Owners, contractors and other recipients of federal funds be aware: when construction or other federally-funded contracts sour, not only can contracting parties file lawsuits claiming breach of contract, but if the contracting party is a minority-owned business, it may have a discrimination claim under Title VI of the Civil Rights Act. The Fourth Circuit Court of Appeals has concluded that a minority-owned corporation may have a racial identity and standing to bring race discrimination claims.

Applying labels such as "race, color, or national origin" to business entities forges a new path in the area of employment and contract law. Now, not only must parties involved in federally-funded projects be concerned with discriminatory behavior toward employees, but also toward contracted parties. Understanding the employment implications of the Fourth Circuit's decision when entering into a contract with a minority-owned business, may shape the future of contract language, as well as contracting party relationships.

Title VI of the Civil Rights Act provides in part that "no person in the United States shall, on the ground of race, color, or national origin, be excluded from participation in, be denied any benefits of, or be subjected to discrimination under any program or activity receiving Federal financial assistance" (emphasis added). Presumably, one would not consider a corporate entity – something lacking "race, color, or national origin" – to be a "person" within the meaning of the statute. The Fourth Circuit Court of Appeals, however, recently held otherwise, concluding that a minority-owned corporation may establish an "imputed racial identity" for purposes of demonstrating standing to bring a claim of race discrimination under federal law.

In Carnell Construction Corp. v. Danville Redevelopment & Housing Authority, a civil contractor certified under state law as a "Small, Women- and Minority-Owned Business" was awarded a site work contract in connection with a federally funded housing project. The contractor's and owner's relationship quickly deteriorated after work began on the project. The owner chose not to allow the contractor to continue its work beyond the scheduled completion date and declared a default under the contractor's performance bond. In turn, the contractor filed a lawsuit against the owner based on race discrimination and breach of contract. The claims resulted in protracted litigation and three trials ensued. After the final trial, both parties appealed various issues. The court ultimately found that the trial court had committed reversible error on an evidentiary issue and remanded the case for a new trial on the contractor's race discrimination claims.