Without the paycheck accrual rule, many commentators feared that victims of pay discrimination would be unable to investigate, uncover, and charge discrimination against their employer within Title VII’s short limitations period. Justice Ginsburg dissented in Ledbetter, arguing that the Court’s rule would prove disastrous for victims of pay discrimination, who will frequently fail to file a timely charge because they are unaware of the fact that they have been victimized.³ She called upon Congress to take the lead and correct what she called the majority’s “parsimonious reading of Title VII.”⁴ Congress accepted that challenge and passed the Lilly Ledbetter Fair Pay Act (Ledbetter Act), which amended Title VII to codify the paycheck accrual rule.⁵

This Editorial examines the problems inherent in the Ledbetter Act and argues that either of two alternative approaches—(1) an injury discovery rule or (2) the application of equitable tolling for cases of fraudulent concealment—would be superior to the Ledbetter Act’s paycheck accrual rule.

 
I.
Problems with the Ledbetter Act’s Paycheck Accrual Rule

The Ledbetter Act’s paycheck accrual rule suffers from several shortcomings. First, it makes the limitations period for a particular class of discrimination cases dependent on a factor completely divorced from the discriminatory intent that gives rise to the claim. The act of paying wages to an employee does not, on its own, suggest that an employer is engaging in discrimination; yet under the Ledbetter Act, this is precisely what determines the relevant limitations period. This leaves today’s management responsible for the sins of its predecessors, about which it might not have been aware or acquiescent. While in some cases it may be beneficial for new management to investigate the pay disparities that it inherited from prior management in order to ferret out past discrimination, the game might not be worth the candle. New managers will have to mine through years of data and reports in order to second guess the motivations of their distant predecessors. Far removed in time from the relevant events, they will likely be in a poor position to determine which pay decisions were legitimate and which were discriminatory.

Second, the paycheck accrual rule seriously undermines the societal interest in repose embodied in statutes of limitations. The rule gives little credence to this interest because it renews the limitations period for pay claims with each paycheck, meaning that some plaintiffs will be able to bring claims about pay decisions made decades in the past.

Third, the paycheck accrual rule only benefits a select number of victims of discrimination—a group that prima facie is no more deserving of protection from harsh limitations periods than other victims of discrimination. It does nothing to help plaintiffs who want to bring claims alleging discrimination in employer decisions about, for example, bonuses or firings. Even the employee who suffered from past discrimination and only learns of it long after she has left the discriminator’s employ finds no solace in the Ledbetter Act, having received no “tainted” paychecks within the limitations period.

Fourth, the paycheck accrual rule gives a windfall to many undeserving plaintiffs. The Ledbetter decision generated uproar because of the perception that it created unfairness for plaintiffs who were unaware that they had been victimized, yet the Ledbetter Act’s more generous limitations period is not contingent on a plaintiff’s ignorance of the discrimination against her. Even those who are fully aware that they have been discriminated against receive a new limitations period each time they are paid, raising the concern that plaintiffs will unfairly use the more generous limitations period to their advantage, long after learning of the discrimination.

Finally, the paycheck accrual rule reduces employees’ incentives to seek out and discover pay discrimination—an important objective of statutes of limitations.

 
II.
Alternative Approaches to the Paycheck Accrual Rule

In light of the shortcomings of the Ledbetter Act’s paycheck accrual rule, it is worth considering alternatives that could address the problem of time-barring plaintiffs who were unaware, through no fault of their own, that they had been victimized. This Part argues that two such alternatives—(1) a so-called “injury discovery rule,” in which the limitations period begins only when the plaintiff becomes aware that she has been injured, and (2) the doctrine of equitable tolling for cases in which an employer’s fraud disguised the presence of pay discrimination—are both superior to the paycheck accrual rule. 

 
A.     The Injury Discovery Rule

A discovery rule gives extra filing time to a plaintiff who, because of blameless ignorance of facts vital to her case, does not bring her claim until long after the complained-of conduct has occurred. Such a rule protects employees from having their suits time-barred when they do not know they have been victimized.

One type of discovery rule—the “injury discovery rule”—triggers the limitations period when the plaintiff discovers or should reasonably have discovered that she has been injured. An injury discovery rule, if applied to Title VII, would protect deserving plaintiffs and better address the concerns Justice Ginsburg raised in her Ledbetter dissent, without the drawbacks of the paycheck accrual rule.

An injury discovery rule is preferable to the paycheck accrual rule because it encompasses more deserving claims, including those of employees who experienced discrimination in the distant past that does not affect their wages today (for example, victims of discriminatory bonuses). An injury discovery rule would also prevent differential treatment of the victim who continues working for the discriminatory employer and the victim who does not. Furthermore, unlike the paycheck accrual rule, an injury discovery rule bars knowing plaintiffs from sleeping on their rights and bringing claims years later, at a time when the deterioration of evidence has disadvantaged the defendant’s ability to defend itself.

 
B.     Equitable Tolling/Fraudulent Concealment

Another option that would give deserving pay discrimination plaintiffs sufficient time to file while avoiding the unfairness inherent in the paycheck accrual rule is the use of equitable tolling. Equitable tolling halts the running of the limitations period when, through an act of fraud, the defendant prevents the plaintiff from filing a claim in a timely manner. If an employer, through “fraud or concealment of the existence of a claim,” prevents an employee from discovering pay discrimination, the doctrine of equitable tolling allows for suspension of the limitations period “until the fraud or concealment is, or should have been, discovered.”⁶ Equitable tolling is also superior to the paycheck accrual rule in addressing Justice Ginsburg’s concern that rigid limitations periods keep deserving but blamelessly ignorant plaintiffs out of court.

The doctrine of equitable tolling protects deserving plaintiffs who are diligent about their rights but face obstacles to bringing suit without, as the paycheck accrual rule does, rewarding plaintiffs who sit on their rights. This provides the right incentives to plaintiffs by encouraging them to investigate and protect their rights, since a failure to do so could lead a court to find their claim time-barred, even if they were unaware that they had been injured. At the same time, equitable tolling does not subject employers to endless limitations periods. An equitable tolling regime, unlike a paycheck accrual system, allows an employer who does not engage in fraud to achieve repose as to events falling outside the limitations period.

 
III.
Equitable Tolling and Pay Secrecy Rules

In the context of pay discrimination, plaintiffs might assert that employers have committed fraud by covering up the fact that an employee was paid less due to her race, color, religion, sex, or national origin. Increasingly, information about pay discrimination is hidden from employees by policies that bar them from discussing their pay with coworkers.⁷ Though the National Labor Relations Board and courts have struck down workplace pay secrecy rules as violations of employees’ rights under the National Labor Relations Act, these rules persist.

Such workplace rules effectively prevent employees from discovering that they have been the victims of pay discrimination. As such, the Title VII limitations period for employees subjected to pay discrimination in workplaces with such pay secrecy rules should be tolled until the employees discover (or reasonably should discover) that they have been victimized. Unlike the Ledbetter Act’s paycheck accrual rule, this doctrine could reach any employee who was discriminated against and whose employer took steps to block her from discovering that fact.

Section 550 of the Restatement (Second) of Torts recognizes a claim for fraudulent concealment.⁸ As comment (b) of section 550 notes, one of the common ways in which fraudulent concealment is effectuated is “when the defendant successfully prevents the plaintiff from making an investigation that he would otherwise have made, and which, if made, would have disclosed the facts; or when the defendant frustrates an investigation.”⁹

For example, when an employer tells an employee that she cannot discuss her salary nor inquire about how much other employees earn on pain of reprimand or discharge, the employer prevents the employee from making an inquiry and keeps her from discovering that she earns less than her male counterparts. Such information is undoubtedly material for an individual trying to determine if her rights have been violated by discriminatory pay decisions. This analysis does not suggest that an employer commits fraud—and that the limitations period is therefore tolled—every time it engages in pay discrimination and fails to inform the employee thereof. Rather, the employer perpetrates fraud when it “frustrates [the employee’s] investigation”¹⁰ by placing roadblocks in the way of her efforts to uncover pay discrimination.

The equitable tolling doctrine therefore protects the most worthy plaintiffs (those who are diligent about protecting their rights) against the stringency of Title VII’s short limitations period, without creating the problems of the paycheck accrual rule. While equitable tolling on its own does not cover all victims of pay discrimination, it helps those most in need without incentivizing the stale suits that will likely accompany the Ledbetter Act’s paycheck accrual rule. 

 
Conclusion

The paycheck accrual rule, which resets the limitations period for pay discrimination claims with each paycheck an employee receives, is a poor solution to the problem highlighted by the Supreme Court’s decision in Ledbetter v. Goodyear Tire & Rubber Co.: the difficulty that victims of pay discrimination face in detecting discrimination and bringing suit within Title VII’s limitations period. Specifically, the paycheck accrual rule gives inadequate weight to the societal interest in repose and protects select victims of pay discrimination without offering anything to other victims who are equally, if not more, deserving of extended filing time. Either application of an injury discovery rule or the use of equitable tolling for cases of fraudulent concealment would do a better job of providing access to justice for people who are blamelessly ignorant of the fact that they have been discriminated against, while still preserving the principle of repose.

Acknowledgments:

Copyright © 2010 NYU Law Review.

Jeremy A. Weinberg received his J.D. from New York University School of Law in 2009.

How­ever, both perspectives fail to engage the feature of race in the United States that I find most significant. Race is relentlessly rele­vant. Racial differences are so socially salient that racial considerations necessarily influence many of the decisions that we make. Even when racial considerations are tacit or unconscious, the influ­ence of race is still exerted through the reflex habit of deferring to white interests in the belief that such deference is racially neutral. But it is not. The possibility of actual colorblind race neutrality is simply an option that does not exist.

Nevertheless, United States culture re­mains committed to an abstract principle of racial equality, which would be offended by a frank recognition of the role that race in­evitably plays in the allocation of societal benefits and bur­dens. Accordingly, United States culture must find some way to mediate the ten­sion that exists between its race-neutral rhetorical aspirations and its race-based operational behavior. The claim that the United States has now achieved a post-racial status can best be un­derstood as an effort to serve that function. By conceptual­izing contempo­rary culture as post-racial, we can camouflage the role that race continues to play in the allocation of resources. However, masking the relevance of race does not serve to eliminate it. Ra­ther, the post-ra­cial claim ul­timately serves to legitimate the prac­tice of continued discrimina­tion against racial minorities.

The Supreme Court has always been compli­cit in the practice of sacrificing racial minority interests for the benefit of the white majority. In its more infamous historical decisions, such as Dred Scott,¹ Plessy², and Korematsu,³ the Court’s racial biases have been relatively transparent. More recently, however, the Court has in­voked three tacit post-racial assumptions to justify the contemporary sac­rifice of minority interests in the name of promoting equality for whites. First, current racial minorities are no longer the victims of significant discrimination. Second, as a result, race-conscious efforts to benefit racial minorities at the expense of whites constitute a form of re­verse discrimination against whites that must be prevented in the name of racial equality. Third, because the post-racial playing field is now level, any disadvantages that racial minorities continue to suf­fer must be caused by their own shortcomings rather than by the lingering effects of now-dissi­pated past discrimination. I consider actions that are rooted in these assumptions, and that adversely affect the interests of racial minorities in order to advance the interests of whites, to constitute a form of contemporary discrimination that I refer to as “post-racial discrimination.”

Despite its youth, the Roberts Court has been particularly prone to this form of post-racial discrimination. Perhaps the most damaging post-ra­cial decision issued by the Roberts Court is its 2009 decision in the Ricci v. DeStefano⁴ New Haven firefighters case. There, the Court appears to have commenced a campaign to eviscerate the racially disparate impact cause of action that was created by the employ­ment discrimination prohibition of Title VII. A prior Supreme Court decision, Wash­ington v. Davis,⁵ had held that the equal protection guar­an­tees of the Constitution did not prohibit actions that had an unin­tended racially disparate impact. But in an arguable usurpation of legislative policymaking power, the Ricci Court has now smuggled a similar restriction into the realm of con­gressionally created, stat­utory disparate impact claims. Moreover, the Court has even inti­mated that it might also hold statutory disparate impact remedies to be unconsti­tutional as a violation of the equal protec­tion rights of whites.

The Roberts Court’s assault on disparate impact is disturbing because the recognition of a disparate impact cause of action seems to offer the most realistic hope of ever successfully invoking the legal system to help us overcome our cul­tural compulsion to discriminate against racial minorities. History has shown that mere prohibitions on in­tentional discrimination have not been adequate to achieve racial equality. Also, because the nature of our racial discrimination problem is systemic rather than episodic in nature, it is unrealistic to think that the problem could ever be resolved through the use of mere particularized remedies directed at identifiable bad actors. Moreover, we should now real­ize that the enduring persis­tence of racial dis­crimination in the United States demonstrates that argua­bly good intentions alone are insufficient to neutralize what can only be understood as an un­derlying cultural commitment to white privilege.

We do, however, have it within our power to override predictable cul­tural compulsions that we cannot control through acts of mere con­scious volition. By adopting a precom­mitment strategy that focuses on collective conduct rather than individual intent, we can force ourselves to behave in ways that correspond to our more noble as­pirations. In a culture that was free from even subtle forms of unconscious discrimination, resources would typically be distributed in ways that would be free from any appreciable racially disparate im­pact. Accordingly, by viewing as suspect any racially disparate allocations of resources that we do encounter, we could detect and remedy the subtle forms of societal discrimination that have to date escaped redress under the Supreme Court’s intention-based equal­ity jurisprudence. However, by ex­panding to Title VII the hostility to disparate impact claims that was first adopted in the constitutional law context by Washington v. Davis,⁶ the Roberts Court seems to be moving in precisely the wrong di­rection. It is not only making the attainment of genuine equality more difficult, but in so doing, it is illustrating why the problem of racial discrimination is systemic rather than individualized in na­ture.

Three points are worth emphasizing. First, post-racialism is best understood as simply a new form of a very old tendency in United States culture to discriminate against racial minorities in the name of protecting the so-called equality interests of whites. Second, the modern incarnation of such post-racial discrimination on the Roberts Supreme Court has taken the form of hostility to the statutory disparate impact claims created by Congress under Title VII. Third, this is unfortunate, because the recognition of disparate impact claims is a sensible precommitment strategy for the resolution of the nation’s persistent racial discrimination problem—a problem so deeply embedded in United States culture that it cannot realistically be eradicated through mere voluntary efforts to behave in nondiscriminatory ways. Ultimately, however, I fear that Supreme Court jurisprudence will continue to reject disparate impact claims in the name of post-racialism pre­cisely because the Court is one of the institutions on which the culture relies to perpetuate its systemic discrimination against ra­cial mi­norities.

 
I.
Post-Racialism

The term “racialism” has been used by critical scholars to de­scribe the view that racial discrimination in United States culture constitutes a mere aberrational deviation from the norm of color­blind race neutrality that properly should govern the formulation and implementation of our social policies. Critical scholars consider racialism to be artificially reductionist because it fails to appreciate the degree to which racial considerations are themselves embedded in the very institutions on which we rely to make social policy. As a re­sult, the cultural influence of race is not only systemic and inevita­ble, but it creates a problem that can never be ade­quately ad­dressed by treating racial discrimination as a mere particularized product of individual bad actors. Any meaningful remedy will have to be as systemic in scope as the nature of racial discrimination itself.

If that view is correct, the suggestion that United States culture has now evolved to a post-racial status actually exacerbates the problem of racial discrimination by pretending not only that the phe­nome­non of race is particularized rather than systemic, but that even particularized instances of discrimination have now largely disap­peared. In fact, the Supreme Court is itself one of the social institutions that has historically been responsible for promoting sys­temic discrimina­tion against racial minorities. Moreover, the con­temporary Court has con­tinued that practice by incorporating post­-racial assumptions into its equality jurisprudence. Those post-racial assumptions do not simply misidentify the nature of our dis­crimina­tion problem; they deny that a problem even exists.

The Supreme Court’s post-racial belief that minorities no longer need special legal protections—protections that, in the Court’s view, make minorities the perpetrators rather than the victims of racial dis­crimination—is a view that has now solidified on the Roberts Court. Most strikingly, in the 2009 case of Ricci v. DeStefano,⁷ the Court invali­dated a refusal by the city of New Haven to utilize the results of a firefighter promotion exam that had a ra­cially disparate impact. Although the city argued that it was trying to avoid a violation of Title VII’s prohibition on employ­ment practices that have an unjustifiable racially disparate impact, the Court held that the city’s race-conscious efforts to avoid a dis­parate impact violation themselves constituted a violation of Title VII’s prohibition on intentional discrimination against white fire­fighters. The Court even suggested that it might in the future be compelled to hold the Title VII disparate impact provision un­constitutional as a violation of the equal protection rights of whites. Perhaps the most sig­nificant feature of such post-racial dis­crimination, therefore, is its insistence on disregarding the racially disparate impact produced by the ways in which we cus­tomarily allocate societal resources.

 II. 
Disparate Impact

In 1976, the Supreme Court held in Washington v. Davis that the equal protection principle of the Constitu­tion prohibited intentional discrimination based on race, but it did not prohibit unintentional actions that had a mere racially disparate impact. Near the end of his majority opinion, Justice White stated that the potentially “far-reach­ing” consequences of a disparate impact standard made its desira­bility a question of legislative rather than judicial compe­tence. However, in the context of Title VII, Congress has spoken.

The 1971 case Griggs v. Duke Power Co.,⁸ held that the prohibition on employment discrimination contained in Title VII of the Civil Rights Act of 1964 barred both intentional discrimination and employment practices that had an unintended racially disparate impact. In the absence of an adequate showing of job-related business necessity, disparate impact alone was suffi­cient to estab­lish a Title VII violation. The Court reasoned that a prohibi­tion on disparate impact was necessary to prevent prospective dis­crimination through the use of neutral practices that would “oper­ate to ‘freeze’ the status quo of prior discriminatory employment practices.”⁹ Accordingly, the Griggs Court viewed Congress as having adopted a disparate impact policy that was necessary to any meaningful conception of prospective equality. Not only did Congress acquiesce in Griggs by letting the decision stand for twenty years without statutory modification, but in 1991 Con­gress actually codified Griggs in the Title VII amendments that it adopted as part of the Civil Rights Act of 1991. Despite Griggs and the Civil Rights Act of 1991, the Roberts Court has now chosen to launch an attack on Title VII disparate im­pact.

The Ricci Court’s 2009 invalidation of New Haven’s deci­sion to reject the racially disparate results of its firefighter promotion exam rested on the Court’s conclusion that the City’s effort to avoid a disparate impact violation of Title VII under Griggs would itself constitute an intentional discrimination, “disparate-treatment” violation of Title VII against the seventeen white fire­fighters, and one Latino firefighter, who had scored well on the exam. Justice Kennedy’s majority opinion in the 5–4 decision found that a tension existed between the in­tentional discrimination and disparate impact provisions of Title VII. The Supreme Court did not expressly invalidate Title VII dis­par­ate impact claims in Ricci. Indeed, it purported to recognize the continued existence of such claims. However, it undermined the ability of racial minorities to maintain Title VII disparate im­pact causes of action by holding that disparate impact claims would always be outweighed by the competing intentional dis­crimination claims of whites, unless minorities could show a “strong basis in evidence” for their disparate impact claims.¹⁰ It seems quite clear that the “strong basis in evidence” standard can be satisfied only in exceptional cases, if it can ever be satisfied at all. The Court has never found the standard to be satis­fied in any of the con­stitutional affirmative action cases that it cited as giving rise to the standard. In addition, the standard was held not to have been satis­fied under the facts of Ricci itself, even though the presence of less discriminatory, job-related alternatives used by two-thirds of the fire departments in the nation would seem to indicate that the standard should have been easily satisfied under the facts of the case.

The Supreme Court opinion in Washington v. Davis stated that Congress should determine by statute whether the recognition of disparate impact claims is appropriate.¹¹ That observation is consis­tent with separation of powers principles because the politi­cally accountable Congress is institutionally more competent than the politically insulated Supreme Court to formulate racial policy for the nation. There is often a perceived zero-sum relationship between the allocation of limited societal resources to whites and the allocation of those resources to racial minorities. Whites want to retain the resources to which they feel entitled by prior cultural practice, while racial minorities want to escape the disadvantages to which they have been consigned through past discrimination. Re­cognizing this, Congress included a disparate impact provi­sion in its Title VII prohibition on discriminatory employment prac­tices, which it thought would balance the competing employment interests of whites and racial minorities. Racially disparate impact would be tolerated only if it was compelled by job-related business necessity, and only if there was no less discriminatory alternative that could adequately serve an employer’s legitimate business needs. Nevertheless, the Su­preme Court chose to upset the legis­lative balance that Congress struck in Title VII. In its effort to eviscerate Title VII disparate impact claims, therefore, the Roberts Supreme Court has exceeded the legitimate scope of its judi­cial power. It has usurped legislative policymaking power by overriding majoritarian political remedies directed at entrenched modes of racial discrimi­nation. That usurpation is par­ticularly unfortunate because the disparate impact remedies that the Court has chosen to neu­tralize offer the most realistic hope of ever achieving a meaning­ful level of racial equality in the United States.

 III. 
Precommitment

The belief that white interests are more important than racial minority interests is simply a constitutive element of United States culture. One of the things that it means to be an American is to have internalized, at some very fundamental level, the realization that it is permissi­ble to sacrifice minority interests for the benefit of whites. And that realization is often both deep and unconscious in nature. That is why we tolerate the dramatic discrepancies in the allocation of societal resources that continue to exist between whites and racial minorities. If you are white, and you have any lingering doubts about the existence of embedded racial inequalities in the culture, simply ask yourself whether you would mind waking up tomorrow morn­ing as a member of a racial minority group. If the culture has truly freed itself from the influence of embedded racial inequalities, you should be largely indifferent about the race that you will become overnight. But, I suspect that most whites are not indifferent. In­deed, one informal survey showed that white college students thought that they would be entitled to $1 million in damages per year if they were suddenly transformed from white into black.¹²

The goal of race neutrality is realistically unattainable in a cul­ture where race is as salient as it has always been in the United States. Race is too deeply embedded in our unconscious motiva­tions simply to be rendered irrelevant by conscious efforts to adhere to a race-neutral intent in the way that we allocate resources. Instead, what passes for col­orblind race neutrality is typically just a camouflaged effort to prolong the racial status quo, under which benefits are dispropor­tionately allocated to whites and burdens are disproportionately allocated to racial minorities. Regardless of the degree of sincerity that we bring to the mission, history—and our current maldistribution of resources—indicate that we will never be able to achieve meaningful racial equality simply through an act of will. We do, however, have it within our power to precommit ourselves to con­straints on our collective behavior that will enable us to approx­imate the equality in resource allocation that our embedded racial attitudes apparently preclude us from achieving through mere con­scious efforts to suppress our discriminatory impulses. In fact, cognitive dissonance theory predicts that by forcing our behavior to correspond to our aspirational equality values, our embedded racial attitudes may ultimately evolve to conform to our behavior as well.

In a truly race neutral society, resources would be allocated in a way that reflected the racial balance of the society as a whole. Whites and racial minorities would share the benefits and burdens of society in a way that reflected their respective percentages of the population. Such a vision is presently too utopian to be realistically imagined. But, it does serve to remind us that a culture in which there was genuine racial equality would look very different from the culture in which we presently reside. Although it is difficult to see how we could ever transform ourselves into a culture from which racial discrimination had finally been eradi­cated, it is relatively easy to see how we could begin to approx­imate the allocation of resources that such a culture would contain.

The disparate impact provision of Title VII constitutes a prom­ising precommitment strategy that would hopefully help us achieve more ra­cial equality than our embedded racial habits and attitudes would allow if left to their own devices. By explicitly reaffirming the value of a disparate impact provision in Title VII, Congress ap­parently appreciated the importance of adopting an antidiscrimina­tion strategy that focused on statistical effects rather than on mere invidious intent. Congress apparently recognized that this focus on disparate impact was a necessary step in its effort to displace the continuing effects of entrenched white ad­vantage in employ­ment. And even the then-conservative Burger Supreme Court recognized this when it implied the exis­tence of a disparate impact provision in Griggs. The fact that subsequent Supreme Courts have chosen to back away from dispar­ate impact under the Constitution, and now under Title VII, does not mean that the precommitment strategy adopted by Con­gress has ceased to be a good strategy. On the contrary, it may show that the strategy is so good that the Court feared it would produce more racial equality than the Court was willing to bear. The elimination of identifiable disparate impact seems like such a modest step toward the realization of meaningful racial equality that it is difficult to understand why a Supreme Court committed to the goal of genuine equality would ever resist the chance to remedy disparate impact. But perhaps it is the issue of genuine commitment that is causing the problem. 

 Conclusion

The Supreme Court has not only refused to recognize the legitimacy of disparate impact claims for constitutional purposes, but its recent Ricci decision seems intent on nullifying congres­sional disparate impact claims for statutory purposes as well. Be­cause it is difficult to imagine a non-invidious explanation for the Court’s resistance to such a seemingly sensible precommitment strategy, one cannot help but marvel at the genius of the regime that the culture has created for ensuring the preservation of white privilege. Although the institution of judicial review is sometimes viewed as reflecting an effort to ensure that our transitory baser motives are not permitted to override the more admirable values that are possessed by our better selves, in the context of race the Supreme Court appears to be serving precisely the opposite func­tion. The Supreme Court seems to be the structural institution on which we rely to ensure that our transitory desires to promote ra­cial equality are not permitted to override the less admirable value of white privilege that is possessed by our baser selves.
 

Acknowledgments:

Copyright © 2010 Georgetown University Law Center.

Girardeau A. Spann is a professor at Georgetown University Law Center.

As the Supreme Court summarized the theory in International Brotherhood of Teamsters v. United States, disparate impact discrimination is the use of “employment practices that are facially neutral in their treatment of different groups but that in fact fall more harshly on one group than another and cannot be justified by business necessity.”² First announced by the Supreme Court in Griggs v. Duke Power Co., the theory required a plaintiff to establish a prima facie case of disparate impact discrimination by showing that the challenged employment practice, although facially neutral in its treatment of different groups, in fact fell more harshly on one group, say African Americans or women, than another group, say whites or males.  Once that prima facie case was established, the defendant had the burden of persuading the court that a “business necessity” or “job relation” justified the challenged practice. When the challenged practice was a test with a disparate impact, the employer carried this burden by establishing its validity under technical testing standards developed originally by industrial psychologists and later articulated in federal agency guidelines.

Although disparate impact had evolved in a variety of ways after Griggs, it suffered its first near-death experience in 1989 with the Supreme Court’s decision in Wards Cove Packing Co. v. Atonio. Wards Cove diluted the employer’s rebuttal case in two ways.  First, the Court redefined the concept of business necessity by taking out “necessity” and replacing it with the notion of reasonable employer justification. Second, Wards Cove stated that only a burden of production, not persuasion, passed to the defendant once the plaintiff established a prima facie case of disparate impact.³

Wards Cove was greeted with a firestorm of protest, culminating in the Civil Rights Act of 1991, which revived and, for the first time, explicitly codified the disparate impact theory in Title VII. Finding that Wards Cove had “weakened the scope and effectiveness of Federal civil rights protections,” Congress amended § 703 of Title VII by adding a new subsection (subsection (k)) declaring disparate impact discrimination an “unlawful employment practice.”  This codification shifted the burden of persuasion of justification back to the employer and, in a circuitous way, revived the Griggs standard of business necessity.

During the debates, Republican opposition to the resurrection of disparate impact was premised on the claim that the theory required “quotas.” This opposition failed to derail the 1991 Act, but the quota question lingered below the surface.  Although disparate impact does not require racial quotas in the usual sense of the word, there clearly was a tension between disparate impact and disparate treatment.  As the Teamsters Court said:

“Disparate treatment” such as is alleged in the present case is the most easily understood type of discrimination.  The employer simply treats some people less favorably than others because of their race, color, religion, sex, or national origin.  Proof of discriminatory motive is critical, although it can in some situations be inferred from the mere fact of differences in treatment.⁴

The question, lurking since Griggs was handed down, was whether efforts to avoid disparate impact liability by choosing employment practices with a lesser racial impact resulted in disparate treatment liability.  In other words, does an employer who rejects an employment practice that disparately impacts blacks (thus jumping out of the disparate impact pan) necessarily intentionally discriminate against whites (thus landing in the disparate treatment fire)?

Decided on the last day of the Court Term in 2009, Ricci v. DeStefano⁵ finally confronted this question.  The majority’s answer: a qualified yes—efforts to avoid disparate impact are sometimes actionable as disparate treatment.  Ricci reflected the familiar 5–4 split; Justice Kennedy wrote the majority opinion, in which Chief Justice Roberts and Justices Scalia, Thomas, and Alito joined.  Justice Scalia, although joining in the Court’s opinion, also concurred separately, as did Justice Alito, with whom Justices Scalia and Thomas joined.  Justice Ginsburg wrote the dissent, which Justices Stevens, Breyer, and Souter joined.

At issue in Ricci was a civil service test for promotions in the New Haven, Conn., fire department.  The results showed a disparate impact against minorities in that African American firefighters passed the test at a lower rate than white firefighters.  Because of this impact, the city invalidated the test.  White firefighters, who were consequently denied the opportunity for promotion, sued under both Title VII and the Equal Protection Clause, claiming that the decision was racially motivated.  The Court, without reaching the constitutional question held that invalidating a test because of its impact on minorities was necessarily disparate treatment of whites under Title VII.

The majority did, however, carve out an exception to liability under the Act where “the employer can demonstrate a strong basis in evidence that, had it not taken the action, it would have been liable under the disparate-impact statute.” To have such a strong basis, it is not enough that the employer show its actions have a disparate impact; rather, the employer must also have a strong basis to believe that it does not have a business necessity/job relation defense.  As the Court put it:

The problem for respondents is that a prima facie case of disparate-impact liability—essentially, a threshold showing of a significant statistical disparity and nothing more—is far from a strong basis in evidence that the City would have been liable under Title VII had it certified the results.  That is because the City could be liable for disparate-impact discrimination only if the examinations were not job related and consistent with business necessity, or if there existed an equally valid, less-discriminatory alternative that served the City’s needs but that the City refused to adopt.

The application of this newly-announced test was illustrated by the Court’s disposition of the case before it.  Although the district court, affirmed by the Second Circuit, had granted summary judgment for the employer, the Ricci majority gave summary judgment for the plaintiffs.  It found that there was not even a genuine issue of material fact whether the City had the requisite strong basis in evidence—it clearly did not.  Although there had been numerous hearings and submissions prior to the City’s cancellation of the test, there was relatively little analysis of the possible deficiencies of the test in terms of technical test validation requirements, which would have shown the absence of any business necessity.  The majority concluded that “there is no evidence—let alone the required strong basis in evidence—that the tests were flawed because they were not job-related or because other, equally valid and less discriminatory tests were available to the City.”

This holding suggests a kind of hierarchy of discrimination theories—that is, that disparate treatment is the core prohibition of Title VII, with disparate impact playing a lesser role.  In fact, the Court read the statute in this fashion, finding that disparate treatment was the thrust of Title VII as originally enacted, with disparate impact added only by the Civil Rights Act of 1991. The majority viewed a decision to avoid the disparate impact of a test on African Americans as necessarily constituting a decision to disadvantage the white beneficiaries of the test for racial reasons.  For the Court, Ricci was a classic case of disparate treatment, and, given that theory’s primacy, it held that such practices had to be stringently limited.  Nevertheless, the Court attempted to reconcile Title VII’s articulation of the two theories of liability by carving out a place for disparate impact: what would otherwise be actionable disparate treatment is permissible when the employer has a strong basis in evidence that the action was required by the disparate impact theory.

The majority bulwarked its argument by looking to §2000e-2(l), a provision added to Title VII by the 1991 Civil Rights Act, which bars adjusting test scores by race. Reading that clause expansively, the Court wrote:

If an employer cannot rescore a test based on the candidates’ race [], then it follows a fortiori that it may not take the greater step of discarding the test altogether to achieve a more desirable racial distribution of promotion-eligible candidates—absent a strong basis in evidence that the test was deficient and that discarding the results is necessary to avoid violating the disparate-impact provision.

Given this analysis, one might wonder why §2000e-2(l) did not play a larger role in the opinion.  After all, that section seems to dictate the Court’s opinion that cancellation of the test is prima facie unlawful. The answer might be that §2000e-2(l) is, on its face, limited to tests, and the majority seems to have been seeking a broader rule applicable to all disparate impact scenarios.  In any event, to better understand the significance of Ricci, both for the future of the disparate impact theory and more broadly for Title VII, several issues must be explored.

I.
The Intent Element of Disparate Treatment

At first glance, the majority appears to declare that acting to avoid the disparate impact of a proposed employment practice is necessarily disparate treatment and therefore illegal unless within the “strong basis in evidence” safe harbor.  Although there is some basis for this reading, it is, ultimately, far too broad.  The broad reading can be drawn from a passage in which the majority states:

Our analysis begins with this premise: The City’s actions would violate the disparate-treatment prohibition of Title VII absent some valid defense.  All the evidence demonstrates that the City chose not to certify the examination results because of the statistical disparity based on race—i.e., how minority candidates had performed when compared to white candidates.  As the District Court put it, the City rejected the test results because “too many whites and not enough minorities would be promoted were the lists to be certified.” Without some other justification, this express, race-based decisionmaking violates Title VII’s command that employers cannot take adverse employment actions because of an individual’s race.

The Court went on to reject the district court’s ruling that an intent to avoid disparate impact liability meant that the City did not have the requisite intent for disparate treatment liability.  “Whatever the City’s ultimate aim—however well intentioned or benevolent it might have seemed—the City made its employment decision because of race.”

There is considerable tension between this meaning of “because of” and the Court’s previous approach to the intent question.  In Personnel Administrator v. Feeney (admittedly decided in the Equal Protection context, where intent to act on a prohibited trait is required for heightened scrutiny), the Court held that “’Discriminatory purpose’ . . . implies more than intent as volition or intent as awareness of consequences.  It implies that the decisionmaker . . . selected or reaffirmed a particular course of action at least in part ‘because of,’ not merely ‘in spite of,’ its adverse effects upon an identifiable group.”⁶ It seems strange to view the city of New Haven as canceling the test because it wanted to disadvantage the white firefighters, although New Haven certainly knew that that would be the result.  A better reading of the facts (or at least a plausible one) is that New Haven acted to avoid disparate impact liability despite the “adverse effects upon an identifiable group” of whites.

If the lower courts apply this broad approach to intent in all disparate treatment cases, Ricci will expand Title VII to reach actions taken with knowledge of racial consequences, a view that must apply in both traditional and reverse discrimination cases.

But such a broad view of intent is contradicted by another passage in the opinion, one that seems to reject equating a racial motivation with intent.  Although the Court struck down the city’s cancellation of the test, it apparently allowed employers to take other actions on the basis of race:

Nor do we question an employer’s affirmative efforts to ensure that all groups have a fair opportunity to apply for promotions and to participate in the process by which promotions will be made. . . . Title VII does not prohibit an employer from considering, before administering a test or practice, how to design that test or practice in order to provide a fair opportunity for all individuals, regardless of their race. And when, during the test-design stage, an employer invites comments to ensure the test is fair, that process can provide a common ground for open discussions toward that end.

In the context in which it was written, this passage seems to mean that the employer could have adopted its testing (or other practices) to minimize the disparate impact, even though it could not invalidate a test, once it was given, for that reason.  For example, some of the alternatives that the Court rejected—such as the use of “assessment centers”—might well be appropriate when required at the “front end” in designing a selection process, rather than imposed on the “back end” by invalidating a test after it was administered.

What justifies an approach that seems to reject a straightforward causation analysis where racial consideration influences an employer’s decision-making?  There are three potential answers to this question.  First, perhaps the Court was reintroducing the Feeney distinction—namely, that intent to avoid disparate impact on minorities is not, per se, intent to disadvantage whites.  Second, the passage might simply suggest that Title VII’s creation of disparate impact liability, which requires parties to consider racial consequences and reduce adverse effects on racial minorities, is a broader exception to the statute’s ban on intentional discrimination than the Ricci majority seemed to say elsewhere.  Allowing potential racial effects to enter the calculus at the outset allows more play for disparate impact.  Third, the Court may have recognized that timing affects the expectations of white employees.  The majority in Ricci repeatedly referred to the white firefighters’ expectations of, and reliance on, the use of the test as a promotion method, neither of which would exist if the employer’s disparate impact calculations occurred early in the process.  It is not so clear how this “timeline approach” factors into the traditional disparate treatment analysis, but Ricci’s “strong basis in evidence” requirement may apply only to the end-stages of any selection process.  If so, employers would still be free to take potential racial impact into account in the early stages.

II.
Business Necessity/Job Relation/Alternative Employment Practice

There was no question in Ricci that the invalidated test had a disparate impact on African Americans and Latinos.  The Court noted that “[o]n the captain exam, the pass rate for white candidates was 64 percent but was 37.5 percent for both black and Hispanic candidates.” Given the structure of the selection process, no African Americans would have been considered for promotion. Had the test been certified and a disparate impact case brought by black firefighters, the prima facie case would have been established, shifting the burden of proving business necessity and job relation to New Haven.

The Court acknowledged that the evidence of impact warranted a “hard look” by the city before certifying the results.  But for the majority that meant trying to ascertain whether going forward would be likely to result in disparate impact liability, which, in turn, meant that there was no business necessity, job relation, or alternative employment practices that would achieve the city’s performance goals with less racial impact.

The majority’s analytical structure requires importing the apparatus of disparate impact wholesale into the disparate treatment question.  Where the challenged practice is a test, this would require employers to apply the standards for test validation that the Equal Employment Opportunity Commission and the courts have developed. The majority in Ricci spent considerable time detailing how New Haven’s consultant had designed the test, which included detailed job analysis and test construction. Although the Court recognized that questions had been raised as to the test’s validity during hearings held to determine whether the test should be certified, it did not believe that the information developed provided a strong basis in evidence to doubt the test’s validity.  In other words, if the test had been certified and then black firefighters sued the city for disparate impact, the Court believed that those firefighters would have lost. Although testing has been the major success story of the disparate impact theory, disparate impact reaches all employment practices.  Thus, a real question in the wake of Ricci is what it means to have a strong basis in evidence for the absence of business necessity/job relation when something other than a test is in issue.  For example, one of the Supreme Court’s non-testing disparate impact cases, Dothard v. Rawlinson,⁷ involved an employer’s requirement that job applicants satisfy height and weight minima. Were potential male correctional officers to bring a Ricci-style suit today, claiming disparate treatment from the elimination of such requirements, it would seem relatively easy for the employer to show that it had no factual basis to support the job-relation of its former rule.

Further, at the early stages of an employer’s consideration of any selection or promotion process, it is hard to understand how the Ricci framework applies.  Imagine, for example, that a city is deciding whether to use a traditional test or an assessment center to promote firefighters.  This hypothetical city is aware that traditional tests tend to have a greater disparate impact than assessment centers, and, for that reason, it opts for the assessment center approach.  Since no test has been developed, much less administered, there cannot be a strong (or any) basis in evidence to think that the test that might have been used would have been invalid.  Thus, the whole Ricci framework is likely inapplicable to this situation.

An additional question arises with regard to possible alternative selection processes.  The Ricci Court explicitly recognized that, under Title VII’s express terms, even a valid test cannot be used “if there existed an equally valid, less-discriminatory alternative that served the City’s needs but that the City refused to adopt.” Although the alternative business practice doctrine has not yet had much traction in disparate impact cases, the Ricci majority spent considerable time exploring whether there was a genuine issue of material fact of the existence of such an alternative.

The majority rejected three possibilities—a different mix of oral and written tests; changing the “rule of three” as to who was interviewed on the basis of test results; and using an assessment center.  As for the ratio of oral to written scores in computing an overall score, there was no evidence that a different ratio would be “an equally valid way to determine whether candidates possess the proper mix of job knowledge and situational skills to earn promotions.”  The Court also thought it “could well have violated Title VII’s prohibition of altering test scores on the basis of race.” Second, the rule of three could not be interpreted to allow “banding” of scores (rounding all scores to the nearest whole number) because § 2000e-(l) prohibited such action: “Had the City reviewed the exam results and then adopted banding to make the minority test scores appear higher, it would have violated Title VII’s prohibition of adjusting test results on the basis of race.” Finally, using assessment centers instead of the test could not be justified on the record before the Court since there were, at most, “a few stray (and contradictory)” remarks regarding this alternative.

Although the Court’s analysis explains why a professionally designed test, once administered, may be hard to challenge, it also suggests that “the strong basis in evidence” justification for an employer’s acting to avoid potential practices with a disparate impact may not have as sweeping applicability as Ricci might first suggest.  Most of the Court’s reasoning is simply inapplicable to the initial decision to pursue a particular selection process.  And, if we take literally the language that “Title VII does not prohibit an employer from considering, before administering a test or practice, how to design that test or practice in order to provide a fair opportunity for all individuals, regardless of their race,” Ricci does not mandate a strong basis in evidence for every employer action designed to avoid a disparate impact. Rather, it applies only to actions taken at the back-end of a selection process when employer or applicant expectations have crystallized and reliance on the process has begun.

III.
Strong Basis in Evidence

The core of the Court’s holding was the requirement of “a strong basis in evidence” for disparate impact liability in order to justify disparate treatment under Title VII.  For the Court, this standard required something less than proof by the employer that it would have been held liable had it gone forward with the test.  The majority viewed its rule as striking a balance between unacceptable alternatives. Thus, the Court looked to the 1991 codification of disparate impact as implying that, sometimes at least, avoiding disparate impact justifies disparate treatment. But even requiring an actual disparate impact violation “is overly simplistic and too restrictive of Title VII’s purpose,” since it would discourage voluntary compliance.  In contrast, “an employer’s good-faith belief that its actions are necessary to comply with Title VII’s disparate-impact provision” did not accord enough weight to the statute’s prohibition of disparate treatment discrimination. As the Court noted:

A minimal standard could cause employers to discard the results of lawful and beneficial promotional examinations even where there is little if any evidence of disparate-impact discrimination.  That would amount to a de facto quota system, in which a focus on statistics . . . could put undue pressure on employers to adopt inappropriate prophylactic measures.  Even worse, an employer could discard test results (or other employment practices) with the intent of obtaining the employer’s preferred racial balance.

The Court thought “a more appropriate balance” could be struck by looking to its Equal Protection Clause cases, which allowed that “certain state actions to remedy past racial discrimination—actions that are themselves based on race—are constitutional only where there is a ‘strong basis in evidence’ that the remedial actions were necessary.”

The dissent would have applied a looser standard.  For Justice Ginsburg and the other dissenters, “an employer who jettisons a selection device when its disproportionate racial impact becomes apparent does not violate Title VII’s disparate-treatment bar automatically or at all, subject to this key condition: The employer must have good cause to believe the device would not withstand examination for business necessity.”  The dissent was not explicit about the meaning of its good-cause standard, which seems to require more than subjective good faith but not as much as the majority’s “strong basis in evidence” test.  However, Justice Ginsburg was critical of the majority’s balancing: “It is hard to see how [the majority’s] requirements differ from demanding that an employer establish ‘a provable, actual violation’ against itself.”

A.     The Intersection of the Two Theories

The majority in Ricci not only announced its new rule, but also applied it: rather than remanding the case to the district court for application of the strong basis in evidence test, the majority entered summary judgment against New Haven.  In short, the city had avoided potential disparate impact liability only by incurring liability under the disparate treatment theory.  But the rest of the opinion makes clear this case was not a lose-lose situation, because the city could have avoided liability under both disparate treatment and disparate impact had it had a strong basis in evidence that certifying the test would have led to disparate impact liability.

The majority ended its opinion by noting that “[o]ur holding today clarifies how Title VII applies to resolve competing expectations under the disparate-treatment and disparate-impact provisions.” To this point, the Court may have been correct.  But a final sentence confused things.  Since the presumed remedy for the violation the Court found was certifying the test, the possibility of a suit by the black firefighters on disparate impact grounds remained.  In a strange passage, the Court addressed this possibility:

If, after it certifies the test results, the City faces a disparate-impact suit, then in light of our holding today it should be clear that the City would avoid disparate-impact liability based on the strong basis in evidence that, had it not certified the results, it would have been subject to disparate-treatment liability.

However, the Court had previously held that canceling the test because of its disparate impact on minorities was necessarily disparate treatment of whites, even though such liability could be avoided under the strong basis in evidence rule.  Thus, there is no doubt about the risk of such liability.  The whole point of the opinion is that such risk is insufficient to justify rejecting the disparate impact theory.

The final passage, then, makes sense only when read in the context of the rest of the opinion: there is no disparate impact liability when the predicates are not present.  But if there is an unjustified disparate impact, an employer seeking to comply with the law presumably must refuse to certify the test, despite the resulting disparate treatment of whites.  This interpretation complies with the mandate of disparate impact while fitting within the “strong basis in evidence” safe harbor for disparate treatment.

Notice, however, that the Court’s opinion creates a gap: there is no liability under either theory if the employer cancels a test on the basis of a strong basis in evidence of unjustified disparate impact.  But if the employer implements the test, even though it has a strong basis in evidence for believing it will violate the disparate impact provision, the employer does not necessarily violate the law.  The employer may avoid liability because there is no disparate treatment and there has to be an actual violation of disparate impact before the employer is held liable under that theory—a strong basis is not enough.

B.     Precluding the African American Firefighters from Suing

A final problem arises in the hypothetical disparate impact suit the Court mentions.  Indeed, it’s not so hypothetical—such a suit has now been filed. Summary judgment to the white firefighters in Ricci itself does not, as a matter of either logic or law, mean that the disparate impact is necessarily justified or that there were not suitable alternative employment practices.  From a logical perspective, the fact that an employer failed to adduce sufficient evidence to meet the strong basis in evidence standard of Ricci does not mean that the evidence does not exist.  In Ricci itself, the city of New Haven made some efforts to ascertain if there were problems with the test or its alternatives, and, according to the Court, failed to elicit such a basis.  However, the city’s efforts might not have been very effective, and, regardless of the situation in New Haven, a disparate impact defendant cannot be allowed to avoid liability under that theory by merely failing to explore the alternatives and then claiming that to act in any other way would result in disparate treatment.

Further, from a civil procedure perspective, the normal rule is that the black firefighters may not be bound by a judgment in a case in which they are not parties.  So held Martin v. Wilks,⁸ another firefighter case in which white firefighters challenged promotions awarded to African Americans under a consent decree in a suit in which the white plaintiffs were not parties.  The Supreme Court held that the whites could not be bound by the prior litigation.  Martin thus suggests that Ricci is wrong to the extent it may be said to prejudge a disparate impact claim by African American firefighters against New Haven.

However, in what might be the final irony of this saga, the 1991 Civil Rights Act that codified disparate impact also modified Martin v. Wilks.  In an effort to help minority and female plaintiffs retain the gains they made in employment discrimination suits, Congress provided that a prior decree in a civil rights suit can bind nonparties if they either (1) had notice and the opportunity to intervene or (2) were adequately represented in the earlier suit. Assuming that this statute comports with due process, it seems likely that at least one prong will be met, which would allow the white firefighters to retain the gains they made in Ricci.

IV.
Another Congressional Fix?

Congress rode to the rescue of the disparate impact theory when Wards Cove undercut it in 1989. The stars would seem even more favorable for such a rescue from the effects of Ricci. In 1991, there were Democratic majorities in both houses but a Republican president; today, there is also a Democratic President who has embraced civil rights.  But the path might not be so easy.  In what might have been intended as a warning to Congress not to override the Ricci majority’s interpretation of Title VII, Justice Scalia’s Ricci concurrence stressed that the majority’s “resolution of this dispute merely postpones the evil day on which the Court will have to confront the question: Whether, or to what extent, are the disparate-impact provisions of Title VII of the Civil Rights Act of 1964 consistent with the Constitution’s guarantee of equal protection?” This question is beyond the scope of the current discussion, but it is interesting to note that both Justice Scalia’s concurrence and Justice Ginsburg’s dissent cited Professor Richard Primus’s article on the issue. Professor Primus basically argues that a mechanical application of equal protection jurisprudence could invalidate the disparate impact theory (presumably the point of Justice Scalia’s citation⁹), but that a more purposive analysis would permit it.  Justice Ginsburg quoted Primus as saying that “[t]he very radicalism of holding disparate impact doctrine unconstitutional . . . suggests that only a very uncompromising court would issue such a decision.”

Conclusion

In terms of advice to employers, it would seem that, at least theoretically, Ricci made things more complicated.  Disparate treatment of minorities remains forbidden.  Disparate treatment of white males remains forbidden—except to avoid disparate impact against minorities.  Disparate impact (that is, unjustified disparate impact) against minorities remains forbidden.  The leeway employers had to avoid potential disparate impact suits has been narrowed considerably, but employers still need to assess the impact, the justifications, and the alternatives of various potential courses of action before proceeding. Finally, even where the possibility of disparate impact liability is influencing a course of action, the employer may well remain free to take racial impact into account in choosing among various alternatives (free of disparate impact liability), as long as it does so early enough to avoid disrupting settled expectations.

Acknowledgments:

Copyright © 2010 Northwestern University Law Review.

Professor Charles A. Sullivan is Professor of Law at Seton Hall University Law School.

This Legal Workshop Editorial is based on the following Article: Charles A. Sullivan, Ricci v. Destefano: End of the Line or Just Another Turn on the Disparate Impact Road?, 104 NW. U. L. REV. 201 (2009).

We first discuss some basic background details of the model, focusing on the production technology, competitive labor and goods markets, and the (assumed) systematic differences in preferences of two worker types: Deltas and Omegas. Then we introduce the possibility of compensation plans that involve both cash wages and fringe benefits, considering first the case where firms face the same amenity price as do their workers. In such cases, a no-fringe-benefits equilibrium exists. This equilibrium is integrated. However, at least one cash-and-fringe compensation plan¹ allows prejudiced firms to hire only Deltas in equilibrium. The resulting equilibrium is segregated, in the sense that at least some firms may (a) deliberately avoid hiring Omegas, and (b) stay in business. Interestingly, the Omegas’ utility is no lower in this equilibrium than it would be in the cash wage-only equilibrium. This result follows because of the competitive nature of the labor market, which ensures that other firms will hire Omegas and pay them their marginal product.² If discrimination is regarded as socially or individually harmful in ways that do not show up in consumption-based utility, then Omegas may still be worse off in a segregated equilibrium.

We also consider the case where firms have a price advantage in purchasing amenities, perhaps because of economies of scale. In this case, no integrated equilibrium exists. Any equilibrium necessarily involves cash-and-fringe compensation plans used to pay Deltas and a cash-only plan used to pay Omegas. Banning fringe benefits would (a) eliminate segregation, (b) reduce Deltas’ utility compared to the segregated equilibrium, and (c) have no impact on the Omegas’ utility compared to the segregated equilibrium. We note that this condition for equilibrium would hold even when employers harbor no animus toward Omegas. If discrimination is regarded as socially or individually harmful in ways that do not show up in consumption-based utility, then Omegas’ welfare may be improved by a policy of banning fringe benefits.

 
I.
Model Details

Suppose two types of workers, Deltas and Omegas, exist. Every member of each group is identical to all other members of that group in terms of tastes. Preferences of Deltas and Omegas are given by

(1) U_Δ = x^α b^1-α – c × W                                                    

(2) U_Ω = x – c × W

where x is the number of units of a generic consumption good a person consumes, b is the number of units of an amenity good (mnemonically, think of this good as “beer”), c is the disutility of working, W equals one if the person works for pay and zero otherwise, and α is a preference parameter for Deltas and lies between zero and one.³

            We assume that all jobs in the economy involve the same type of labor, all workers have one unit of labor to offer, and all workers are equally productive. Firms can hire as many workers as they like. If hired by a firm, each worker can produce Q units of the generic good with her one unit of labor. We normalize the price of a unit of the generic consumption good to be one,⁴ and we assume that the price of the amenity good is fixed at level p_b.

 
A.     Optimal Consumption and Labor Supply Decisions

Let Y_Δ be the income a Delta worker receives if she works; assuming for simplicity that she has zero income otherwise, her income equals W × Y_Δ. Her utility-maximizing choice of consumption in terms of x and b will then be given by whatever choice of (x, b) maximizes U_Δ subject to the constraint that

(3) x + p_b × b = W × Y_Δ

Equation (3) is known as the budget constraint. Each unit of x costs one unit of income, and each unit of b costs p_b, so altogether the Delta’s total expenditure is x plus p_b × b. In our static, one-period model, individuals lack a reason to save any income, and thus people will want to spend all their income. Similarly, individuals lack an opportunity to borrow, so people’s spending will be limited to their income.

The form of preferences we have assumed for Deltas implies that their optimal consumption choice is to spend the fraction α of income on the generic consumption good and the remainder on the amenity. Thus, optimal consumption levels for a Delta are given by

(4) x* = α × Y_Δ     and      b* = (1 – α) × Y_Δ / p_b

if she works for pay, and zero otherwise.⁵ If the Delta works, then her utility will be

(5) U_Δ,work = [α^α(1 - α)^1-αp_b^α-1] × Y_Δ – c

(6) = v_α(p_b) × Y_Δ - c

where the first term on the right hand side of (5) is the result of plugging in the optimal consumption levels in (4) to the utility function in (1). The function v_α(p_b) collects the part of U_Δ,work that varies with the preference parameter and the amenity price. The important thing to notice is that this function, and thus the highest possible value of utility, U_Δ,work, is a decreasing function of the amenity price.

The above assumptions imply that if a Delta forgoes work, then her utility will be zero.⁶ Thus, she will work for pay if and only if the right-hand side of (6) is non-negative. In other words, inducing Deltas to work requires that firms pay them at least enough income, Y_Δ, to allow them to realize c units of consumption utility.

Next, consider the simpler case of Omegas. Let Y_Ω be an Omega’s income if she works for pay, and again assume zero income for nonworkers. Omegas have very simple consumption plans based on (2): they consume all their income by purchasing the generic good and spend nothing on the amenity good. Since each unit of the generic good costs one unit of income, this means that Omegas will consume Y_Ω units of the generic good. Utility for working Omegas is thus

(7) U_Ω,work = Y_Ω – c

As with Deltas, Omegas will work if and only if this utility level is at least zero, since that is their utility if they do not work. Thus, an Omega worker will be willing to work if and only if she is paid at least Y_Ω. We assume that each worker’s productivity, Q, is greater than the maximum of (Y_Ω – c) and (v_α(p_b)× Y_Δ – c). This assumption ensures that the labor market equilibria described below exist.

 
B.     Labor Market Equilibrium with Fringe Benefits

We allow for firms to pay both fringe benefits and cash wages. Firms will provide compensation by giving fringe-receiving workers some number of units of the amenity good. We assume that workers cannot resell these fringe benefits.⁷ Since Omegas place no value on the amenity good, intuition suggests that employers should be able to design a combination of wages and amenities compensation that will (a) attract Deltas, and (b) repel Omegas. This intuition is correct, as we now show.

1.   Firms Face Amenity Price p_b

Consider a firm that wishes to hire only Deltas. Suppose this firm offers a cash-wage amount, Y_f, less than the labor disutility, c, together with some positive number, b_f, of units of the amenity good. We refer to this compensation plan as F = (Y_f, b_f). Omegas place no value on the amenity goods, and we have assumed away the possibility of resale. Therefore, the value of this compensation to an Omega is simply the Y_f units of the generic good that the Omega can purchase with the cash wage. Since Y_f  < c by assumption, an Omega would rather have zero income than work for this compensation plan.

Will compensation plan F attract Deltas? Suppose that b_f  = b* from equation (4). This will cost the firm p_b × b* = (1 – α) × Q. Suppose the firm combines this fringe-benefit level with the cash wage Y_f = α × Q. This compensation plan costs the firm exactly Q dollars, which is the break-even worker cost that allows firms to produce in competitive equilibrium as explained above. Thus, this compensation plan is feasible from the firm’s point of view. The compensation plan also allows a Delta to attain exactly the consumption bundle she would have chosen for herself had she been paid Q dollars in cash and nothing in fringe benefits. Since we assumed previously that α and the amenity price p_b were such that Deltas would choose to work when offered the wage Q, they will also choose to work when offered the compensation plan F just described.

We conclude that there exists a segregated equilibrium in which some firms—those that screen out Omegas, which we call screening firms—offer compensation plan F only, and other firms offer a cash wage of Q together with no fringe benefits. In this equilibrium: (a) only Deltas work for the screening firms, (b) Omegas work only for cash-only firms, and (c) some Deltas may work for cash-only firms.⁸ In fact, when Deltas strictly prefer to work when offered a no-fringe wage of Q, firms can design a variety of compensation plans that generate segregated equilibria with fringe benefits.⁹ It can be shown that all equilibria require that the cost of a screening firm’s compensation plan equal Q. Any firm that pays less than that will face competition for its workers, as before. Finally, we note when no prejudiced firm owners exist, both the segregated and the integrated equilibria described above continue to exist, with firm owners being indifferent between them. We have thus shown that when firms face the same amenity price as consumers, they can design a compensation plan that both repels Omegas and attracts Deltas and allows the firm to stay in business in competitive equilibrium.

2.   Firms Face Amenity Price p_bf < p_b

Next, we consider the case when firms have a price advantage relative to consumers in purchasing the amenity, so that the per-unit price for the amenity that firms must pay is p_bf  < p_b. An example is group purchase of insurance plans, but many other examples exist. In equilibrium, this price advantage means that Deltas must always be paid a compensation plan that involves fringe benefits. The reason is simple: any firm that pays a Delta only in cash is providing less than the maximum possible utility that can be provided at that cost. Another firm could come along and offer to pay the Delta slightly less in cash together with some fringe benefits. Because firms acquire the fringe benefits more cheaply than Deltas, the second firm could provide greater utility to the Delta than the first, while paying less to do so. The Delta would switch jobs and the second firm would earn a greater profit than the first. Thus no competitive equilibrium exists in which any Delta is paid only in cash.

In fact, firms’ advantage in purchasing the amenity means that Deltas will want their employers to purchase all units of the amenity that the Deltas consume. As in the models above, equilibrium requires that firms pay Q for each worker, whether Delta or Omega; if a firm paid less than that, our familiar compensation-competition story would apply. Thus, Deltas will be paid a cash-and-fringe compensation plan that costs Q dollars, while Omegas will once again be paid Q dollars in cash. To find the utility level for Deltas in equilibrium, we need only act as if the Deltas themselves faced the firms’ amenity price, p_bf, rather than the higher price of p_b. Thus, we simply plug p_bf into equation (6) above, yielding

(8) U_Δ,f = v_α(p_bf) × Q – c

Now, it is easy to show that when p_bf  < p_b, it must be true that

(9) v_α(p_bf) > v_α(p_b)

and this implies that

(10) U_Δ,f > U_{Δ,cash only} = v_α(p_b) × Q – c

We have thus shown that when firms have an amenity-price advantage relative to consumers, Deltas’ utility is strictly greater in the with-fringe equilibrium than it would be if fringe benefits were banned. This equilibrium, which is unique under the argument above, is segregated. However, since Omegas continue to receive cash compensation in the amount of Q dollars, their equilibrium utility is unaffected by the existence of fringe compensation: banning fringe compensation plans would not increase Omegas’ utility. A fringe ban in the presence of an amenity-price advantage on the part of firms would simply cause deadweight loss by forcing Deltas to purchase amenities at an unnecessarily high price, while giving nothing extra to Omegas. Notice that if firms must provide only one compensation plan, workers will be segregated in equilibrium even if no employers harbor animus toward Omegas: the fact that employers have a cost advantage in providing the amenity, while worker type is perfectly correlated with amenity preference, ensures full separation of workers. If firms can offer compensation menus, however, then unprejudiced employers can avoid segregation by offering workers their choice of plan F or all-cash compensation of Q dollars.

 
II.
Conclusion and Extensions

When firms possess no cost advantages for amenities, multiple equilibria exist, including a nonsegregated one in which employers pay every worker in wages only. When firms possess an amenity cost advantage and cannot offer workers a choice between compensation plans, a unique equilibrium exists, and it is segregated. Interestingly, Omegas are just as well-off economically; they would not benefit economically from eliminating fringe-induced segregation. However, Deltas are strictly better off in the segregated equilibrium than in the no-fringe equilibrium when firms have a cost advantage. Hence, banning segregation-inducing fringe compensation would (a) eliminate segregation, (b) not improve the economic welfare of Omegas, and (c) economically harm Deltas.

Some firms may possess market power in either the labor or product markets, which would allow economically harmful discrimination to persist. Fringe-generated segregation might be especially troublesome in such market-power cases because employers could use it to skirt easily monitored disparate-treatment proscriptions. Banning fringe benefits would still harm Deltas if firms have an amenity-price advantage, though with market power, such a ban could also help Omegas. Fringe-based discrimination could be prevented in this model without harming Deltas by mandating that firms offering fringe benefits also offer a cash-only compensation plan whose wage/salary equals the cost to the firm of the cash-and-fringe compensation plan.¹⁰

It is, of course, also possible that segregation is undesirable in its own right because stereotypes break down in integrated workplaces, because individuals incur psychic costs in experiencing discrimination even if they voluntarily sort themselves into segregated workplaces, or because the individuals that do not sort themselves out may incur psychic costs in a segregated workplace.¹¹ In such situations, reducing the net pecuniary compensation received by Deltas might be worthwhile in order to bring about an integrated economy. Dealing with either of these extensions would markedly change the welfare implications of the segregated result, and we do not mean to discount the relevance of either case. However, in terms of consumption utility, segregation induced by fringe compensation does not harm the group that is “segregated against,” given perfect competition.

Acknowledgments:

Copyright © 2009 University of Chicago Law Review.

Jonah Gelbach is Associate Professor of Economics at University of Arizona.
Jonathan Klick is Professor of Law at University of Pennsylvania Law School.
Lesley Wexler is Assistant Professor of Law at Florida State University College of Law.

This Editorial is a companion to the following previous Legal Workshop Editorial: Jonah Gelbach, Jonathan Klick & Lesley Wexler, Passive Discrimination, LEGAL WORKSHOP (U. CHI. L. REV. June 22, 2009).

The following is a Response by Richard Epstein to this series of Editorials: Richard A. Epstein, Protect Us, Lord, from Title VII: A Response to Gelbach, Klick, and Wexler, LEGAL WORKSHOP (U. CHI. L. REV., June 22, 2009).

In their example of how this process works, GKW rely on economic evidence indicating African-American individuals have steeper discount rates than white individuals to suggest that any offer of a salary with a fixed pension benefit will be of more value to the white applicant than to the African-American applicant,³ so that the employer can shift the distribution of his workforce in ways that advance discrimination. Armed with this knowledge, an employer could alter the racial composition of its workforce.

Assuming that this mechanism has its intended effect, it could work in both directions. An employer therefore could engage in race-based affirmative action under the radar screen by front-loading the employee’s wages and reducing their pensions in order to attract a higher fraction of African-American workers. I am not aware of any evidence that points to a conclusion that any affirmative action employer has ever engaged in this tactic, either deliberately or inadvertently. The usual way to run affirmative action programs is through aggressive recruitment, all of which takes place above the radar, given the one-sided application of Title VII: disparate impact theories are available for use by black applicants,⁴ while affirmative action practices are looked upon with real benevolence.⁵ In addition, it is instructive to note that for many jobs the pension element has little or no traction insofar as the (now discriminatory) social security system covers most of the pension obligation. Yet I hope that GKW lack the courage of their convictions and would not suggest that social security (and Medicare) be unraveled because of its implicit racial skew, or that benefits paid to African-American workers be grossed up to reflect the perceived difference in the discount rates by the median member of the respective groups.

Nor do I believe that this approach has much to commend it, even for a firm that wanted to practice race or sex discrimination under the radar. The simplest objection is that it is not likely to be effective. The initial point is that an employer would have to offer the now-suspect pension feature of the employment practice in constant proportions to all workers in order for the system to work at all. But that is not the way in which most employers want to deal with their employees. One of the most common practices for fringe benefits today is for firms to offer workers an allowance that they can use to make purchases from a menu of items, in exchange for a reduction in their base pay. This menu approach sets out an implicit indifference curve for the employer: the employee can pick any combination of items that he or she finds ideal, and thereby maximize the nonsalary portion of his or her compensation package. Single individuals do not have to buy life insurance; sicker individuals may stock up on health insurance, and so on down the line.

This ability to make the optimal choice thus counts as an implicit wage boost for all employers, regardless of race or sex. If the evidence offered in GKW is indeed correct, we should expect to find that different individuals, by race or sex, will choose different benefit packages. At that point the employer practice should be sheltered by the doctrine announced in EEOC v Sears, Roebuck & Co,⁶ because we have the most explicit declaration of unconstrained worker preferences that we can imagine. Commentators have, wrongly, attacked Sears on the ground that the female workers who opted for store commission jobs were conditioned wrongly by their social settings. But even if that strained interpretation made sense, it is hard to identify any external constraints on choice that fetter employee preferences in this situation. The widespread use of these menu options is not consistent with employers engaging in covert forms of discrimination. The menu strategy is an effective way to attract a diverse workforce because it does not shoehorn the benefits package into a one-size-fits-all straightjacket. GKW should praise employer ingenuity for maximizing the welfare of its employees under competition, not seek ways to expose employers to additional liabilities.

Nor is there any reason to think that GKW’s strategy for racial discrimination is likely to yield any forbidden fruits if put into play. In order for this to work, there has to be an assumption that the compensation demands across races are identical for both African-American and white workers. But suppose that they are not, and that on average the African-American workers have lower reservation wages than white workers, perhaps because of the discrimination in the general market. At this point, the pension-heavy strategy may well reduce the attractiveness of the compensation package somewhat. But that result is consistent with a loss in consumer surplus, and does not require us to assume that there will be much of a change in the rate at which African-Americans accept job offers. We know in addition that even if there is a variation in preferences across groups, there is also a variation in preferences within groups. At this point, one can ask just what the likely shift in workforce compensation is likely to be. My view is that it would be quite small, and for what end if it turns out that it makes it more difficult to recruit workers up and down the line. There does not seem to be much of a future in this practice.

There is, moreover, a real risk that the relentless effort to root out race and sex discrimination has serious adverse consequences of its own. In their article, GKW discuss briefly the Supreme Court’s most conspicuous effort into the field of sex discrimination in pensions, City of Los Angeles, Department of Water and Power v Manhart,⁷ where the City of Los Angeles followed standard actuarial practices by withdrawing more money from women’s salaries to cover its pension obligations than it did from men’s salaries. The statistical reason for this decision was that women lived longer than men and thus needed large amounts of money to fund their monthly payments, which were of the same magnitude as given to men. To put the point in a different fashion, the women paid into the pension plan the exact amount of money that they would have paid if there were no men at all in the employment pool. The men of course did the same.

The key point here is that the program adopted by Los Angeles should be regarded as the epitome of sound gender discrimination policy insofar as it prevented an illicit wealth transfer between the sexes. Stated otherwise, the present value of the entire benefit package was identical for men and women. Men got the additional benefit of a higher monthly payment. Women got the benefit of a longer expected life. Manhart thus showed the capacity for the employment discrimination law to disrupt the rational behavior of both public and private institutions, by using the antidiscrimination law to create an undeserved cross subsidy between men and women, which was a consequence of the rigid formalism of the United States Supreme Court.

Yet note these flexible notions of discrimination could put employers into an impossible bind. Thus, suppose that attention shifts to employer life insurance policies. Under the menu approach set out above, the correct response is to offer the best competitive rates for men and women, and these will show that women receive better offers as a consequence of their lower risk of death in any given period. But now suppose that the City of Los Angeles decided that consistency required it to use the same formal approach for life insurance that the Supreme Court in Manhart forced upon it for pensions. At this point, the women workers could rely on the theories of GKW to demonstrate that they were the victims of employer discrimination. The firm picked a mandatory insurance benefit which it then deliberately mispriced to drive women applicants from the roost. So we now have a new theory of inevitable discrimination. Women, but not men, and African-Americans, not whites, get to pick whether the economic or the formal conception of discrimination governs the case. Since every case will have either formal or impact discrimination, no employment practice is safe.

There are two conclusions that I draw from this general saga. The more modest one is that we should give new theories of employment discrimination a well-deserved vacation on the grounds that they are likely to spawn more discrimination than they prevent and to do so at a public and private cost that makes everyone worse off. My more aggressive conclusion tracks that which I have argued for since I wrote Forbidden Grounds: The Case against Employment Discrimination Laws. Just repeal the employment discrimination laws in their entirety, except as they apply to monopoly situations, of which there are virtually none in private unregulated markets.⁸ One of the reasons for this position is that it frees up any and all affirmative action programs from the legal limbo in which they are rightly placed under the current law. The text of Title VII is perfectly neutral on race and sex, for it applies to “any individual” as a conscious effort to introduce a color- and sex-blind regime into the law.⁹

The tortured interpretation of the text to allow affirmative action on the one side and to impose disparate impact liability on the other¹⁰ has had two serious dysfunctional consequences. The first is to abandon all principled rules of statutory construction in order to adopt a highly race-conscious endeavor. What could be done in the one case can be done in the next, which imposes a serious crimp on all rule-of-law values. The second is to create the need to develop some ad hoc public justification for affirmative action programs in the private and public sector, which in turn gives all institutions a strong incentive to develop narrative accounts that overstate the level of discrimination, especially in recent times, in order to lend legitimacy to these programs. In the private sector, at least, the principle of freedom of association allows the programs to go forward without needing to tarnish the reputation of other individuals. And for public institutions the correct test, I continue to believe, is to allow them in employment contexts to mirror the voluntary practices that dominate private institutions, which in turn permits the same kind of employment practices in both markets. And this freedom in labor markets comes at a much lower cost than the current suffocating regime.

And to what end? GKW do not offer any aggregate statistics that indicate that the position of African-American workers lags behind that of whites, controlling for the usual key differences in education and work experience and the like. That literature is of course enormously complex, and among its most persistent findings are that wage gaps between blacks and whites prove significant for men, but not for women.¹¹ The explanations for that disparity are likely to prove complex, but invidious discrimination on racial grounds does not look to be one of them.

The situation on the ground, moreover, is quite different from what it was some years ago. When I started teaching in 1968, the faculties were pretty much white and male. My first Dean, Dorothy Nelson, was a real pioneer.  The composition of every university and every business has been transformed in the interim. I do not think that this is in response to legal pressures, but in response to real perceived demands inside the organizations in question. The high level of support for affirmative action cannot be squared with a covert racial or sexual animus on the part of white men who now occupy a shrinking proportion of the dominant positions. Abigail Thernstrom was quite right to attack the Attorney General, Eric Holder, for his dismal account of race relations in his February 18, 2009 speech.¹² It does not help matters today to make bald assertions that “in things racial we have always been and continue to be, in too many ways, essentially a nation of cowards.”¹³

That broad denunciation denigrates the brave work and large sacrifices of too many honorable people. There is no reason to get smug on questions of progress on matters of race and sex, but the thought that any tightening of the anti-discrimination laws can help improve the current situation should be put firmly to one side. Yet Congress does not seem to be listening. Recently, it adopted the Lilly Ledbetter Fair Pay Act, which included an unexplained one-sentence finding about the “reality of wage discrimination” in American life.¹⁴ It is therefore not too much to note the recent statistical information that the unemployment rates for men is higher in all relevant categories than for women.¹⁵ There are doubtless many possible explanations for this turn of events. But the one point that does seem clear is that on matters of race and sex discrimination our first order of business should be to give it a rest, not to embrace new theories of liability under a statute that has already outlived its usefulness.
 

Acknowledgments:

Copyright © 2009 The University of Chicago Law Review.

Richard A. Epstein is James Parker Hall Distinguished Service Professor of Law, The University of Chicago Law School; Peter and Kirsten Bedford Senior Fellow, The Hoover Institution; and a visiting law professor at New York University Law School.

This Editorial is a Response to the following Legal Workshop Editorial: Jonah Gelbach, Jonathan Klick & Lesley Wexler, Passive Discrimination, LEGAL WORKSHOP (U. CHI. L. REV. June 22, 2009).

By way of illustration, imagine that individuals from two groups, Deltas and Omegas, comprise the labor pool from which employees may be hired.  While their work productivity is drawn from the same distribution, a given employer dislikes Omegas for reasons unrelated to their job qualifications.  Because Omegas have suffered discrimination historically, legislation explicitly protects Omegas from employment discrimination.  Further, while Deltas and Omegas have similar reservation wages,¹ Deltas, on average, more highly value some nontransferable good that the employer can procure (or produce) at a cost equal to or lower than the Deltas’ average valuation of the good.  To make the illustration more concrete, assume the employer is a brewery and offers free beer at lunchtime.

While the employer prefers to hire only Deltas, federal legislation limits the employer’s ability to do so. Yet we contend that employers may advertise the job broadly and make hiring decisions in a seemingly nondiscriminatory fashion, avoiding lawsuits, and still achieve an ultimate workforce that is predominantly (if not exclusively) composed of Deltas.  Specifically, if the employer offers a compensation package composed of a submarket wage as well as access to free lunchtime beer, Omegas will find such a job unattractive, while Deltas will still gladly accept the job offers.  Ultimately, according to the firm, due to no misconduct on its part, Omegas lacked interest in working for the brewery.

While scholars have touched on this phenomenon,² no one has examined these employment practices in a systematic way.³ Such discrimination is presented as an ancillary effect of employment policies or conditions. Yet recent class actions suggest that basic animus- or stereotype-driven discrimination is still quite prevalent. So it should be unsurprising that litigation-savvy employers might deliberately craft compensation structures to exclude certain types of workers.

In this online Article, we provide an illustration of group-level preference heterogeneity that could generate passive discrimination in an occupational setting. We next discuss how current antidiscrimination law applies and conclude with a brief discussion of how we might better address passive discrimination.

I.
Illustration

In this Part, we first describe the conditions necessary to create the segregated equilibria described above. We then provide an example where these conditions may apply. In the case of intentional passive discrimination, the employer must be able to identify a good that satisfies two conditions: (1) the disfavored group values the good on average less than the average valuation placed on the good by other groups of potential employees, and the employer knows this; and (2) the good is nontransferable. A third condition under which the employer can ensure that she attracts the favored type of employee is satisfied when the employer can provide the good for a cost below that paid by workers outside of the employment relationship.

While we have focused on intentional passive discrimination, the phenomenon could also arise as an accidental byproduct.  For example, a brewery whose owners are indifferent regarding employing Deltas and Omegas might still offer free beer during lunch because it believes doing so promotes product knowledge.  In such a case, even if the brewery starts out offering this benefit plus a market wage, Deltas who do not secure positions will offer to work for a lower wage given their valuation of the free beer.  Eventually, this group valuation will lead to a workforce composed of Deltas, to the exclusion of Omegas.

One example of potentially discriminatory screening practices relates to subjective discount rates and pay structures that include a deferred compensation component, such as a pension.⁴ To begin with, a person’s subjective discount rate captures her willingness to delay current consumption for the prospect of increased future consumption.  While everyone exhibits some positive subjective discount rate, individual-to-individual heterogeneity exists in those subjective discount rates.⁵

While individual-level heterogeneity is prevalent, labor economists have noted that systematic differences in individual discount rates across racial groups may also exist.⁶ A natural experiment provides the most interesting supporting evidence in the finding of large inter-race heterogeneity in discount rates.⁷ Specifically, conditional on a large number of other effects,⁸ black military enlistees and officers exhibited significantly higher subjective discount rates than other minorities and whites.⁹ This result is robust with blacks exhibiting, on average, discount rates on the order of five to nine times as great as whites.

Assuming this empirical regularity holds,¹⁰ an employer wishing to passively exclude blacks could offer a low current wage coupled with generous deferred compensation benefits, such as a large pension. Such a package would attract individuals with relatively low subjective discount rates and repel those with higher subjective discount rates. Note further that this could also represent a situation in which a nondiscriminatory employer might engage in unintentional passive discrimination, as employers may possess numerous other reasons to include a generous retirement component in its compensation package.

II.
Applying Title VII

In determining the legality of passive discrimination, we begin with Title VII. Congress enacted this statute “to assure equality of employment opportunities and to eliminate those discriminatory practices and devices which have fostered [ ] stratified job environments to the disadvantage of minority [or other protected] citizens.”¹¹ Congress did not ban all forms of workplace segregation, but rather forecasted that integration would be a beneficial byproduct of ending active discrimination. Thus, Title VII makes it an unlawful employment practice for an employer to “fail or refuse to hire . . . or otherwise to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s race, color, religion, sex or national origin.”¹²

A.     Disparate Treatment

Title VII jurisprudence allows plaintiffs to choose among disparate treatment and disparate impact claims. Under disparate treatment, an employer treats some individuals worse than others because of a protected characteristic. “Proof of discriminatory motive is critical, although it can . . . be inferred from the mere fact of differences in treatment.”¹³ In individual disparate treatment claims, each plaintiff must prove that she was treated less favorably than others similarly situated and that this disparate treatment was “because of” the plaintiff’s race, color, sex, national origin, or religion. The plaintiff must provide either direct or circumstantial evidence to demonstrate the employer’s discriminatory intent. While these claims may evidence a concern about segregation, courts link this concern to the elimination of discriminatory practices which deprive individuals of employment opportunities.¹⁴

In pattern or practice cases, another type of disparate treatment claim, the plaintiff can satisfy the prima facie case with “statistical evidence demonstrating substantial disparities in the application of employment actions as to minorities and the unprotected group.”¹⁵ These plaintiffs need not present individual victim testimony to support a finding of intentional discrimination—courts may rely purely on evidence of gross statistical disparity,¹⁶ which raises an inference of discriminatory intent.

Under disparate treatment claims, Title VII prohibits the employer from using group-based characteristics, preferences, or stereotypes to treat individuals differently even if such stereotypes are largely accurate. In City of Los Angeles, Department of Water and Power v Manhart,¹⁷ the Supreme Court ruled that an employer may not deduct more from women’s pay to cover their pensions even though as an actuarial matter, women as a class are likely to draw more pension benefits.¹⁸ The Supreme Court reasoned that any individual woman may not draw benefits longer than any individual man, her employers may not condition her pay on her sex.¹⁹

Easy disparate treatment cases include those instances in which an employee offers a potential plaintiff a facially different wage than others similarly situated. For example, an employer may not offer Caucasian bus drivers comprehensive health insurance and fail to offer African-American drivers the same insurance package. If, on the other hand, the employer offers all bus drivers lower wages and higher pension benefits than other area employers, individual employees cannot successfully lodge a disparate treatment claim. Even if empirical evidence indicates that, as a group, African-American drivers have a higher discount rate and place a lower value on such pensions, the employer has treated each individual African-American driver the same as all its other drivers. So we contend no individual disparate treatment claim could succeed.

Under pattern-and-practice claims, however, if employers devised a very successful sorting mechanism, plaintiffs might be able to satisfy the prima facie showing of gross statistical disparity. For instance, in International Brotherhood of Teamsters v United States,²⁰ the Court suggested that the complete, or very nearly complete, absence of members of a protected class in a particular job can compel an inference of discrimination.²¹ So if the high pension, low wage strategy resulted in a workforce with no or very few African-American drivers, employers could face a Title VII problem. Yet plaintiffs rarely prevail in such cases without testimony about individual acts of disparate treatment.²²

Only if the employer foolishly allowed the discovery of direct evidence of discriminatory intent would the employer face real difficulty in providing nondiscriminatory explanations for the disparity. Even then, the plaintiffs might not prevail. Such a memorandum would reveal an intent to achieve a segregated workplace, but a plaintiff would still bear the burden of proving the occurrence of discrimination as defined by Title VII. Here, the employer has relied on preferences that tend to be correlated with protected characteristics, but has offered each individual the same package.

Title VII clearly prohibits employers from treating individuals differently because of discriminatory animus or outmoded stereotypes or even seemingly rational group-based stereotypes. Yet, as currently conceived, disparate treatment claims seemingly do not prohibit the employer from using group-based characteristics, preferences, or stereotypes to treat individuals similarly in hopes that such treatment will encourage applicants from disfavored groups to sort themselves out of a job based on their own preferences. As any individual applicant may defy the stereotype and elect into the job, no disparate treatment has occurred even if an employer succeeds in achieving a segregated workplace.

B.     Disparate Impact

Disparate impact claims allow plaintiffs to prevail if they identify a particular employment practice with a significant adverse impact on a protected class, and the defendant fails to demonstrate that the challenged employment practice is “job related  . . .  and consistent with business necessity.”²³ If the challenged practice significantly serves the employer’s legitimate employment goals,²⁴ the plaintiff can still prevail if she proves that a less discriminatory alternative employment practice equally serves the defendant’s goals.²⁵

Passive discrimination seemingly fits better under this analysis, as employers devise facially neutral compensation packages that may result in only a few individuals from a disfavored group in their workplace. Yet the Supreme Court has cast doubt as to whether fringe benefits and compensation packages are subject to disparate impact analysis.²⁶ In Manhart, described above, the Court stated in dicta:

Even under Title VII itself—assuming disparate-impact analysis applies to fringe benefits—the male employees would not prevail. Even a completely neutral practice will inevitably have some disproportionate impact on one group or another. [Griggs v Duke Power Co, 401 US 424 (1971)] does not imply, and this Court has never held, that discrimination must always be inferred from such consequences.²⁷

Likely as a result of this language, few cases have grappled with compensation and fringe benefits under disparate impact analysis. In Finnegan v Trans World Airlines, Inc,²⁸ the Seventh Circuit held that across-the-board cuts in fringe benefits were not eligible for disparate impact analysis under the Age Discrimination in Employment Act.²⁹ Judge Richard Posner rejected even a prima facie case of disparate impact for such cuts, as the focus of disparate impact should be on the exclusion of individuals from certain opportunities.³⁰ But passive discrimination does not exclude anyone from an opportunity; it just makes the opportunity less desirable.

C.     Lack of Interest

The so-called “lack of interest defense,”³¹ available in both disparate treatment³² and disparate impact cases, is particularly relevant to the causation questions raised by passive discrimination. Lack of interest is a nondiscriminatory explanation for statistical disparities,³³ and rebuts the plaintiff’s prima facie case.³⁴ Under this “defense,” employers dispute the causal chain by showing that employees’ voluntary choice, rather than a particular employment practice, causes workplace inequality or segregation.³⁵ If the employer succeeds in showing that individual preferences cause a disparate impact, then it need not reach the question of whether the practice is job related and consistent with business necessity.³⁶

This Article suggests that labor market conditions that shape individuals’ interest in particular jobs may include more than the substance of the job, but also the terms, conditions, and privileges of employment, such as the compensation structure. Yet employers and courts seem to view these packages as mostly within the employers’ discretion to design and the employees’ discretion to take or leave. Passive discrimination suggests that courts’ acceptance of such preferences under the lack of interest doctrine may allow employers to use such preferences with impunity.

III.
Conclusion

This Article fits within a larger debate about the appropriate framework from which to address workplace discrimination and segregation. If one were concerned about workplace segregation or the effect that group-based preferences have on individuals, some judicial and legislative actions might be taken.³⁷ Title VII reform provides one obvious approach. Courts could apply disparate impact doctrine to the structure of compensation and to the provision of fringe benefits. Interest groups may push for stand-alone legislation to address particular mechanisms of passive discrimination. Independent legislation may bypass litigation hurdles associated with Title VII if it does not rely on individual claimants. More innovative approaches include standalone legislation, education initiatives, and incentivized employer restructuring through an enhanced range of employee choice in compensation options, which are more fully fleshed out in our full article.
 

Acknowledgments:

Copyright © 2009 The University of Chicago Law Review.

Jonah Gelbach is Associate Professor of Economics, University of Arizona; Jonathan Klick is Professor of Law, University of Pennsylvania Law School; and Lesley Wexler is Assistant Professor of Law, Florida State University College of Law.

The following is a companion to this Editorial: Jonah Gelbach, Jonathan Klick & Lesley Wexler, A Formal Model of Passive Discrimination, LEGAL WORKSHOP (U. CHI. L. REV. Aug. 10, 2009).

The following is a Response by Richard Epstein to this series of Editorials: Richard A. Epstein, Protect Us, Lord, from Title VII: A Response to Gelbach, Klick, and Wexler, LEGAL WORKSHOP (U. CHI. L. REV., June 22, 2009).

Dawson brought a sex discrimination claim under Title VII of the Civil Rights Act,² alleging that she was both fired and harassed because of, among other things, her failure to conform to traditional gender stereotypes.  Ultimately, Dawson lost her lawsuit.  In rejecting her gender-stereotyping claim, the Second Circuit held that the alleged discriminatory comments were targeted not at Dawson’s gender-nonconformity but at her homosexuality.  And because sexual orientation is not a protected trait under Title VII, the court held that Dawson had not stated an actionable discrimination claim.

The lesson of Dawson’s case is that an employee’s sexual orientation can swallow up an otherwise actionable claim of sex discrimination.  Even though Dawson’s Title VII claims were based on her sex and her gender-nonconformity, the court concluded that Dawson was trying to “bootstrap” protection for sexual orientation into Title VII by framing discrimination targeted at her sexual orientation as a claim of discrimination based on her gender-nonconformity.³  This has become a common story for lesbian and gay employees.  Due to the absence of statutory protection for sexual orientation discrimination at the federal level,⁴ lesbian and gay plaintiffs frequently lose their sex discrimination and gender-stereotyping claims because of their sexual orientation, with courts relying on reasoning similar to that used by the Second Circuit in Dawson’s case.⁵

My Article offers a critique of these “bootstrapping” cases from a perspective that has been overlooked in employment discrimination law and scholarship.⁶  The focus of that critique is heterosexuality.  In contrast to homosexuality and, to a lesser extent, bisexuality—both of which have been the subject of extensive scholarly attention—heterosexuality is largely absent from scholarly discussions about sexuality.  The absence of heterosexuality from the scholarly literature is not surprising because in American culture heterosexuals are typically thought of as not having a sexual orientation.  Instead, heterosexuality is the normative baseline against which all other sexual orientations are tested.  As such, heterosexuality tends to be absent from discussions about sex and sexuality.  This is especially true of legal discourse about sex and sexuality—courts rarely even acknowledge the existence of heterosexuality, let alone consider its legal implications.

In the realm of employment discrimination law, courts rarely consider the way in which an employee’s discrimination claim implicates heterosexuality.  This is the heart of the critique of bootstrapping cases presented in this Article.  Because heterosexuality is invisible in our culture, courts often fail to recognize when an employee’s discrimination claim implicates her heterosexuality.  To amplify this claim, I offer a novel reading of the Supreme Court’s groundbreaking decision in Meritor Savings Bank v. Vinson,⁷ where the Court established that claims of hostile environment sexual harassment can constitute unlawful sex discrimination in violation of Title VII.  Specifically, my reading of Meritor demonstrates that Mechelle Vinson, the plaintiff in Meritor, was not discriminated against solely because of her sex, but because of both her sex and her sexual orientation.  The Court, however, did not regard Vinson’s sex discrimination claim as an attempt to bootstrap antidiscrimination protection for heterosexuality.  

My reading of Meritor suggests that there is a double standard at work in employment discrimination law.  For lesbian and gay employees, sexual orientation is a burden because courts are primed to reject otherwise actionable sex discrimination claims on the theory that such claims are an attempt to bootstrap protection for sexual orientation into Title VII.  We see this in Dawn Dawson’s case, where the court concluded that Dawson’s homosexuality effectively tainted her sex discrimination claim.

Whereas lesbians and gay men are on the burdened side of the double standard, heterosexuals are on the privileged side.  No court has ever ruled—nor, I suspect, will any court ever rule—that a heterosexual plaintiff’s sex discrimination claim is an attempt to bootstrap protection for heterosexuality.  Heterosexuality is obscured by what I call the “paradox of privilege.”  The thrust of the “paradox of privilege” is that heterosexuality is at once everywhere and nowhere.⁸  Heterosexuality is everywhere because it is normative.  In other words, heterosexuality is embedded in the fabric of our culture; it is everywhere we look and a part of nearly everything we do.  Perhaps the best example of the pervasiveness of heterosexuality is the phenomenon of “coming out” as lesbian or gay.  In American culture, we presume that all people are heterosexual until proven otherwise.  Thus when a gay person comes out as gay, he is marking himself as non-normative, that is, as someone who is different from the heterosexual norm.

The second prong of the paradox of privilege is that heterosexuality is nowhere.  By this I mean that heterosexuality’s normativity is so deeply embedded in our cultural fabric as to render it invisible.  To see an example of this in action, think of a same-sex couple’s wedding announcement in the newspaper.⁹  Looking at the couple’s picture, the first thing most people see is that they are a gay couple.  By posing together in a picture, the couple effectively puts their homosexuality on display.¹⁰  Now think of a similar announcement for a different-sex couple.  Looking at this couple’s picture, most people may see bride and groom, or husband and wife, or perhaps just a man and woman.  Though people see many things in this second picture, they simply do not see the couple’s heterosexuality.

The nowhere prong of the paradox of privilege can also be seen in the way we talk about sexual orientation.  Because heterosexuals are not thought of as having a sexual orientation, the term “sexual orientation” tends to be used as if it were a synonym for “homosexuality.”  For instance, ask yourself the following question: “What comes to mind when you think about ’sexual orientation?’”  I ask my students this question toward the beginning of my Law & Sexuality seminar.  Their answers are always the same: the first things they think of are same-sex marriage, the “Don’t Ask, Don’t Tell” Policy, and the AIDS epidemic.

Consider another example.  My first law teaching job was a fellowship at sponsored by the Williams Institute, an academic think tank at UCLA School of Law.  On its website, the Institute describes its work as follows: “The Williams Institute advances sexual orientation law and public policy through rigorous, independent research and scholarship, and disseminates it to judges, legislators, policymakers, media and the public.”¹¹  In terms of its actual work product, the Williams Institute does not study legal and policy issues relating to sexual orientation generally so much as it studies legal and policy issues relating to lesbians and gay men.  This is another good example of how sexual orientation is used as a synonym for homosexuality.  In short, society uses language that is reflective of our tendency not to think of heterosexuals as having a sexual orientation.

Because heterosexuality is obscured by the paradox of privilege, courts simply do not see it when an employee—like Mechelle Vinson—is discriminated against because of her heterosexuality.  As a result, no court will ever conclude that a heterosexual employee is raising a sex discrimination claim as a means to bootstrap protection for sexual orientation into Title VII.  Put simply, heterosexuals and homosexuals are not similarly situated under Title VII. 

The solution, then, is to re-orient employment discrimination law’s approach to sexual orientation.  My recommendation is that courts should neutralize sexual orientation.  When an employee brings a sex discrimination claim, the employee’s sexual orientation—whether heterosexual, homosexual, or otherwise—should neither benefit nor burden the employee.  Put another way, an employee’s sexual orientation should neither give rise to a cause of action nor prevent an employee from a sex discrimination based on some other protected trait, such as sex or gender-nonconformity.  Under such a re-oriented approach, an employee’s sexual orientation is irrelevant for purposes of employment discrimination law, no different than any other trait that is not protected under Title VII, such as eye color or whether the employee is a Chicago Cubs fan.

This is not to say that a court should ignore altogether an employee’s sexual orientation.  Courts should still acknowledge that the discrimination faced by the employee was based at least in part on the employee’s sexual orientation.  In terms of litigation strategy, the conventional wisdom for representing a lesbian or gay plaintiff in an employment discrimination case is that an attorney should not disclose her client’s homosexuality.  According to a practitioner’s guide to representing lesbian and gay clients in discrimination cases, “When bringing a gender stereotyping claim under Title VII, it is almost never a good idea to affirmatively plead or introduce evidence of a plaintiff’s [homosexuality.]  It does not help the case and can seriously damage it.”¹²

The advice that lesbian and gay employees should try to deemphasize their homosexuality is especially troubling to the extent that it encourages lesbian and gay employees to conceal rather than acknowledge their homosexuality in the workplace.¹³  A rich literature documents the benefits for lesbian and gay employees of disclosing their homosexuality to their employers and coworkers.¹⁴  Of course, employees who are open to their coworkers about their homosexuality expose themselves to the possibility of being discriminated against because of their sexual orientation.  Yet encouraging employees to “stay in the closet” in the workplace is not the solution to this dilemma.  Employment discrimination law should not have to encourage lesbian and gay employees to conceal their homosexuality in order to maintain their chances of articulating an actionable gender-stereotyping claim.  Along this axis, the bootstrapping cases offer a more satisfying approach to dealing with an employee’s sexual orientation.  The positive side of the court’s decision in Dawn Dawson’s case is that, at the very least, the court acknowledged Dawson’s homosexuality.  By contrast, the Court in Meritor never acknowledged that either Vinson or Taylor had a sexual orientation, as their heterosexuality was assumed.

As already noted, the primary reason why courts tend to treat heterosexuality and homosexuality differently is because heterosexuality is normative and therefore invisible, while homosexuality is stigmatized and therefore highly visible.  Thus one way out of the double standard is for courts to recognize that heterosexual employees have a sexual orientation and that they face discrimination on the basis of their heterosexuality.  By acknowledging the existence of heterosexuality and heterosexuality discrimination, courts must confront the differing standards that have been applied to employees based on their sexual orientation.  In this regard, the Article seeks to neutralize heterosexual privilege for the benefit of all employees who suffer discrimination based on their sex.

Acknowledgments:

Copyright © 2009 Northwestern University Law Review.

Zachary A. Kramer is Assistant Professor of Law, Penn State University Dickinson School of Law.

For helpful comments and discussions at various stages or helpful comments and discussions at various stages of this Article’s progress, I am grateful to Carlos Ball, Terri Beiner, Fred Bloom, Matt Bodie, Bridgette Carr, Tommy Crocker, John DiPippa, Jamie Evans, Dave Fagundes, Frances Fendler, Liz Glazer, Michael Green, Carissa Hessick, Rebecca Hollander-Blumoff, Rob Kar, Liz Kukura, Dan Markel, Doug NeJaime, Gowri Ramachandran, Adam Rosenzweig, Kerry Ryan, Ann Scarlett, Paul Secunda, Josh Silverstein, Jason Solomon, Michael Stein, Rob Steinbuch, Tom Sullivan, Steve Vladeck, Anders Walker, Elizabeth Weeks, Steve Willborn, and Ekow Yankah.

I am especially indebted to Noah Zatz for his helpful advice in the early and later stages of this Article, as well as to Joi Leonard for her invaluable research support.

I am also grateful for the comments I received when I presented earlier versions of this Article at the University of Mississippi School of Law faculty workshop, the Hofstra University School of Law Colloquium on Law & Sexuality, the UALR Philosophy and Liberal Studies Department’s Friday Philosophy Forum, the Southeastern Association of Law Schools Annual Conference, the Texas Junior Scholars Workshop at Texas Wesleyan School of Law, Prawfsfest! Junior Faculty Workshop Loyola Law School, the Junior Faculty Workshop at Washington University, and the 2008 Law & Society Conference.

This Editorial is based on the following full-length Article: Zachary A. Kramer, Heterosexuality and Title VII, 103 NW. U. L. REV. 205 (2009). Click Here for the Full Article