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United States v. New York City Board of Education, No. 08-5171 (2d Cir. May 5, 2011)

The Second Circuit becomes the first U.S. Court of Appeals to publish an opinion applying Ricci v. DeStefano, 129 S. Ct. 2658 (2009), to a reverse-discrimination challenge to a Title VII settlement agreement. In a 139-page opinion, including a special concurrence, the panel remands a nine-year-old case to reconsider whether the Justice Department and New York City Board of Education had a "strong basis in evidence" that the Board's tests and recruiting practices violated Title VII.

United States v. New York City Board of Education, No. 08-5171 (2d Cir. May 5, 2011): Consideration of this appeal rests upon a prior case, commenced 15 years ago by the U.S. Justice Department against the city. That case challenged alleged Title VII race and gender disparate impact by the Board of Education in hiring Custodians and Custodian Engineers ("CEs"), through the use of written exams and recruiting methods (e.g., advertising and word-of-mouth referrals). In 1996, the Justice Department suspected race and gender bias in hiring:

"A 1993 demographic survey revealed that more than 99% of the permanent Custodian and CE workforce was male, and 92% was white. In contrast, blacks constituted about 20% of the qualified labor pool for these positions, Hispanics made up about 19% and women about 8% of the pool. A 1996 demographic survey showed similar results. It also appeared (as was later confirmed by the investigation) that racial minorities and women were much more likely to be hired as provisional Custodians or CEs than as permanent Custodians or CEs, even though the qualifications for both were the same."

After several years of litigation, in 1999 the parties (including minority and women intervenors) approved a settlement agreement that conferred permanent appointments and retroactive competitive seniority to 63 black, Hispanic, Asian, or female individuals (the Offerees). Seniority in custodian and CE jobs matter because it determines assignments, transfer opportunities and layoff priorities. The settlement, significantly, was never entered as a consent decree.

The Second Circuit, in 2001, held that the district court erred in denying leave to white incumbent employees to intervene to challenge the four paragraphs of the settlement that conferred seniority on the selected Offerees.

There then ensued a second round of litigation, filed by the white incumbents (the Brennan Plaintiffs) in 2002, challenging the four paragraphs as reverse discrimination in violation of Title VII and 42 U.S.C. § 1983. In addition to the Brennan Plaintiffs and the Justice Department, there were two other groups involved in the follow-on litigation: (2) the Arroyo Intervenors (Offerees who failed a challenged exam); and (2) the Caldero Intervenors (Offerees who did not take any challenged exam). The City Defendants participated below, though they were not active parties in this current appeal.

After lengthy litigation, the district court in 2007 and 2008 entered three opinions and a judgment largely upholding the challenged four paragraphs, through granting some relief to selected Brennan Plaintiffs. While the case was on appeal, though, the Supreme Court handed down Ricci , which revised the Title VII standards for challenging the voluntary implementation of race-conscious policies.

On appeal, the panel holds that the district court decision must be vacated and remanded, in substantial part, for the trial judge to apply Ricci standard. The opinion spans 139 pages, with a majority opinion (signed by Judge Calabresi, joined by visiting Judge Cudahy) and a special concurring opinion (by Judge Raggi), which holding we summarize.

1. "[T]his case is about whether the City Defendants are liable to the Brennan Plaintiffs for violations of [Title VII] § 703(a) or the Equal Protection Clause." The panel majority applies the McDonnell Douglas framework to the claims to determine whether the white employees made out a prima facie case of discrimination. " We . . . conclude that Ricci does not impose a new § 703(a) summary judgment burden-shifting framework, but instead constitutes, in this respect, a straightforward application of the first two steps of McDonnell Douglas." Under this method, the panel finds that "the 1999 settlement agreement was explicitly race- and sex-based, thereby giving rise to the required inference of discrimination" and requiring the employer to proffer a valid reason for granting retroactive seniority. The panel also holds that because the judgment is based in part on findings that the district court made based on live hearings, "clear error" review would apply to those findings.

2. "Taken together, the briefs of the Caldero and Arroyo Intervenors and the Government raise two defenses on behalf of the City Defendants. The first defense, raised only on behalf of the Caldero and Arroyo Intervenors, is that the City Defendants' voluntary implementation of the settlement agreement was a valid affirmative action plan. The second, raised or suggested in somewhat different ways as to various specific Offerees by all three of these parties, is the 'strong basis in evidence' defense recognized in Ricci." By affirmative action programs, the panel refers to plans of the sort adopted in the 1970s and 1980s, providing timetables and goals for the hiring and advancement of women and minorities, of the type under review in such cases as Johnson v. Transp. Agency, Santa Clara County, 480 U.S. 616 (1987), and United Steel Workers of Am. v. Weber, 443 U.S. 193 (1979).

3. The panel holds that the settlement agreement is not properly classified as an "affirmative action" plan, because it is principally made up of Title VII § 703(g) make-whole relief for selected applicants.

A. "[I]n order to be [a valid Title VII] affirmative action plan, an employer action must benefit all members of a protected class. Although the plan may call for individualized determinations, the plan itself cannot be individualized. Under this definition, the City Defendants' voluntary implementation of the settlement agreement is not an affirmative action plan. The City Defendants, and the intervenors who support them, therefore cannot rely on their affirmative action defense."

B. "We . . . hold that § 703(a) . . . draws a distinction between affirmative action plans, which are intended to provide ex ante benefits to all members of a racial or gender class, and make-whole relief, which is intended to provide ex post benefits to specified individuals who have suffered discrimination. And where this latter form of benefits is at issue, the employer may not invoke the 'affirmative action' defense of Johnson and Weber."

4. The panel, along the way, also sets guidelines for weighing prospective Title VII relief:

"Because of the costs inherent in both affirmative action and make-whole relief, anyone attempting to provide either of these forms of relief-whether it be a court imposing a remedy under § 706(g) after a Title VII violation has been found, or the Government proposing a settlement to an employer, or an employer acting voluntarily-must be exceptionally careful to ensure that the employer's proposed action is properly tailored to achieve whichever of these two types of remedies for discrimination is sought. That is not to say that one cannot use affirmative action and make-whole relief at the same time; of course one can. . . . But a court or employer planning to give out a race- or gender-conscious employment benefit, or a Title VII remedy, should always ask first: What is the purpose of what I am doing? (1) Am I trying to give make-whole relief to individual people who I think are victims of past discrimination, (2) am I trying to implement a non-individualized, class-wide affirmative action plan to dismantle prior patterns of discrimination and prevent future discrimination, or (3) am I trying to do both? Only after these questions have been answered can an appropriately tailored plan or plans be put in place. The Government and the City Defendants should have considered these questions before taking action. Instead, according to the testimony that the district court credited, the Government never explained why it wanted the Offerees to get retroactive seniority, and the City Defendants never asked."

5. Reaching the "strong basis in evidence" examination of Ricci, the panel sets the table for a rigorous standard of review of the settlement agreement.

A. "Our reading of Ricci is that a strong basis in evidence that an employer will be subject to disparate-impact liability requires that, at the time it takes the 'race-conscious, discriminatory action,' the employer be faced with both (1) a prima facie case of disparate impact against itself (or perhaps a strong basis in evidence of a prima facie case), and (2) a strong basis in evidence either (a) that the employment practice having the disparate impact was neither job-related nor consistent with business necessity, or (b) that there was an equally valid, less discriminatory alternative, that the employer had refused to adopt, that would have served the employer's needs. . . . under Ricci, a 'strong basis in evidence' of non-job-relatedness or of a less discriminatory alternative requires more than speculation, more than a few scattered statements in the record, and more than a mere fear of litigation, but less than the preponderance of the evidence that would be necessary for actual liability. This what it means when courts say that the employer must have an objectively reasonable fear of disparate-impact liability."

B. That panel also notes that the "strong basis in evidence" standard applies not only to the issue of whether there might be disparate impact liability, but what remedy a district court might impose. "Thus, the employer must have a strong basis in evidence not only that it will actually be found liable for disparate impact, but also that, at the remedial stage following such a finding of liability, a court might well impose (pursuant to § 706(g)) a make-whole remedy equivalent to or broader than what the employer has done voluntarily."

C. The panel sets up four criteria for testing a Ricci defense: (1) "the standard is objective, not subjective, and it therefore focuses on the strength of the evidence of liability, not the strength of the employer's fear of litigation"; (2) "the strength of the evidence of disparate-impact liability is measured at the time the employer took the race- or gender-based action"; (3) "either an actual prima facie case of disparate-impact liability is required, or a strong basis in evidence of a prima facie case is required"; (4) "the test requires that the employer have a strong basis in evidence either . . that its challenged employment procedures are not job-related, or . . . that there was a less discriminatory alternative procedure which the employer refused to adopt."

D. The panel also adds the gloss that "there must be a strong basis in evidence that the race- or gender-conscious action taken by the employer is necessary to avoid disparate-impact liability."

E. The district court, as part of the Ricci analysis, will have to make Offeree-by-Offeree individualized determinations about whether they were likely actual victims of Title VII violations.

6. The panel reaches some addition al decisions on the substance of Title VII law.

A. Recruiting practices may be challenged for Title VII disparate impact, and that "potential applicants for employment are 'applicants for employment' for § 703(a)(2) purposes."

B. The Teamsters remedial burden-shifting applies to disparate impact as well as to pattern-or-practice cases.

C. Title VII § 706(g) does not apply to and does not limit the kinds of policies that an employer can undertake to correct discrimination, voluntarily or by way of settlement; it is a limit only on what a court may award.

D. Employees under a collective bargaining agreement challenging a breach of their contractual rights may not proceed under Title VII; they must grieve/arbitrate such claims.

7. Tying up loose ends, the court declines to reach the merits of the Brennan Plaintiffs' equal protection claims, pending its decision under Title VII, and upholds class certification on the ground that intervenors waived their appeal on that issue.

Judge Raggi, concurring in the judgment, agrees only that the claim has to be remanded, but regards the bulk of the opinion as dicta: " (1) that the district court judgment can be affirmed insofar as it (a) granted class certification to the Brennan Intervenors, and (b) declared [one plaintiff] not a member of a protected class entitled to relief under the challenged settlement, but (2) that the judgment must be vacated in all other respects and remanded for further consideration in light of Ricci v. DeStefano, 129 S. Ct. 2658 (2009). In reaching this conclusion, I agree with the majority that Ricci is not limited, as the Caldero and Arroyo Intervenors urge, to its particular facts. I also agree that the challenged settlement cannot be characterized as an affirmative action plan, so that we need not consider these intervenors' argument that Ricci does not apply to such plans. With due respect, however, I cannot join in the majority opinion because I think its extended discussion of Title VII jurisprudence generally, and the scope of the Ricci rule in particular, is not required to our decision to remand yields an abundance of dicta that could confuse future consideration of judgments actually based on Ricci. "

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