U.S. Supreme Court Issues Ruling Favorable To Employers Involved In Disparate-Impact Litigation

by Seyfarth Shaw LLP

imagesOn June 25, 2015, the U.S. Supreme Court issued a 5 to 4 ruling in Texas Dep’t of Housing & Community Affairs v. Inclusive Communities Project, Inc., No. 13-1371 (2015).  Now that the dust has settled from the Supreme Court’s recent term, what does this decision mean for employers?

In Texas Dep’t of Housing & Community Affairs v. Inclusive Communities Project, Inc., the Supreme Court held that companies and government agencies can be liable for discrimination under a disparate impact theory for violations of the Fair Housing Act (“FHA”).  In coming to this conclusion, the Supreme Court emphasized the importance of placing limitations on the ability of potential plaintiffs to bring and successfully prosecute disparate impact lawsuits.

As is well known by employers, a disparate impact claim is based on what is sometimes called unintentional or adverse impact discrimination. The fundamental allegation is that a policy or practice, which is non-discriminatory on its face, is unlawful if it has a disparate impact on a legally protected group and does not serve a substantial legitimate non-discriminatory interest, or that interest is otherwise attainable with lesser adverse impact. Claims based on disparate impact are typically grounded in statistics. The far more common discrimination theory is disparate treatment, which requires proof of intentional discrimination.

The Supreme Court first approved the disparate impact theory in 1971, in employment discrimination cases under Title VII of the 1964 Civil Rights Act. Every federal appellate court that has decided the issue since then has held that disparate impact claims also are permitted in housing discrimination cases under the FHA, a part of the 1968 Civil Rights Act.

While it is not a workplace class action decision, the Supreme Court’s cautionary language in Texas Dep’t of Housing & Community Affairs v. Inclusive Communities Project, Inc. – especially about the limitations needed to prevent abusive disparate impact lawsuits – will no doubt assist employers in their defense of disparate impact class actions, and may create new, more employer-friendly burdens in such litigation. For this reason alone, Texas Dep’t of Housing & Community Affairs is a must read on the beach this summer for corporate counsel and HR professionals.

Case Background

The plaintiffs brought suit against the Texas Department of Housing and Community Affairs (the “Department”), claiming that the way the Department allocated tax credits to develop low-income housing violated the FHA.  Specifically, the plaintiffs claimed that the Department’s policies caused it to issue credits for developments in areas with significant minority populations while rarely issuing such credits for developments in areas with significant Caucasian majorities.  The plaintiffs claimed that this created segregated housing and claimed the Department thus violated the FHA under a disparate impact theory.

The District Court determined that the plaintiffs could bring FHA suits on a disparate impact theory, and found that the plaintiffs had succeeded in proving violations of the FHA under a disparate impact theory.  The U.S. Court of Appeals for the Fifth Circuit agreed that FHA suits could be brought under a disparate impact theory, but reversed the District Court’s finding that the Department had violated the FHA because it concluded the District Court applied the wrong legal standard.  The Department subsequently appealed the Fifth Circuit’s finding that an FHA action could be brought under a disparate impact theory.

The Supreme Court’s Decision

The Supreme Court began its analysis by considering why it construed Title VII to allow for a disparate impact cause of action in Griggs v. Duke Power Co., 401 U. S. 424 (1971).  Specifically, it observed that Griggs found that Title VII prohibited not just practices that are discriminatory in intent, but also practices that are discriminatory in operation.  Texas Dep’t of Housing & Community Affairs, No. 13-1371, at 8.  The Supreme Court observed that even in creating the disparate impact cause of action, however, Griggs put “important limits” on disparate impact liability, by way of the “business necessity” defense and finding that Title VII did not prohibit hiring criteria that had a disparate impact on protected minorities if those criteria had “a ‘manifest relationship’ to job performance.”  Id. at 8-9 (quoting Griggs, 401 U.S. at 432).

After then considering the fact that in Smith v. City of Jackson, 544 U.S. 228 (2005), the Supreme Court allowed disparate impact claims to proceed under the Age Discrimination In Employment Act for similar reasons, the Supreme Court reasoned – particularly in language favorable to employers – that Griggs and Smith “teach that disparate impact liability must be limited so employers and other regulated entities are able to make the practical business choices and profit-related decisions that sustain a vibrant and dynamic free enterprise system.  And before rejecting a business justification . . . . a court must determine that a plaintiff has shown that there is an available alternative employment practice that has less disparate impact and serves the entity’s legitimate needs.”  Texas Dep’t of Housing & Community Affairs, No. 13-1371, at 9-10 (citations omitted).

As a result, the Supreme Court concluded that disparate impact claims are permitted under the FHA, finding that the FHA was “results-oriented” and thus that allowing disparate impact liability would best meet the objectives of the FHA.  Id. at 11, 17.  It then went on to place important limitations on the ability of future plaintiffs to bring and succeed in such cases.

The first such limitation the Supreme Court discussed was that developers needed to be given “leeway to state and explain the valid interest served by their policies.”  Id. at 18.  Stating that this was “analogous” to the business necessity defense in Title VII litigation, the Supreme Court pointed out that, in the Title VII context, “an entity could be liable for disparate impact discrimination only if the challenged practices were not job-related and consistent with business necessity,” and that “an employer may maintain a workplace requirement that causes a disparate impact if that requirement is a reasonable measurement of job performance.”  Id. at 19 (citations omitted).

The Supreme Court also determined that “a disparate impact claim that relies on a statistical disparity must fail if the plaintiff cannot point to a defendant’s policy or policies causing that disparity.”  Id. at 19-20.  It described this causality requirement as “robust” and stated that it needed to be robust to “protect[] defendants from being held liable for racial disparities they did not create.”  Id. at 20.

The Supreme Court observed that these limitations were important because, without such limitations, companies might adopt racial quotas, which would raise another set of “serious constitutional questions” and “serious constitutional concerns.”  Id.  Echoing its earlier comments about the free enterprise system, the Supreme Court further held that limitations preventing “abusive disparate impact claims” were needed because such claims would “undermine[]” the purpose of the FHA “as well as the free-market system.”  Id. at 21.  Finally, it  emphasized that “[w]ere standards for proceeding with disparate impact suits not to incorporate at least the safeguards discussed here, then disparate impact liability might displace valid governmental and private priorities, rather than solely removing artificial, arbitrary, and unnecessary barriers.”  Id. at 21 (citation omitted).

Implications For Employers

While not a workplace class action, Texas Dep’t of Housing & Community Affairs will be of significant use to employers defending against disparate impact class actions.  The Supreme Court’s employer-friendly language and warnings about the consequences of allowing abusive disparate impact class actions to proceed will help employers defeat such claims.

Moreover, the Supreme Court’s holding that “before rejecting a business justification . . . . a court must determine that a plaintiff has shown that there is an available alternative employment practice that has less disparate impact and serves the entity’s legitimate needs” arguably places a new burden on disparate impact plaintiffs to prove three things – (1) an available alternative practice; (2) with less of a disparate impact; (3) that serves the employer’s legitimate needs – to defeat a business necessity defense.  Further, this language and the Supreme Court’s several references to the need to protect the free-enterprise system may suggest that courts should apply a low standard, such as something akin to the business judgment rule, when evaluating an employer’s claim that a requirement was related to job performance and/or that certain factors are in fact an aspect of job performance.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Seyfarth Shaw LLP | Attorney Advertising

Written by:

Seyfarth Shaw LLP

Seyfarth Shaw LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.