Official Seal for the United States Department of Labor (USDOL)In an unforgiving decision, a unanimous Administrative Review Board of the USDOL reversed and remanded the entirety of the 2019 Recommended Decision and Order of USDOL Administrative Law Judge Morris Davis. In doing so, the ARB held that Judge Davis misunderstood and misapplied both the “disparate impact” and “disparate treatment class-type discrimination” law theories of liability to the facts of the case.  (Judge Davis retired after he filed his decision in 2019 in this case and then ran as the Democrat candidate in the 2020 elections for the U.S. House of Representatives in Ashville, North Carolina, and lost). What the ARB politely did not mention was that Judge Davis (a former career-long criminal prosecutor on the Air Force Judge Advocate General staff) had only followed the path of argument the Solicitor of Labor had argued to him.

In 2019, Judge Davis had found Enterprise guilty of unlawful discrimination in the hiring of African Americans in Baltimore for Enterprise’s Management Trainee position (despite a favored and longstanding level of engagement with the HBCUs and Black community in Baltimore, and nationwide). Specifically, Judge Davis found Enterprise was liable under Executive Order 11246 for discrimination between 2007-2012 and 2014-2017 following an OFCCP Compliance Review which had begun in 2008. (Yes, those dates are correct, although hard to believe/embarrassing for OFCCP that it can take that many years to do its business). Judge Davis found liability under both the “disparate impact” and “disparate treatment class-type discrimination” law theories of liability.  While it is clear OFCCP may bring both theories together in the same case, or only one of them, the ARB found Judge Davis misunderstood and misapplied both theories to the facts of the case.

The decision is a good short primer on the differences between the two primary theories of unlawful class-wide discrimination: “disparate impact” versus “disparate treatment intentional class-type” (aka “pattern and practice” litigation; or what OFCCP calls “systemic” discrimination, and in audits refers to a (misnamed) “IRA” formula (“Impact Ratio Analysis”).

Why Are We Just Hearing About This ARB Case Decision Now?

The parties only received word on Thursday (May 25, 2022) of the November 3, 2021 ARB decision. Clerk’s offices in courthouses have been among the hardest hit workplaces, in our experience, during the COVID-19 pandemic.

We discuss in the jump to the full Blog that OFCCP’s Disparate Treatment Claim Lacked Any Proof of Pretext and also that OFCCP’s Adverse Impact Claim Lacked Any Proof of the Basic Elements of The Claim. In the jump to the Blog, we also explain what proof these two theories of discrimination law require. They are often confused in the marketplace, as OFCCP and Judge Davis did in this case.

Ethics Alert: John Fox was the first chair trial lawyer for Enterprise in this case, joined by his law partners Jay J. Wang (who handled the Expert Witnesses) and Alexa L. Morgan (who handled the non-expert witnesses).

OFCCP’s Disparate Treatment Claim Lacked Any Proof of Pretext

The courts often analogize proof in a “disparate treatment intentional class-type” discrimination (U.S. v. Teamsters-type) case to a three-hit tennis match:

First, the Plaintiff (OFCCP in this case), must “hit the tennis ball” over the net to set the game in motion. It does so typically by a modest showing of only a disparity in the rejection rates of one Protected Class versus the Most Favored Group, or “MFG.” In the Enterprise case, the claim was that White Applicants were the MFG and African Americans were the Protected Group suffering a statistically disproportionate rejection rate. No rejected persons expressing interest had complained out of the thousands rejected. The disparity, however, must be “legally meaningful” (it cannot be sleight), meaning that the disparity in selection rates must be at least two or more standard deviations different from what we would expect if both races were rejected in the same proportions. (BTW, while many practitioners discuss “selection” rates, technically and more properly we are looking at “rejection” rates since we are measuring “adverse action” (although the “rejection rate” and the selection rate” are reciprocals of each other adding to 100% of the considered applicant pool: if 30% are rejected; 70% are hired, for example). The ALJ and the ARB found that the record evidence at trial was that OFCCP had satisfied its burden to show a statistically significant disparity in selection rates during the years in question (but not in 2013). Enterprise agreed and had, indeed, stipulated to that conclusion.

Second, the Defendant (Enterprise in this case), to win the tennis match, then had a legal obligation to “hit the ball” back over the net to OFCCP by “going forward with evidence” (NOT prove it…just put evidence forward) of its legitimate non-discriminatory explanation(s) for each adverse decision (in this case: thousands of rejected African Americans who expressed Interest because Enterprise had heavy and meaningful involvement with the Black community in Baltimore and was a magnet for African Americans). Enterprise went forward at trial by introducing into evidence its thousands of “Disposition Codes” (which had contemporaneously documented, including often with handwritten and typed notes, the thousands of legitimate non-discriminatory reasons for rejection tracked along Enterprise’s sophisticated multi-tiered and multi-stepped behavioral interviewing and selection system). The ARB held that “…the record shows that defendant [Enterprise] articulated nondiscriminatory reasons for rejecting applicants for the management trainee program.” (Slip op. p.8) So, at that point, Enterprise had, in legal effect, now “hit the imaginary tennis ball” back into OFCCP’s side of the imaginary tennis court. Then, if OFCCP does not hit the imaginary tennis ball back, OFCCP loses…just like in tennis.

Editor’s Note: This is a perfect description of the context in which Disposition Codes suddenly become SO TERRIBLY IMPORTANT when an employer’s/contractor’s selection system results in significant statistical disparities as occurs with many, many employers that experience high-volume applicant flows.

Third, OFCCP then had to prove that Enterprise’s proffered legitimate nondiscriminatory explanations for rejection were “pretext” (i.e., “false”/not a true non-discriminatory reason). However, OFCCP’s attack on Enterprise’s Disposition Codes, which Judge Davis swallowed hook, line, and sinker, was not that they were “false,” but rather that they were “subjective.” But the problem for OFCCP and Judge Davis was that Title VII law does not make subjective decision-making decisions unlawful. Rather, Title VII case decisions actually laud and applaud subjective decision-making systems. (And, of course, the great irony of OFCCP’s and the Judge’s attack on subjective decision-making hiring systems was that everyone in the courtroom and all its witnesses had been hired through subjective decision-making, as with most employees). Here was the ARB’s analysis and holdings on OFCCP’s disparate treatment class-type claims:

“The ALJ found that Defendant’s subjective use of disposition codes did not adequately explain the racial disparities shown in the statistical evidence. [fn omitted] However, in analyzing the evidence and arguments concerning Enterprise’s hiring criteria, (including its requirement of sales and/or customer service), the ALJ conflated evidence of subjectivity with evidence of discrimination without allowing an employer’s legitimate use of subjective hiring criteria. [fn omitted]

Although there is a risk that a nefarious employer may use subjective standards as cover for discrimination, subjective criteria which are facially nondiscriminatory “no matter how subjective the criteria—may constitute a legitimate reason” for rejecting applicants. [fn omitted] Subjective evaluation criteria “can constitute [ ] legally sufficient, legitimate, nondiscriminatory reason[s]” for an employer’s business decisions. [fn omitted] In fact, “subjective evaluations of a job candidate are often critical to the decision-making process, and if anything, are becoming more so in our increasingly service-oriented economy . . . .” [fn omitted]

However, an employer’s subjective criteria is not beyond scrutiny. The reasons given must have some substance to allow for evaluation. [fn omitted] If, for example, the ALJ compared the qualifications of those rejected with those that were hired in order to show intentional discrimination, the differences must be so striking as to permit a reasonable factfinder to raise the alarm of a pattern or practice of intentional discrimination. [fn omitted] Slight or even mistaken differences in qualifications fail to satisfy this burden because the ALJ does not sit as a super-personnel board second-guessing the employer’s hiring practices. [fn omitted]

This objective evaluation is not accomplished by reviewing and comparing a small number of applications. [fn omitted] The ALJ relied on the subjectivity of the hiring decision-making process to summarily conclude that the racial disparity shown in the statistical evidence, and the few number of applications he reviewed, was the result of racial discrimination. Thus, “absent evidence that subjective hiring criteria [was] used as a mask for discrimination, the fact that an employer based a hiring or promotion decision on [ ] subjective criteria” does not in and of itself prove pretext for intentional discrimination. [fn omitted]

Because the ALJ erred in his disparate treatment analysis we must remand the case back to the ALJ”

OFCCP’s Adverse Impact Claim Lacked Any Proof of the Basic Elements of The Claim

The ARB disposed of this claim in half the writing space it took Judge Davis to (erroneously) find Enterprise guilty of adverse impact discrimination. This is an utter failure of proof situation, not an argument by Enterprise that the proffered proof didn’t cut it. Hard to believe, sad to believe this claim even made it to trial and on appeal, but true given the administrative law system:

“Unlike the three-part test articulated above for disparate treatment, the employer’s rebuttal to prove business necessity or job relatedness in disparate impact cases is proof by a preponderance of the evidence, not merely a burden of production. [fn omitted] We conclude that the ALJ also erred in his disparate impact analysis. The ALJ’s review of this alleged form of discrimination is cursory (two pages), without any of the necessary analysis following the relevant statute and the case law that forms the pillars of disparate impact liability. [fn omitted] The ALJ failed to identify what specific employment practice caused the disparate impact and failed to adequately discuss the issue of the respondent’s possible defenses to the prima facie case (i.e., job relatedness or business necessity), and whether there was an alternative practice which could have served the same purposes of the practice with a lesser disparate impact. These requirements are clearly spelled out in the applicable statutes and case law. [fn omitted] As a result, this, too, requires that we remand the matter to the ALJ.”

What’s Next?

The Office of Administrative Law Judges on Friday alerted the parties that it had assigned a new ALJ to the case. She is Judge Deidra Howard. Judge Howard came out of the gate fast (we like that) and invited the parties to submit a brief to her by July 25, 2022, to assist her to discharge her charge to the ARB to apply the proper law the ARB outlined in its 24-page opinion and render a fresh Recommended Decision and Order on a schedule Judge Howard will determine.



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John C. Fox
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