court established the now familiar burden-shift analysis for employment discrimination cases in McDonnell Douglas Corp. v. Green,^[1]  the Court has finally – and unanimously – rejected the notion that a plaintiff must establish “pretext-plus” to prevail at trial.  In Reeves v. Sanderson Plumbing Products, Inc.^[2], the Supreme Court ruled that a jury may find for a plaintiff who establishes 1) a prima facie case of discrimination; and 2) that the employer’s proffered non-discriminatory reason for his discharge is false.  Basically, Reeves will prevent employers from obtaining summary judgment where a plaintiff can adequately demonstrate a prima facie case of discrimination and pretext.

The McDonnell Douglas Model

Proving the ultimate issue of discrimination is often difficult because direct evidence (or a smoking gun) rarely exists in discrimination cases and plaintiffs must therefore resort to establishing their claims with circumstantial evidence.  “Because writings directly supporting a claim of intentional discrimination are rarely, if ever, found among an employer's corporate papers, affidavits and depositions must be carefully scrutinized for circumstantial proof which, if believed, would show discrimination.”^[3]  Often, the focus is on how an employer treats similarly situated employees (individually or collectively), but the necessary evidence varies with the circumstances of each case.

Recognizing that “the question facing triers of fact in discrimination cases is both sensitive and difficult”^[4] the Supreme Court established a unique three stage burden-shifting framework to “progressively sharpen the inquiry into the elusive factual question of intentional discrimination.”^[5]  Under this model, a plaintiff must first present a prima facie case of employment discrimination, which is a minimal task.  Plaintiff must generally establish that he (i) is a member of the protected class (over 40 years of age for an age case); (ii) is qualified for his position; (iii) was terminated (or suffered an adverse employment action); and (iv) was replaced by someone outside of the protected class^[6] (or a “substantially younger employee”^[7] in an age case)^[8].  If established, the prima facie case creates a “legally mandatory rebuttable presumption”^[9] of discrimination because employers are assumed to act for legitimate reasons and, therefore, do not take adverse actions against protected, qualified employees where no such action is taken against similarly situated non-protected employees. 

Once an employee establishes a prima facie case of discrimination, the inquiry proceeds to the second stage where an employer may rebut this presumption by articulating “some legitimate nondiscriminatory reason”^[10] for the adverse action.  As set forth in Reeves, “[t]his burden is one of production, not persuasion.”^[11]  If the employer produces such evidence, the presumption of discrimination “drops out of the picture”^[12] and the plaintiff must prove the ultimate issue: did the employer intentionally discriminate against the plaintiff? 

In the third stage, or pretext stage, plaintiff is given an opportunity to demonstrate by competent evidence that “the employer’s proffered explanation [for the adverse action] is unworthy of credence.”^[13]  In Reeves, the Supreme Court noted that various Circuit Courts struggled to determine whether or not plaintiff’s prima facie case and proof of pretext was “adequate to sustain a finding of liability for intentional discrimination.”^[14]

The Proceedings Below

Reeves, the plaintiff, had been employed for forty years by Sanderson Plumbing, a manufacturer of toilet seats and covers.  Sanderson terminated Reeves when it allegedly uncovered timekeeping errors and misrepresentations on Reeve’s part during a departmental audit.  Reeves sued in the District Court for the Northern District of Mississippi, contending that he had been fired because of his age in violation of the Age Discrimination in Employment Act, 29 U.S.C. § 621, et seq.  The jury returned a verdict in plaintiff’s favor, awarding him $35,000 in compensatory damages.  The District Court subsequently awarded liquidated damages and front pay, for a total of nearly $100,000.  Sanderson appealed to the Fifth Circuit on the grounds that the trial court had erroneously denied its two oral motions for judgment as a matter of law under Rule 50 of the Federal Rules of Civil Procedure.  

In Reeves, the plaintiff offered evidence that he did not actually make any timekeeping errors or misrepresentations and, to the extent there were actually mistakes, other managers were responsible.  In addition, plaintiff testified that the Director of Manufacturing – who had ordered the audit of plaintiff’s department and participated in the decision to terminate plaintiff – made age biased comments towards plaintiff, including (i) plaintiff was so old that he “must have come over on the Mayflower;” and (2) that he was “too damn old to do the job.”^[15]

Notwithstanding plaintiff’s evidence, which the Fifth Circuit recognized was strong, the Circuit Court ruled that even though Reeves could (and did) establish that Sanderson’s proffered reasons for his termination were pretextual, he had to offer something more to establish a finding of discrimination (hence “pretext-plus”).   As stated by the Circuit Court, “whether [defendant] was forthright in its explanation for firing Reeves is not dispositive of a finding of liability under the ADEA.  We must, as an essential final step, determine whether Reeves presented sufficient evidence that his age motivated Sanderson’s employment decision.”^[16]  In the “essential final step,” the Fifth Circuit mistakenly ignored plaintiff’s prima facie case and his evidence of pretext.  Instead, it held that defendant’s age-related comments were not made in the direct context of plaintiff’s termination, that the Director of Manufacturing was merely one of three managers involved in the decision to terminate plaintiff, and plaintiff had no evidence that the other decision makers were motivated by age-bias.  In essence, the Fifth Circuit held that a jury verdict could not stand if the plaintiff only establishes his prima facie case and that the employer’s reasons for taking an adverse action were pretextual.

The Supreme Court reversed, holding that a jury is permitted to rule for a discrimination plaintiff on the basis of the prima facie case and proof of pretext.  The Supreme Court ruled that the Fifth Circuit erred by mandating that a plaintiff must always introduce evidence of discrimination beyond that required by the McDonnell Douglas analysis.  Accordingly, “a prima facie case and sufficient evidence to reject the employer’s explanation may permit a finding of liability” and a plaintiff is not required to “introduce additional, independent evidence of discrimination.”^[17]  Indeed, the Court recounted its previous declaration that “[t]he fact finder’s disbelief of the reasons put forward by the defendant (particularly if disbelief is accompanied by a suspicion of mendacity) may, together with the elements of the prima facie case, suffice to show intentional discrimination.”^[18]  This is because:

the trier of fact can reasonably infer from the falsity of the explanation that the employer is dissembling to cover up a discriminatory purpose.  Such an inference is consistent with the general principle of evidence law that a factfinder is entitled to consider a party’s dishonesty about a material fact as ‘affirmative evidence of guilt.’^[19]

THE IMPACT OF REEVES

Reeves thus clarifies Hicks, in which the Supreme Court reversed the Eighth Circuit’s decision that plaintiff’s proof of a prima facie case and pretext compels judgment for the plaintiff.  In Hicks, the Supreme Court held that the trier of fact may find discrimination in such circumstances.  Reeves and Hicks, then, are two sides of the same coin.  In both cases, the Supreme Court rejected attempts by Appellate Courts to compel judgment as a matter of law.  Plaintiff’s proof of a prima facie case and pretext does not compel judgment according to Hicks, nor does it compel dismissal for want of additional evidence, according to Reeves.  These factual issues fall within the province of the jury.  The Court does not rule out the limited case where a plaintiff’s prima facie case and proof that an employer’s termination for a false reason, or refusal to tell the real reason, may not establish a discriminatory motive.  In her concurrence, Justice Ginsburg indicated that such circumstances where a plaintiff must prove evidence beyond a prima facie case and pretext may exist, but are “uncommon” to say the least.^[20]  Nonetheless, for the overwhelming majority of cases, the Court has decided that plaintiff’s prima facie case and proof of pretext will prevent a judicially compelled judgment (i.e. summary judgment) for the defendant.  The rest is for the jury.

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.