Employers lose twice in Supreme Court

By G. Phillip Shuler

The Supreme Court recently decided two cases under federal civil rights laws that expose employers to more jury trials and interpret the small employer threshold for coverage under the legislation. In the first case, Ash v. Tyson Foods Inc., No. 05-379 (U.S. Feb. 21), the court ruled that facially neutral comments may be evidence of racial discrimination if context, custom and usage demonstrate that the comments were intended to be discriminatory.

The plaintiffs in Tyson Foods were two African-American superintendents who worked at Tyson's Alabama plant and who sought to be promoted to two open shift manager positions for which Tyson selected two white males. The two African-American males alleged race discrimination under Title VII of the Civil Rights Acts of 1964 (Title VII) and 1866 and claimed that the plant manager who selected the two white males for promotion had previously referred to the plaintiffs as "boy" without any modifiers. Tyson contended the plant manager was harsh and insensitive with all employees.

A jury returned a substantial verdict for the employees, which the district court overturned as a matter of law. The Eleventh Circuit affirmed in part and reversed in part because it determined one employee had not provided sufficient evidence to show unlawful discrimination. The Circuit Court also granted Tyson's motion for a new trial, finding the evidence did not support the jury's compensatory and punitive damage awards.

The Supreme Court ruled that the Circuit Court erred on two points and remanded the case for additional consideration. First, the Supreme Court ruled that the Circuit Court erred in holding the use of the word "boy" without any racial modifiers, e.g. "black boy," is not evidence of discrimination. The Supreme Court agreed that the use of the word "boy" is not always evidence of discrimination but said that "the speaker's meaning may depend on various factors, including context, inflection, tone of voice, local custom and historical usage" and asked the Circuit Court to reconsider its decision in light of those factors.

The second error noted by the court was the Circuit Court's reliance on the standard that the disparity in qualifications of those not promoted as compared to those promoted must be "so apparent as virtually to jump off the page and slap you in the face" to establish that the employee's stated reason for the decision was a pretext for discrimination. The court concluded that the quoted standard was "unhelpful and imprecise" but did not offer its own standard and left it to the Circuit to establish a new standard.

The court's decision means that questions of fact, such as tone of voice, local custom and usage, will predominate and will inevitably result in more jury trials and fewer summary judgments for employers. The case also illustrates how important it is for employers to police questionable language in the workplace.

In the second case, Arbaugh v. Y&H Corp., No. 04-944 (U.S. Feb. 22, 2006), the court unanimously found that the 15-employee threshold for determining whether an employer is covered by Title VII is not a jurisdictional issue that determines whether federal courts can hear the case. Under Title VII, the term "employer" is defined as a person having 15 or more employees.

Arbaugh's court papers stated she brought claims arising under Title VII and that the >> U.S. District Court for the Eastern District of Louisiana had jurisdiction over the claims under 28 U.S.C. § 1331, which authorizes federal courts to hear claims arising under federal law, called federal-question jurisdiction. She also alleged that the court had authority under 28 U.S.C. § 1367 to exercise supplemental jurisdiction and hear her state law claims.

After a two-day trial, a jury ruled in Arbaugh's favor on both her Title VII and state-law claims and awarded $5,000 in back pay, $5,000 in compensatory damages and $30,000 in punitive damages. The trial court entered judgment on Nov. 5, 2002. Two weeks later, Y&H filed a motion under Rule 12(h)(3) of the Federal Rules of Civil Procedure, seeking to dismiss the case for lack of jurisdiction. The company alleged for the first time in the case that it had fewer than 15 employees during the relevant time period.

The trial court said it was "unfair and a waste of judicial resources" to allow Y&H to raise the issue so late in the case but found it was permitted under Rule 12(h)(3), which states that whenever it appears that "the court lacks jurisdiction of the subject matter, the court shall dismiss the action."

After the parties conducted discovery on the number of employees, the trial court ruled that the total count should not include eight delivery drivers who were independent contractors or the company's four owners, leaving too few employees for Title VII coverage. The trial judge vacated the judgment. The Fifth Circuit affirmed, saying it was bound by precedent that failure to meet the 15-employee threshold deprived the court of subject-matter jurisdiction.

Reversing the decision of the Fifth Circuit, the justices held that Y&H Corp., which operates the Moonlight Café in New Orleans, waited too long - after judgment had been entered following a jury verdict in favor of Arbaugh in her sexual harassment case - to raise the argument that it had too few employees to be covered by Title VII.

The Supreme Court adopted a bright-line rule that a threshold limitation on a statute's scope will only be treated as jurisdictional if Congress clearly labels it as such. Writing for the court, Justice Ruth Bader Ginsburg concluded that the 15-employee requirement of Title VII is not jurisdictional because the requirement is not part of the provision giving federal courts jurisdiction over Title VII claims and instead is included in a separate provision that makes no reference to jurisdiction.

"Nothing in the text of Title VII indicates that Congress intended courts, on their own motion, to assure that the employee-numerosity requirement is met," which is something federal courts would be obliged to do if the 15-employee requirement was jurisdictional, Ginsburg said.