EEOC Litigation

Subscribe to EEOC Litigation

By Gerald L. Maatman, Jr. and Michael L. DeMarino

Seyfarth Synopsis: The government’s anti-discrimination watchdog can be extremely aggressive in pursuing discrimination claims, including pursuing those claims after an employer files for bankruptcy. Normally, after a bankruptcy petition is filed, the Bankruptcy Code’s automatic stay enjoins other actions against the debtor. But in EEOC v. Tim Shepard M.D., PA d/b/a Shepherd Healthcare, 17-CV-02569 (N.D. Tex. Oct. 11, 2018), the U.S. District Court for the Northern District of Texas sided with the EEOC and concluded that the EEOC’s Title VII lawsuit fell within an exception to the Bankruptcy Code’s automatic stay. This case is a good reminder that the Bankruptcy Code’s protections do not necessarily stave off an EEOC action. Importantly, the EEOC often will not back down from a fight simply because its target filed a bankruptcy petition, and depending on the nature of the EEOC action, it may fall within an exception to the automatic stay.  

The Decision

In EEOC v. Tim Shepard M.D., PA d/b/a Shepherd Healthcare, 17-CV-02569 (N.D. Tex. Oct. 11, 2018), the EEOC filed suit in the U.S. District Court for the Northern District of Texas for alleged violations of Title VII of the Civil Rights Act of 1964. After a year of litigation, the defendant filed a voluntary petition under Chapter 7 of the Bankruptcy Code. As a result of the bankruptcy proceeding, the court entered an automatic stay under 11 U.S.C. § 362 and administratively closed the EEOC’s action.

The Bankruptcy Code’s automatic stay provides fundamental protection to a debtor in a bankruptcy by automatically enjoining certain actions against the debtor. The purpose of the automatic stay is to preserve the bankruptcy estate so that it can be orderly distributed to creditors.

Although the court stayed and administratively closed the EEOC’s enforcement action, the EEOC filed a motion to reopen the case, arguing that its discrimination lawsuit fell within the governmental unit or police and regulatory exception to the automatic stay found in 11 U.S.C. § 362(b)(4). Section 362(b)(4) provides that the filing of a bankruptcy petition “does not operate as a stay” of:

the commencement or continuation of an action or proceeding by a governmental unit . . . to enforce such governmental unit’s . . . police and regulatory power, including the enforcement of a judgment other than a money judgment, obtained in an action or proceeding by the governmental unit to enforce such governmental unit’s . . . police or regulatory power.

11 U.S.C. § 362(b)(4).

Because Fifth Circuit has not addressed whether an EEOC enforcement action under Title VII falls within Section 362(b)(4)’s exception to the automatic stay, the court explained that it “must assess whether the EEOC’s primary purpose for bringing this action is to protect public policy and welfare as opposed to adjudicating private rights or represents an attempt to recover property from [the defendant’s] bankruptcy estate.” Id. at 2. The court then analyzed the nature of the lawsuit and the relief sought to make this determination.

Specifically, the court found that the EEOC was primarily seeking a permanent injunction and that there was no indication that it was protecting a pecuniary interest in the bankruptcy estate. In addition, the court highlighted that the EEOC was vindicating the public interest by seeking to prevent discrimination in the workplace. Based on these findings, the court concluded that the EEOC’s primary purpose for bringing the action was to protect public policy and welfare. Thus, the court held that the EEOC’s action was not subject to the Bankruptcy Code’s automatic stay.

Implication For Employers:

This case is a valuable reminder for employers that the EEOC will not be deterred by the threat, or filing of, a bankruptcy petition. Employer’s facing bankruptcy and enforcement actions should assess whether the EEOC’s action will likely be an exception to the automatic stay. As this case makes clear, if the EEOC is primarily seeking injunctive relief, there is a good chance that the Bankruptcy Code’s automatic stay will not enjoin the EEOC’s enforcement action.

 

By Christopher J. DeGroff, Matthew J. Gagnon,  Gerald L. Maatman, Jr., and Kyla J. Miller

Seyfarth Synopsis: The uncertainty of a new administration’s impact on the EEOC that plagued FY 2017 is fading, but the results are not what some would expect. Not only has the EEOC brought a mountain of filings compared to the last four years, but also the agency has demonstrated a clear focus on sex-based discrimination and sexual harassment in the workplace in light of #MeToo, even surpassing FY 2017 numbers.

With a full fiscal year under its belt, the Trump Administration’s impact on EEOC-initiated litigation is still uncertain. With two Republican Commissioners and the General Counsel position still unconfirmed, it is difficult to discern if things will truly be “business as usual” under Trump or if those appointments, once confirmed, will change agency course. One thing is certain: the EEOC’s litigation program is not slowing down any time soon. Just as the waning months of FY 2017 showed a marked increase in filings, FY 2018 turned up the heat even more. Filings are up more than ever, with sex discrimination filings and #MeToo filings – i.e., complaints of sexual harassment – eclipsing previous years.

The total number of filings in FY 2018 demolished FY 2015 and 2016, and even surpassed FY 2017. (Compare here to here and here). This year, the EEOC filed 217 actions, 197 merits lawsuits and 20 subpoena enforcement actions.

Predictably, the EEOC waited until the last minute to push filings, with this past month showing the most filings compared to any other month this fiscal year. At the time of publication, 84 lawsuits were filed in September, including 45 in the last 3 days alone.  Notable this year, however, was the “ramp up” period in June, July and August, which accounted for 63 of the total filings. Almost half of those cases were brought in August. The total filings for the remaining months remain low, with the number of filings in October through February failing to hit double digits.

Filings in Chicago, Philadelphia and Los Angeles continue to top the charts, with 21, 21, and 17 total filings, respectively. These numbers remain relatively consistent to FY 2017, which showed 21 filings in Chicago, 19 in Philadelphia, and 22 in Los Angeles. On the lower end, the St. Louis and Memphis numbers were modest, with only 7 filings in St. Louis and 8 filings in Memphis. Of the remaining districts, the Phoenix and New York district offices rebounded after a slow FY 2017, each filing 6 more lawsuits in FY 2018 as compared to last year.

Sex Discrimination Takes Center Stage

Each fiscal year we analyze what substantive theories the EEOC is targeting. This year, Title VII claims remained the largest category of filings, on par with FY 2017, which boasted 53% of all filings. In FY 2018, Title VII filings accounted for 55% of all filings. Although FY 2016 showed a dip in Title VII filings at 41%, this year’s Title VII filings beat out FY 2015 and FY 2014 as well.

With a new Strategic Enforcement Plan in place to guide litigation activity for FY 2018-2022, many expected some shift in focus based on two notable changes from the old plan. Specifically, the new plan pledged to address discriminatory practices against those who are Muslim or Sikh, or individuals of Arab, Middle Eastern, or South Asian descent. Additionally, the new plan aims to expand the EEOC’s equal pay priority to include compensation discrepancies for race, ethnicity, age, and disability – moving beyond the EEOC’s focus on sex-based pay disparities. In fact, we have actually seen a decrease in Equal Pay Act filings, which could reflect the EEOC’s renewed focus on equal pay issues that affect other protected groups, which would not fall under the jurisdiction of the Equal Pay Act.

One trend has emerged this year – compared to FY 2017, race filings have decreased by 6 filings – with 18 filings in FY 2018 compared to 24 filings in FY 2017.

Perhaps the most striking trend of all is the substantial increase in sex-based discrimination filings, primarily the number of sexual harassment filings. As predicted, #MeToo added fuel to this area of the EEOC’s agenda, with 74% of the EEOC’s Title VII filings this year targeting sex-based discrimination. Compare this to FY 2017, where sex based discrimination accounted for 65% of Title VII filings. Of the FY 2018 sex discrimination filings, 41 filings included claims of sexual harassment. 11 of those filings were brought in the last three days of the fiscal year alone. The total number of sexual harassment filings was notably more than FY 2017, where sexual harassment claims accounted for 33 filings.

EEOC’s #MeToo Harassment Filing Surge

Implications For Employers

The dramatic increase in filings should be an eye-opener for employers in an era when many thought the EEOC might be hitting the brakes. Instead, the EEOC is increasing its enforcement activity, with a particular focus on sex discrimination and sexual harassment. The EEOC still strongly advises employers should update and aggressively enforce their EEO Policies. Now, more than ever, employers need to be on top of their game to avoid becoming the next target of EEOC-initiated litigation.

As most of our loyal readers know, this blog is merely a preview of the more extensive analysis of EEOC trends and developments affecting EEOC litigation that we publish at the end of the calendar year. Stay tuned for our in-depth analysis of FY 2018 filings, and particular danger areas for employers in this shifting political climate.

Readers can also find this blog post on our EEOC Countdown blog here.

By Gerald L. Maatman, Jr., Michael L. DeMarino and Rebecca S. Bjork

Seyfarth Synopsis: Although back pay has been awarded in Age Discrimination in Employment Act (ADEA) cases for quite some time, few courts have specifically addressed whether these damages are discretionary or mandatory.  In EEOC v. Baltimore County., No. 16-2216, 2018 WL 4472062, at *1 (4th Cir. Sept. 19, 2018), the Fourth Circuit answered this straightforward question and held that retroactive monetary awards, such as back pay, are mandatory legal remedies under the ADEA. Because the ADEA incorporates the provisions of the Fair Labor Standards Act (FLSA) that make back pay mandatory, the Fourth Circuit concluded that district courts lack discretion to deny back pay once ADEA liability is established. The key takeaway from this decision is that now more than ever, employers should take steps to minimize exposure to ADEA violations and, if ADEA liability is established, to explore available set offs to back pay awards.

Background

In EEOC v. Baltimore County, the EEOC brought a lawsuit on behalf of two retired corrections officers and a group of similarly-situated employees at least 40 years of age. The EEOC alleged that the County’s pension plan, known as the Employee Retirement System (“ERS”), required older employees to pay more toward their retirement than younger employees, for the same retirement benefits.

The district court granted summary judgment in favor of the EEOC, finding that because the different contribution rates charged to different employees is explained by age rather than pension status, age is the “but-for” cause of the disparate treatment, and the ERS violated the ADEA. On appeal, the Fourth Circuit affirmed and remanded the case to the district court for consideration of damages. We previously blogged about the district court’s decision here and the Fourth Circuit’s decision here.

On remand, the district court considered the EEOC’s claims for retroactive monetary relief –  which was in the form of back pay. Ultimately, the district court rejected the EEOC’s bid for these damages, concluding that it had the discretion under the enforcement provision of the ADEA, 29 U.S.C. § 626(b), to wholly deny back pay. Thereafter, the EEOC appealed.

The Fourth Circuit’s  Decision

On appeal, the County argued that the district court properly exercised its discretion under the ADEA, 28 U.S.C. § 626(b), to deny the EEOC an award of back pay. The Fourth Circuit rejected this contention. Instead, the Fourth Circuit agreed with the EEOC that because back pay is a mandatory legal remedy under the FLSA, and because the ADEA incorporates the FLSA’s liability provisions, the district court lacked the discretion to decline to award back pay.

Specifically, the Fourth Circuit reasoned that “[b]ecause Congress adopted the enforcement procedures and remedies of the FLSA into the ADEA, we construe the ADEA consistent with the cited statutory language in and judicial interpretations of the FLSA.” Id. at *3.  “Back pay,” the Fourth Circuit continued, “is, and was at the time Congress passed the ADEA, a mandatory legal remedy under the FLSA.” Id. The Fourth Circuit reinforced this conclusion, noting that the ADEA’s “legislative history further suggests that Congress consciously chose to incorporate the powers, remedies, and procedures of the FLSA into the ADEA.” Id.

Implication For Employers:

This long-running case demonstrates the complexities and potential pitfalls employers face while trying to navigate the ADEA. Employers should take care to review and consider their justifications for retirement plans that have variable contribution rates for employees based on age.  More broadly, this decision demonstrates that damages for ADEA violations can quickly add up if back pay awards are permanently on the table.

By Gerald L. Maatman, Jr.

Seyfarth Synopsis:  As we near the end of the U.S. Equal Employment Opportunity Commission’s (“EEOC”) fiscal year in September 2018, employers and litigators have started to notice an uptick in the Commission’s activity. Specifically, close observers have detected a rise in EEOC filings related to workplace harassment.  In today’s video, Partner Jerry Maatman of Seyfarth Shaw provides an overview of the EEOC’s fiscal year to date, and forecasts what employers can expect to see from the Commission going forward.

Whereas most assumed that the EEOC’s activity would decrease under a more business-friendly Administration, the Commission has actually continued to file lawsuits at a growing rate. For purposes of context, by the end of August 2017, the EEOC had not yet filed 100 merit lawsuits. However, to date this year, the EEOC has already filed 112 merit lawsuits. This number is especially relevant insofar as the Commission has not yet hit its traditional filing peak, i.e., the month of September.  For example, in FY 2017, the Commission filed 88 lawsuits in September alone.

Another key takeaway for employers thus far in FY 2018 concerns the specific allegations of the EEOC’s lawsuits. To date, the EEOC has filed at least 22 lawsuits involving claims of sexual harassment, which is especially significant in light of the #MeToo Movement. Additionally, the EEOC has explicitly stated its priority of “Preventing Systems Discrimination” in at least 10 press releases during FY 2018, including multiple press releases (which can be seen HERE and HERE) touting the Commission’s activity in filing groups of workplace harassment suits in one day. Evidently, these filings suggest that the EEOC’s emphasis on this litigation priority is being escalated in FY 2018.

Implications For Employers

While employers should always be cognizant of their workplace policies, today’s litigation landscape requires human resources personnel to be especially careful regarding their written policies, employee training, and HR reporting procedures. For a full overview of this aspect, be sure to watch Jerry’s explanation in the video above.

Furthermore, despite the current status of EEOC litigation, filing trends can always be significantly altered in the month of September. Remember to stay tuned to our blog, as we will be posting our annual end-of-year EEOC analysis as soon as the Commission’s fiscal year comes to a close!

By Gerald L. Maatman, Jr. and Alex W. Karasik

Seyfarth Synopsis: A federal district court in Kansas recently granted the EEOC’s motion for judgment on the pleadings in an ADA lawsuit brought against UPS and an employee union, holding that a policy in Defendants’ collective bargaining agreement where drivers who are disqualified for medical reasons can only be compensated at 90% of their rates of pay for temporary non-driving jobs, while drivers disqualified for non-medical reasons such as DWI’s are compensated at a 100% rate, was facially discriminatory.

This ruling should serve as a wake-up call to employers in regards to ensuring their policies relative to medical disqualifications and compensation are ADA-compliant.

***

Case Background

In EEOC v. UPS Ground Freight, Inc., No. 2:17-CV-2453, 2018 U.S. Dist. LEXIS 125625 (D. Kan. July 27, 2018), the EEOC brought suit under the ADA regarding UPS’s collective bargaining agreement (“CBA”) with its employees’ union, which provided that for employees with CDL’s (commercial drivers’ license) whose CDLs are suspended or revoked for non-medical reasons, including convictions for driving while intoxicated, those employees would be reassigned to non-CDL required (non-driving) work at their full rate (100%) of pay. However, for drivers who become unable to drive due to medical disqualifications, including drivers who are individuals with disabilities within the meaning of the ADA, UPS provided full-time or casual inside work at only 90% of the rate of pay.

The EEOC argued that the language of the CBA established a prima facie case of a discriminatory policy because it paid drivers disqualified for non-medical reasons 100% of their pay rate, while paying drivers disqualified for medical reasons 90% of the appropriate rate of pay for the work being performed. Id. at 5. UPS responded by arguing that judgment on the pleadings was inappropriate because: (1) the EEOC relied upon a selective and erroneous interpretation of the CBA; (2) the CBA contained ambiguities that precluded judgment; (3) “whether the CBA works to the benefit or detriment of a medically disqualified driver depends entirely on the particular factual scenario in each case,” which required the Court to engage in a case-by-case analysis to determine if an employee has been discriminated; and (4) the CBA did not limit the opportunities available to individuals with disabilities, but provided additional opportunities beyond what the ADA required. Id.

The Court’s Decision

The Court granted the EEOC’s motion for judgment on the pleadings.

First, the Court held that the CBA’s language was plain and unambiguous, and further, that it was “immaterial whether medically disqualified drivers have other options; paying employees less because of their disability is discriminatory under any circumstance.” Id. at 5-6. Further, the Court held that the alleged ambiguities that precluded judgment in the EEOC’s favor were attempts to create confusion where none existed. Specifically, the Court opined that UPS’s arguments were “red-herrings because they fail[ed] to address the pertinent issue — pay at less than 100% based on disability.” Id. at 6.

Turning to UPS’s argument that a case-by-case impact analysis was required to show that the policy was facially discriminatory, the Court rejected this argument, explaining that “[a]t the liability stage in a pattern-and-practice claim, the plaintiff must show that unlawful discrimination is part of the employer’s ‘standard operating procedure.’” Id. The Court further explained that under this standard, the government must establish a prima facie case of a discriminatory policy, but it was not required to offer evidence that each individual who may seek relief was a victim of the policy. As such, the Court held that the EEOC met its burden in establishing that the CBA was facially discriminatory.

Finally, the Court rejected UPS’s argument that he CBA did not limit the opportunities available to individuals with disabilities. The Court instead held that UPS did not provide a legitimate reason for paying medically disqualified drivers performing “inside work” less than those disqualified for other reasons under the CBA, and therefore failed to overcome the EEOC’s prima facie case of discrimination. Id. at 7.

In regards to injunctive relief, the Court held that the EEOC demonstrated that its claim warranted a permanent injunction. Id. at 7-8. Noting that monetary damages cannot prevent future harm, the Court opined that “[t]he only ‘hardship’ UPS Freight will suffer is paying medically disqualified drivers more (100% pay rate), which is the same rate it already pays its other, non-disabled employees.” Id. at 8. After further holding that the public interest will not be harmed by a permanent injunction prohibiting UPS from discriminating on the basis of disability, the Court ordered the next collective bargaining agreement is to prohibit the same discriminatory practice. Accordingly, the Court granted the EEOC’s motion for judgment on the pleadings and thereby granted its motion for injunctive relief.

Implications For Employers

For employers who provide alternative work assignments to employees with medical disqualifications, this ruling should serve as an eye-opener. It is crucial that businesses examine the compensation for such employees to confirm they are not being compensated at a disproportionally lower rate than other non-medically disqualified employees who are reassigned. Accordingly, a best practice for employers is to routinely examine their policies regarding medical disqualification and compensation to ensure they are complying with the ADA, in order to prevent EEOC-initiated litigation.

Readers can also find this post on our EEOC Countdown blog here.

By Gerald L. Maatman, Jr. and Alex W. Karasik

Seyfarth Synopsis: In an EEOC-initiated systemic lawsuit alleging that a senior living and nursing facility operator violated the Americans With Disabilities Act (“ADA”) by failing to offer employees light duty as a reasonable accommodation and ignoring its obligation to engage in an interactive process, a federal district court in California recently granted in part the employer’s motion to dismiss the claims of eight specifically identified claimants, holding that the EEOC failed to sufficiently allege that these individuals had a disability or could perform essential job functions.

For businesses facing EEOC-initiated litigation relative to disability discrimination, this ruling provides a blueprint for attacking such claims at the pleading stage.

***

Case Background

In EEOC v. Prestige Care, Inc., Case No. 1:17-CV-1299, 2018 LEXIS 119305 (E.D. Cal. July 17, 2018), the EEOC brought a systemic lawsuit on behalf of thirteen identified claimants for violations of the ADA. Prestige manages nursing care facilities and senior assisted living facilities in California, Oregon, Washington, Alaska, Idaho, Montana, Nevada, and Arizona. Id. at *3. The EEOC alleged that Prestige implemented and followed policies that violated the ADA, including: (1) a “100% healed/100% fit for duty” return to work policy; (2) not offering light duty as a reasonable accommodation; and (3) ignoring its obligation to engage in an interactive process. Id. The EEOC argued that these policies did not permit reasonable accommodations for qualified individuals.

In its motion to dismiss, Prestige argued that the EEOC’s complaint was deficient as to ten of the thirteen claimants identified by the EEOC since it failed to allege they had impairments that affected a major life activity, or failed to identify essential job functions. Id. Without such allegations, Prestige argued there were no plausible ADA claims with respect to the ten claimants. In response, the EEOC argued that dismissal was inappropriate because the allegations stated plausible claims, including on behalf of unnamed individuals. Further, the EEOC argued that it would be premature to dismiss without the benefit of discovery as to the specific individuals.

The Court’s Decision

The Court granted Prestige’s motion to dismiss the EEOC’s claims as to the eight claimants while denying Prestige’s motion as to two claimants. The Court first addressed the EEOC’s arguments (1) that no challenge with respect to claimants was appropriate because it was not a proxy for any individual claimant or charging party; (2) Rule 23 does not apply to the Commission’s lawsuits or when a § 706 claim is pursued; and (3) the EEOC is not required to identify each member of the class to recover. Id. at *5. Noting that “none of these positions adequately address the issue at hand,” the Court explained that Prestige did not argue that Rule 23 applied in this case, nor did it attempt to impose any of Rule 23’s requirements on the EEOC. Further, Prestige did not argue that the EEOC must identify each person for whom recovery is sought. Rather, Prestige was simply raising the question of how to review the allegations concerning the persons that the EEOC chose to identify. As such, the Court held that when the EEOC pursues a systemic claim under § 706 and chooses to identify additional persons who have suffered some form of disability discrimination, the allegations must plausibly show that those “additional individuals” are protected by the ADA. Id. at *6.

The Court then addressed the sufficiency of the allegations as to each of the ten identified claimants that were the subjects of the motion to dismiss. In moving to dismiss the claims of eight of the ten claimants, Prestige primarily challenged the allegations by arguing (1) the EEOC did not identify or allege that a major life activity was affected; (2) the essential functions of the job were not identified; and (3) there were no indications that the aggrieved individual could have performed the essential functions of the job with or without accommodation. Id. at *8-11. For several claimants, the Court held that while the EEOC would identify a physical impairment in its complaint, for instance, plantar fasciitis, it failed to adequately identify a major life activity that was substantially affected by the condition (such as walking or standing, for the claimant with plantar fasciitis). Id. at *17. Regarding the EEOC’s failure to plead the essential job functions, by way of example, the Court noted that for a laundry worker claimant with PTSD and anxiety, the EEOC failed to identify any essential functions of the job, and therefore could not show she was qualified. Id. at *22. Accordingly, the Court granted the motion to dismiss eight of ten identified claimants.

In denying the motion to dismiss as to two of the ten claimants, the Court explained that the allegations were sufficient to plausibly show that the claimants were “qualified individual[s] with a disability.” Id. at *18-19. For instance, the Court held that for a claimant who disclosed a nerve condition that was adversely affected by standing for longer than 15 minutes and lifting heavy objects, the EEOC alleged that Prestige still hired him as a cook, and therefore believed that he could perform the essential functions of that position. As such, the Court held that dismissal of this claimant as a class member would be inappropriate. Id. at *19. Accordingly, the Court denied the motion to dismiss two of the ten claimants.

Implications For Employers

This ruling provides an excellent framework for employers in regards to attacking disability discrimination claims where the EEOC identifies multiple claimants. Employers can rely on the Court’s analyses relative to (1) how the EEOC often failed to identify a major life activity that was substantially affected by the physical impairment it identified; and (2) how the EEOC frequently failed to provide any information whatsoever about essential job functions in its pleading.

But despite dismissing eight of the ten claimants, it is noteworthy that the dismissals were without prejudice. Id. at *22-23. The Court held that the EEOC may file an amended complaint that addresses and corrects the deficiencies with respect to these eight alleged claimants. As such, even though the employer emerged largely victorious in this battle, the Court nonetheless afforded the EEOC a second bite of the apple to remedy its largely deficient pleading.

Readers can also find this post on our EEOC Countdown Blog here.

 

By Gerald L. Maatman, Jr. and Alex W. Karasik

Seyfarth Synopsis: A federal district court in Maryland recently denied in part an employer’s motion to dismiss a race discrimination action brought on behalf of African-born security guards by the EEOC, and instead granted the EEOC’s motion to stay so that the Commission could amend its deficient pre-suit letters of determination that were the subject of the employer’s motion to dismiss.

This is an important ruling for employers facing systemic EEOC actions, particularly regarding the strategy to challenge whether the EEOC has satisfied its Title VII pre-suit obligations.

***

Case Background

In EEOC v. MVM, Inc., No. 17-CV-2864, 2018 U.S. Dist. LEXIS 81268 (D. Md. May 14, 2018), the EEOC alleged that MVM subjected a group of African-born employees to national origin discrimination, consisting of disparate treatment, a hostile work environment, and unlawful retaliation. Id. at *1. In October 2013, MVM hired a new project manager to oversee 400 security personnel, approximately half of whom were “African or foreign-born blacks.” Id. at *2. Within weeks of his hire, the project manager allegedly began complaining that there were “too many Africans” on the contract, that he was not comfortable working with foreigners, that he “couldn’t understand their accents.” Id.

During the project manager’s tenure, MVM also allegedly engaged in a variety of negative actions against African and foreign-born black security personnel, including denying them leave, forcing them to work on their scheduled days off, forcing them to work extra hours beyond their scheduled shifts, assigning them to undesirable posts, subjecting them to heightened scrutiny, disciplining them more harshly than called for by its discipline policy, intimidating and threatening them with termination, and denying them union representation so as to facilitate the imposition of discipline, suspensions, and termination without cause. Id. at *2-3.

Nine terminated employees filed charges with the EEOC. After the EEOC investigated the Charging Parties’ complaints, it issued Letters of Determination (“LODs”) on November 3, 2016, finding that there was reasonable cause to believe MVM had violated Title VII by discriminating against the Charging Parties through “unequal, terms, conditions, and privileges of … employment because of … national origin,” and/or had retaliated against the Charging Parties for engaging in protected activity. Id.

Following unsuccessful conciliation, on September 27, 2017, the EEOC brought suit on behalf of the Charging Parties and a group of allegedly aggrieved individuals. As amended, the complaint alleged five counts of violations of Title VII, consisting of: (I) a pattern or practice of discriminatory treatment based on national origin; (II) disparate terms and conditions of employment based on national origin; (III) a hostile work environment based on national origin; (IV) discharge and constructive discharge based on national origin; and (V) unlawful retaliation.

In its motion to dismiss, MVM primarily argued that the amended complaint contained claims of disparate treatment on behalf of a group of aggrieved individuals, including claims of discriminatory termination and constructive discharge, which went beyond the scope of the underlying LODs. MVM also argued: (i) discrimination based on “perceived” national origin was not cognizable; (ii) that certain allegations in the amended complaint were based on incidents that do not rise to the level of “adverse employment actions”; (iii) that the EEOC failed to state a plausible claim for constructive discharge; and (iv) that the EEOC failed to state a plausible claim of retaliation arising from the termination of one employee. Id. at *10. In its motion to stay, the EEOC requested that the Court stay the proceedings for 45 days to afford it an opportunity to amend its LODs and engage in conciliation efforts based on the amended LODs.

The Court’s Decision

The Court granted the EEOC’s motion to stay, and denied most of MVM’s motion to dismiss. First, in addressing the EEOC’s motion to stay, the Court noted that in the absence of a stay, either the Court would have to engage in detailed, fact-based analysis of the adequacy of the LODs, or the EEOC would dismiss and re-file the case. Id. at *14. In support of staying the case, the Court noted that its conclusion was supported by Mach Mining v. EEOC, 135 S. Ct. 645 (2015). Specifically, the Court held that “MVM’s rigid position that the EEOC may have only one opportunity to provide notice of charges through its LOD is inconsistent with … Mach Mining … to allow additional opportunities to provide notice of charges and engage in conciliation, precisely the steps that the EEOC seeks to accomplish through its proposed stay.” Id. at *13. Accordingly, the Court granted the EEOC’s motion to stay.

Next, having granted the motion to stay in order to permit the EEOC to amend the LODs, the Court held that MVM’s request for dismissal of claims that were not specifically identified in the LODs, such as discriminatory termination, was now moot. Id. at *16. Turning to MVM’s motion to dismiss claims alleging discrimination on the basis of “perceived” national origin, the Court likewise denied MVM’s motion, holding that “[t]o conclude otherwise would be to allow discrimination to go unchecked where the perpetrator is too ignorant to understand the difference between individuals from different countries or regions, and to provide causes of action against only those knowledgeable enough to target only those from the specific country against which they harbor discriminatory animus.” Id. at *17, 21. 

The Court next addressed MVM’s motion to dismiss any disparate treatment claims based on allegedly discriminatory actions other than suspension or termination. MVM asserted that any freestanding claims of disparate treatment in other specific matters, such as denying leave to African employees, forcing them to work on their scheduled days off, or assigning them to undesirable posts, necessarily failed because those actions did not constitute adverse employment actions for purposes of Title VII. The EEOC argued that it was making no such discrete claims, but rather, that the various discriminatory acts short of suspension and termination that were referenced in the amended complaint were offered collectively to establish a hostile work environment. Id. at *25. The Court rejected the EEOC’s argument and granted MVM’s motion to dismiss the nation origin disparate treatment claim, noting that hostile work environment, discriminatory termination, and retaliation claims were separately plead in other counts. The Court also denied MVM’s motion to dismiss constructive discharge and retaliation claims, holding that the EEOC plausibly stated claims for both. Accordingly, the Court denied in part and granted in part MVM’s motion to dismiss, and granted the EEOC’s motion to stay.

Implications For Employers

Since the U.S. Supreme Court issued its decision in the Mach Mining case in 2015, whether the EEOC has fulfilled its pre-suit obligations under Title VII has become a major area of focus for employers EEOC lawsuits. Here, although the Court generally acknowledged that the LODs were deficient, it avoided closely scrutinizing these pre-suit letters and allowed the EEOC to amend any deficiencies. Accordingly, while employers should not let one district court’s opinion deter them from challenging whether the EEOC fulfilled its pre-suit obligations, they should be cognizant that some courts will be more forgiving in allowing the EEOC to revisit failures to meet these obligations, as opposed to outright dismissing EEOC lawsuits.

 

By: Gerald L. Maatman, Jr. and Mark W. Wallin

Seyfarth Synopsis:  A Maryland federal district court recently found that a successor employer could be liable in an EEOC lawsuit for its predecessor’s alleged employment discrimination.  For employers, this decision is a cautionary tale — the lesson being that liability for claims of employment discrimination can extend beyond the entity alleged to have been responsible for the conduct to reach a successor entity that played no role in the alleged bad acts.  In light of this decision, due diligence in corporate acquisitions is more important than ever.  An entity acquiring not only assets but also employees must understand the risks of liability regarding the workforce it is inheriting.  As the Court decided here, no matter how explicit the disclaimer of liability, a successor may still be liable in an EEOC lawsuit for the discriminatory acts of its predecessor.

***

In EEOC v. Phase 2 Invs. Inc., Case No. 17-CV-2463, 2018 U.S. Dist. LEXIS 65719 (D. Md. April 17, 2018), a Maryland district court denied motions to dismiss and for summary judgment brought by a successor employer and the predecessor employer, finding that the Court not only had jurisdiction over the claims against the successor employer, but also that the successor employer could be held liable for the discrimination allegations levied against its predecessor.  What’s more, the Court found that although the charging parties were undocumented workers, such status did not prevent the EEOC from pursuing Title VII claims on their behalf, contrary to the argument advanced by the predecessor employer. However, the Court recognized the precarious nature of the relief it could grant under such circumstances, as back pay and injunctive relief (i.e., re-hiring) are unavailable.  Nevertheless, the Court stated that the Defendants would not get off “scot-free” if the allegations were proven true.

Case Background

In EEOC v. Phase 2, Invs., Inc., the employee charging parties worked for Maritime Autowash, Inc. (“Maritime,” and later became Phase 2 Investments).  Maritime operated a car wash in Edgewater, Maryland.  The charging parties alleged that they and other Hispanic employees were subject to harassment and discrimination while working for Maritime, and that they were fired after they complained to management about the alleged mistreatment.  Notably, several months prior to their termination, an audit by U.S. Immigration and Customs Enforcement revealed that thirty-nine Maritime employees, including the charging parties, were not authorized to work in the United States.  According to the charging parties, Maritime management gave each of these employees money “so that they could obtain new papers and be re-hired . . . under new names.”  Upon their termination, in July 2013, the charging parties contacted the EEOC and eventually signed formal charges of discrimination against Maritime in February 2014.

In January 2015, after many months of negotiation, Maritime sold its assets including the Edgewater car wash to CWP West Corp. t/a Mister Car Wash (“Mister”).  According to Mister, the deal was structured as an asset purchase agreement, in order to avoid assuming Maritime’s existing liabilities other than those expressly stated in the agreement — which did not include employment discrimination liability.  However, as part of the purchase, Maritime did disclose to Mister its responses to the charges of discrimination filed by the charging parties with the EEOC.

In August 2017, after more than three years of investigation, litigation regarding EEOC subpoenas, and failed conciliation (including Mister), the EEOC filed suit against Maritime and Mister.  In its lawsuit, the EEOC alleged, pursuant to Title VII, race discrimination in the form of harassment, intimidation, unequal terms and conditions of employment, lower wages, denial of promotional opportunities, disparate discipline and discharge because of their race and in retaliation for engaging in protected activity.  Moreover, although the charging parties never worked for Mister, the EEOC alleged that Mister could be liable as a successor in interest.

On this record, Maritime and Mister moved for dismissal and summary judgment.  After considering Maritime and Mister’s arguments, the Court issued a thorough opinion rejecting them in total.

Jurisdiction

Mister first challenged the Court’s jurisdiction over it as a successor entity.  Although neither the charging parties nor the EEOC brought administrative charges against Mister — which is a jurisdictional requirement under Title VII — the Court found that it had jurisdiction over the claims.  Id. at *21.  To reach this conclusion, the Court drew a distinction between successor jurisdiction, and the more substantive inquiry regarding successor liability.  Id. at *26.  The former, it found, could be satisfied as long as the jurisdictional requirements were satisfied for the predecessor company, and the successor had notice of the charge and an opportunity to voluntarily comply.  Id. at *26.  Specifically, “[a] federal court has jurisdiction over a Title VII claim against a defendant-employer who was not named in an administrative charge of discrimination when the theory of liability rests on the actions of a different employer who was named in the charge of discrimination, and the defendant-employer had notice of the charge and an opportunity to voluntarily comply prior to the plaintiff bringing the claim in court.” Id. at *26 (emphasis in original).

Because Mister had notice of the charges prior to filing of the lawsuit, and even had the opportunity to conciliate with the EEOC, the Court found that Mister need not actually be named in a charge.  Id. at *27.  The Court rejected a formalistic approach that would require the refiling of the exact same charges against Mister.  Id.

Successor Liability And The Applicability Of Title VII To Undocumented Workers

Satisfied that it had jurisdiction over the claims, the Court moved on to address Mister and Maritime’s substantive arguments.  Maritime argued that because it never employed the charging parties, it should not be treated as successor for liability purposes under Title VII.  Further, Maritime argued that the charging parties’ status as undocumented workers required the lawsuit to be dismissed.

The Court held that as Maritime’s successor, Mister could be found liable under Title VII, despite the charging parties having never worked for Mister.  The Court stated that successor liability under Title VII was equitable in nature, and that the Court should thus “balance the needs of discriminatees and the national policy against discrimination . . . against the unfairness of holding an innocent purchaser liable for another’s misdeed . . .”  Id. at *39.  Specifically, the Court looked to three primary factors: “whether a successor had notice, whether a predecessor had the ability to provide relief, and the continuity of the business.”  Id. at *40-41.

As to notice, the Court distinguished successor liability notice from successor jurisdiction, stating that for liability purposes, Mister needed to have actual or constructive notice of the charges prior to purchasing Maritime’s assets.  Id. at *41.  While Mister’s knowledge as to the full extent of the charges was unclear, the Court found that Mister had at least constructive knowledge that Maritime faced some potential employment discrimination liability prior to purchase.  Id. at *41-42.  Indeed, the Court found it persuasive that Mister was a relatively sophisticated consumer that could have acted upon the red flags it uncovered during its due diligence.  Id. at *42.  Moreover, the Court noted that in the event the EEOC prevails and Mister suffers economic liability as a result, then Mister may look to the asset purchase agreement for recourse against Maritime, but that potential recourse against Maritime did not absolve Mister from liability “vis a vis the EEOC.”  Id. at *42-43.

The Court next found that as the former employer, Maritime would not be able to provide relief, because the EEOC sought injunctive relief that Maritime could no longer provide at this juncture.  Id. at *44.  As to the continuity factor, the Court held that because Mister continued to run essentially the same business, a car wash, this factor also weighed in favor of finding that Mister may be liable as a successor.  Id. at *45.  Accordingly, under these three factors, the Court determined that it would be equitable to hold Mister jointly and severally liability for any liability that Maritime incurred.  Id. at *46.

Finally, the Court addressed the thorny issue of whether discrimination against an undocumented worker was an unlawful employment action under Title VII.  Id. at *54.  After analyzing Title VII itself, along with Supreme Court and Fourth Circuit precedent, the Court found that “discrimination against an employee on the basis of his race, national origin, or participation in EEOC investigations is an unlawful employment practice under Title VII even if that employee is an undocumented alien, and the EEOC may therefore pursue its claim here.”  Id. at *65.  Among other things, the Court noted that finding otherwise would essentially give Maritime and other employers the ability to both hire undocumented workers and then unlawfully discriminate against those it unlawfully hired.  Id. at *64.  It further reasoned that “[e]ven if Maritime was unaware of the Charging Parties’ immigration status when it hired them, if the Court were to ‘sanction the formation of [that] statutorily declared illegal relationship’ by shielding Maritime (and its successors) from Title VII scrutiny, other employers may well find an incentive to look the other way when potential employees are unable to provide proper documentation.”  Id.

Nevertheless, the Court noted that as a result of the charging parties’ undocumented status, the nature of relief that could be sought was limited.  For instance, the Court found that it could not require Mister to re-hire the charging parties or award back pay.  Id. at *66.  Instead, the Court found that if the EEOC proves that Maritime discriminated against the charging parties, Title VII grants the Court broad discretion in fashioning relief and that the public interest would be best served through some monetary penalty.  Id.

Implications For Employers

This opinion should be required reading for any employer contemplating an acquisition of another company.  Indeed, the Court provided a detailed road map for when employment discrimination claims may be maintained against successor employers, even if such employees never worked for the successor and never named it in the charging documents.  Based on this decision, merely disclaiming the liability of a predecessor entity through an asset purchase agreement is not enough to shield a successor employer from the EEOC’s pursuit of employment discrimination liability — although such disclaimers are still useful for recouping any monetary loss against the predecessor entity.  Accordingly, through due diligence, employers must be sure to seek information regarding this potential employment liability, and understand the risks acquiring a company that has received charges of discrimination against it before deciding to proceed.  Willful ignorance is unlikely to be a fruitful defense to such claims.

By Gerald L. Maatman, Jr. and Matthew J. Gagnon

Seyfarth Synopsis: In a cautionary tale for all employers, the Eleventh Circuit recently upheld a jury verdict of intentional discrimination in an EEOC lawsuit when an employer hired a current employee who was facing an imminent lay-off, rather than the charging party. The employer’s policy was to favor internal candidates who were about to be terminated even if they were not the most qualified or “best” candidate for the open position. The Eleventh Circuit held that a reasonable jury could have found that the application of that policy was merely a pretext for discrimination.

In EEOC v. Exel, Inc., No. 14-11007, 2018 U.S. App. LEXIS 6629 (11th Cir. Mar. 16, 2018) (available here), the Eleventh Circuit considered and rejected an employer’s challenge to a jury verdict of liability in an EEOC lawsuit, but rejected the jury’s imposition of punitive damages. At issue was the employer’s policy of favoring current employees whose positions were being eliminated for other jobs within the Company, so those employees would not have to lose their jobs. The Eleventh Circuit upheld a jury verdict that was based on the finding that a Hiring Manager discriminated on the basis of sex even though he was ostensibly following the Company’s policy when he hired a soon-to-be-terminated male employee instead of the female charging party.

Case Background

In EEOC v. Exel, the charging party/intervenor complained that her supervisor had denied her a promotion because of her sex. At issue was how the Company filled vacancies. When a job became available, the Hiring Manager would submit an online job requisition for the vacancy. The HR department would then post the job and locate interested candidates from within and outside the Company. Internal applicants could apply on the Company’s website, like external candidates, or they could complete an internal application. HR would consider all candidates together and then forward the best candidates to the Hiring Manger.

However, the Company had a different procedure for considering current employees who were facing termination. The Company’s priority transfer practice (“PTP”) was designed to save employees who worked at a site that was about to undergo a workforce reduction from losing their jobs. Employees applying through the PTP process were given priority over other internal and external candidates as long as they met the minimum qualifications for the job, whether or not they were considered the “best” applicant for the position.

The charging party was passed over for promotion to a supervisory position in favor of an employee who was applying through the PTP process. The EEOC argued that the PTP process was merely a pretext for sex discrimination. It alleged that the Hiring Manager had informed the charging party “behind closed doors” that he would never make a woman a manager. It also alleged that he treated women differently than men and was more “stand-offish” with women.

A jury found in favor of the EEOC and awarded the charging party back pay, compensatory damages, and punitive damages. After trial, the employer filed a renewed motion for judgment as a matter of law with respect to liability and the imposition of punitive damages. The district court denied the motion with respect to liability, but vacated the punitive damages award. The EEOC appealed the vacatur to the Eleventh Circuit. The employer also cross-appealed the denial of its motion as to liability.

Eleventh Circuit Issues Split Decision On Question Of Liability

The Eleventh Circuit refused to overturn the jury’s verdict against the employer on the issue of liability. It was persuaded that a reasonable juror could have found against the employer because the jury heard evidence that: (1) the Hiring Manger had the discretion to hire the charging party despite being presented with a PTP candidate; and (2) the evidence showed that the Hiring Manager harbored a bias against women. Based on that evidence, the Eleventh Circuit held that a reasonable jury could have concluded that the Hiring Manager maintained discretion over his own hiring decisions regardless of the PTP process, and that he exercised that discretion in conformity with his discriminatory animus.

In a lengthy dissent, Judge Tjoflat vigorously disagreed with the majority’s conclusion. According to Judge Tjoflat, no reasonable juror could find that sex discrimination motivated the promotion decision at issue because there was insufficient evidence tying the decision-maker’s generalized discriminatory behavior to the specific employment decision at issue.

He agreed with the majority that the EEOC had presented sufficient evidence that would allow a reasonable factfinder to conclude that the Hiring Manager harbored discriminatory animus towards women. However, the dissent opined that there was not sufficient evidence to demonstrate that the Hiring Manager had any chance to put his alleged bias into action because the evidence demonstrated that he was simply following the PTP process when he hired a man for the open supervisory position instead of the charging party.

No Punitive Damages

With respect to punitive damages, the Eleventh Circuit noted that Title VII allows for the recovery of punitive damages only if an employer engaged in a discriminatory practice “with malice or with reckless indifference to the federally protected rights of an aggrieved individual.” Id. at *9 (quoting 42 U.S.C. § 1981a(b)(1)). That standard focuses on the decision-maker’s state of mind; however, the EEOC must also impute liability for the punitive damages to the employer.

Under prior Eleventh Circuit precedent, liability is imputable to an employer by showing either that the discriminating employee was high up in the corporate hierarchy, or that higher management countenanced or approved of the behavior. Id. at *10 (quoting Dudley v. Wal-Mart Stores, Inc., 166 F.3d 1317, 1323 (11th Cir. 1999)). However, the Supreme Court later held that punitive damages are imputable to an employer when the discriminatory actor was acting within the scope of employment and acting in a managerial capacity. See Kolstad v. Am. Dental Ass’n, 527 U.S. 526, 535 (1999). The Eleventh Circuit held that it was bound to apply its prior precedent because its subsequent decisions had continued to apply Dudley’s “higher management” standard even after Kolstad was decided. The Eleventh Circuit found that it was bound to apply that precedent unless and until it is overruled or squarely abrogated by the Supreme Court or the Eleventh Circuit sitting en banc.

Applying that standard, the Eleventh Circuit affirmed the district court’s decision vacating the award of punitive damages because the EEOC had failed to present evidence that the Hiring Manager (who was also a General Manager) was high enough in the corporate hierarchy. He was one of 329 other General Managers, and he oversaw only 25 employees. The EEOC had also failed to present evidence that any employee above the actor’s rank were aware of the discriminatory decision.

Implications For Employers

One point that was significant for the majority’s decision on liability was that the PTP process was not rigorously followed in all of its details when the discriminatory decision was made. Among other things, the Hiring Manager identified the wrong position when he submitted a requisition for the open position to Corporate HR. This opened the door for the EEOC to argue that the PTP process was merely a pretext for the decision, which the Hiring Manager had used as cover for the discriminatory animus that was really motivating his decision. According to the EEOC, the Hiring Manager requisitioned the wrong position as a means of ensuring that the charging party would not apply for the open position.

One lesson for employers to take away from this case is that any policy that favors one candidate over another is potentially problematic, even where the intentions behind the policy are to protect current employees from layoffs. Employers should take care to ensure that such policies are rigorously applied. Any deviations from that policy could later be called into question and even used against the employer as evidence that the application of that policy in that instance was merely a pretext for discrimination.

By Gerald L. Maatman, Jr. and Andrew Scroggins

Seyfarth Synopsis: The chief legal officer of the EEOC is an important post, and one which impacts all employers interacting with the Commission. Nearly 14 months after the start of his Administration, President Trump has finally announced his choice for General Counsel of the EEOC.

On the evening of March 19, 2019, the White House announced it will nominate Sharon Fast Gustafson to fill the position of General Counsel at the EEOC. The announcement was a long-time coming, as James Lee had been serving as Acting General Counsel since 2016, after former EEOC David Lopez resigned.

Ms. Gustafson has been an employment lawyer for more than 25 years, almost all of it as a sole practitioner focused on Virginia, Maryland, and the District of Columbia (from 1995-present).  In her practice, she represents primarily employees, though she does represent employers as well.  As noted on her firm’s website, she is a member of the National Employment Lawyers Association (NELA), an organization that holds itself out as advancing employee rights.

Ms. Gustafson’s most high-profile litigation matter is her representation of the plaintiff in Young v. UPS, a pregnancy discrimination case decided by the U.S. Supreme Court in 2015.  In that case, the plaintiff argued that her employer should have provided an accommodation when her physician limited her to light duty work during her pregnancy.  The Supreme Court declined to follow the EEOC’s Enforcement Guidance for Pregnancy Discrimination and Related Issues. However, the plaintiff obtained an employee-friendly decision that employers should provide the same reasonable accommodations to pregnant employees as are offered to employees with disabilities.

In addition to her employment practice, Ms. Gustafson has devoted a significant portion of her practice to adoption law and has been recognized as a Fellow of the American Academy of Adoption Attorneys since 1997.  Her other affiliations include membership in the Federalist Society, Federal Bar Association, and Metropolitan Washington Employment Lawyers Association.  Ms. Gustafson also is a member of the Board of Trustees for Gordon Conwell Theological Seminary.

Ms. Gustafson is married to David Gustafson, a judge on the United States Tax Court in Washington, D.C. who was appointed by President George W. Bush.  The Gustafsons met as undergraduates at Bob Jones University, before she attended Georgetown University Law Center.

To the extent employers had expected the President to announce the appointment of a management-side defense lawyer as the next General Counsel of the EEOC, this announcement is sure to prompt discussion amongst the employer community.

Ms. Gustafson’s nomination continues the Trump administration’s trend of somewhat non-traditional appointment announcements related to the EEOC.  In June 2017, the administration nominated Janet Dhillon, a lawyer working in-house as Executive Vice President, General Counsel, and Corporate Secretary of Burlington Stores, Inc. to serve as Chair.  (The Senate has taken no action on Ms. Dhillon’s confirmation since October 2017; in the meantime, Vicki Lipnic continues to serve as Acting Chair.)  In December 2017, the President nominated Obama-appointee Chai Feldblum to be reappointed as a Commissioner, for a term expiring in 2023, an announcement subsequently criticized by many conservative Republicans.  (The Senate has taken no action on Ms. Feldblum either.)

Like Ms. Dhillon and Ms. Feldblum, Ms. Gustafson must await confirmation by the Senate.  There currently is no timetable for the Senate to take up these issues.