Employment Law Daily Divided CA-7 denies en banc rehearing of EEOC claim that AutoZone unlawfully segregated its workforce
Monday, November 27, 2017

Divided CA-7 denies en banc rehearing of EEOC claim that AutoZone unlawfully segregated its workforce

By Lisa Milam-Perez, J.D.

The Seventh Circuit has rejected the EEOC’s request for en banc rehearing of a decision in which the appeals court held that AutoZone did not violate Title VII when it transferred an African-American employee out of one of its “Hispanic” stores because, allegedly, it was sorting its employees by race. The appeals court panel had found that, because the transfer was “purely lateral,” with no reduction in pay, benefits, or responsibilities, the employee suffered no adverse employment action, so the transfer was not actionable. The EEOC had urged that under 42 U.S.C 2000e-2(a)(2), an infrequently litigated provision, an employee is not required to prove a challenged employment action adversely affected his employment opportunities or status—it was enough that the employer segregated its workforce by race in a manner that would “deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect his status as an employee.” But the majority of active Seventh Circuit judges declined to reconsider the earlier holding. Three judges dissented from the denial of rehearing—contending the holding ran counter to such storied Supreme Court decisions as Brown v. Board of Education (EEOC v. AutoZone, Inc., November 21, 2017, per curiam).

Seventh Circuit decision. Section 2000e-2(a)(2) makes it unlawful to segregate employees by race, even if that action has only a tendency to deprive a person of employment opportunities. “In that sense subsection (a)(2) does cast a wider net than subsection (a)(1), which speaks more concretely in terms of actions that ‘discriminate against any individual,’” a Seventh Circuit panel observed in a June 20 decision. This broader scope did not help the EEOC’s case, though, the court said, because there was no evidence the transfer in question here even tended to deprive the employee of any job opportunity. It is well established that a purely lateral job transfer does not normally give rise to Title VII liability under subsection (a)(1) because it does not constitute a materially adverse employment action, the court noted. Yet at oral argument, the EEOC disclaimed any interest in presenting evidence of adverse consequences, resting its entire case on its contention that no such evidence was required. “For the reasons we’ve explained,” said the court, “that’s an incorrect reading of the statute.”

Rehearing sought. In its petition for en banc rehearing, the EEOC argued the panel decision conflicted with Supreme Court precedent holding that statutory interpretation is controlled by a statute’s plain text, and that “where differences in statutory provisions exist, such provisions must not be read in pari materia.” More importantly, the agency asserted, the decision was based on an erroneous interpretation of the Title VII clause barring the segregation of employees by race. In the EEOC’s view, the issue was “of exceptional importance” because the panel decision rendered “intentional race-based segregation lawful if it does not manifest in economic harm,” a holding that conflicts with decisions from other circuits addressing virtually identical statutory language, and other circuit decisions recognizing that race-based segregation is legally impermissible, regardless of economic harm.

The Seventh Circuit rejected the EEOC’s petition, however, concluding the panel’s decision did not warrant review.

Dissent. Essentially, the panel decision had endorsed “separate-but-equal” workplaces as permissible under Title VII, according to Chief Judge Woods in a dissenting opinion. “The importance of the question and the seriousness with which we must approach all racial classifications convince me that this case is worth the attention of the full court,” Woods argued.

According to the panel’s decision, “[i]f a Title VII plaintiff cannot prove that her employer’s intentional maintenance of racially segregated facilities diminished her ‘pay, benefits, or job responsibilities,’ then her employer has not violated section 2000e-2(a),” Woods wrote. “That conclusion, in my view, is contrary to the position that the Supreme Court has taken in analogous equal protection cases as far back as Brown v. Board of Education,” as well as the circuit’s own holding in its 2000 decision in Kyles v. J.K. Guardian Security Services, Inc.. “We can start with Brown to find support for the proposition that separate is inherently unequal, because deliberate racial segregation by its very nature has an adverse effect on the people subjected to it,” the dissent noted, and the “same principles carry over to Title VII,” as Kyle made clear.

If the suit had been brought by the employee as a private plaintiff, based on the “dignitary harm” he alone had suffered, the appeals court might well have been justified in disregarding the impact of this segregation on other individuals, according to Woods. But this case was brought by the EEOC pursuant to its authority to enforce Title VII, and the Commission had argued that the employee was not the only victim of the overt race discrimination inherent in the retailer’s practice of designating certain stores as “Hispanic” and other stores as “African-American.” This practice “deprived people who did not belong to the designated racial group of employment opportunities at their preferred geographic location. This easily describes an adverse effect, based on impermissible characteristics, on employment opportunities.”

Moreover, in terms of statutory interpretation, Woods rejected the notion that the EEOC’s take on the relevant provision strips the “adverse effect” requirement from the statute. At any rate, Woods asserted, “to the extent that the statute requires proof of an adverse effect apart from the inherent harms of racial segregation, the Commission has made that showing.”

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