Employment Law Daily EEOC advances Title VII hostile environment claims against successor employer on behalf of undocumented aliens
Monday, April 23, 2018

EEOC advances Title VII hostile environment claims against successor employer on behalf of undocumented aliens

By Nicole D. Prysby, J.D.

Because the buyer of a car wash business had actual and constructive knowledge of pending EEOC charges against the seller, the buyer was a successor employer under Title VII and could be held liable for the hostile work environment claims based on the seller’s treatment of Hispanic employees, held a federal district court in Maryland. Although the buyer argued that it never employed the individuals and that its agreement with the seller protected it from liability, the court rejected that argument, because the EEOC was not a party to the agreement. Therefore, the buyer might seek indemnification from the seller, but was not protected against the Title VII claims. The court also considered whether discrimination against an undocumented alien is an unlawful employment practice under Title VII and concluded that it is, at least for the purposes of a hostile work environment claim, because unlike a failure to hire claim, there is no requirement that an employee alleging a hostile work environment show he is “qualified” for the position (EEOC v. Phase 2 Investments Inc., April 17, 2018, Bredar, J.).

The EEOC brought a Title VII action against two corporations, Phase 2 Investments and Mister Car Wash, alleging that a previous corporation (Maritime Autowash) subjected Hispanic employees to a hostile work environment. According to the complaint, in 2013, ICE conducted an audit of Maritime and informed Maritime that 39 of its employees were not authorized to work in the United States. Maritime met with the employees and gave them each $150 so that they could obtain new papers and be re-hired under new names. After being re-hired, the employees complained about their work conditions and were fired in July 2013.

EEOC investigates. The employees filed charges with the EEOC and the EEOC began to investigate and served Maritime with a subpoena. Maritime argued that the employees were not legally authorized to work in the United States and therefore, could not seek relief under Title VII. That issue went to the Fourth Circuit, which held that Maritime did have to respond to the subpoena (but did not address the question of whether Title VII covers undocumented aliens).

While the investigation was underway, Mister began negotiating to purchase Maritime. Mister attempted to protect itself from any liability, structuring the purchase as an asset acquisition and including terms in the asset purchase agreement (APA) that Mister was not liable for any liabilities of Maritime occurring before the closing date. There was a dispute about exactly what Maritime told Mister about the EEOC case, but it did have some knowledge of the case. It was undisputed that the employees were never employed by Mister, as they had been terminated before the purchase. After the purchase closed in January 2015, Mister did not immediately change Maritime’s website and continued to use Maritime’s social media until October 2015. After the sale, Maritime merged with another entity, Phase 2, which was incorporated in Florida. The EEOC concluded its investigation and sent letters of determination to Phase 2 and Mister and eventually filed the Title VII action. Phase 2 and Mister moved to dismiss the claims or in the alternative, for summary judgment, alleging lack of jurisdiction and standing, as well as substantive issues.

Standing. Mister argued that as it had never employed the employees, there was no connection between their injuries and Mister, therefore there was no standing. The court quickly rejected that argument, because the action was brought not by the employees, but by the EEOC which has standing to bring cases under Title VII to vindicate the public interest. The EEOC named Mister as a successor in liability to Maritime and therefore the injury was fairly traceable to Mister.

Jurisdiction. Mister also argued that because it never employed the employees, the court did not have jurisdiction over it. The court found that there was a question of whether it had jurisdiction when neither the employees nor the EEOC brought administrative charges against Mister. The court concluded that it did have jurisdiction, because Mister was named as a successor to Maritime, and the jurisdictional requirements had been satisfied against Maritime. Because the charge of discrimination named Maritime and Mister had notice of the charge and an opportunity to comply, the court had jurisdiction over Mister. Although Mister argued that it was unaware of the charges when it purchased Maritime, the court found that the relevant question was whether Mister was aware of the charges prior to the filing of the complaint.

Both Mister and Phase 2 also argued that the charging documents did not assert a charge of race discrimination, but only national origin and retaliation. But the court rejected that argument, finding that the charging documents, read liberally, asserted a claim of race discrimination because they indicated that actions were taken against the employees because they are Hispanic. “Hispanic” is not a nation nor did the claim describe discrimination on the basis of a particular nation, which put race discrimination within the bounds of the allegations.

Successor liability. Mister argued that it should not be treated as a successor under Title VII. But the court found that Mister had actual and constructive notice of the charges before purchasing Maritime. During due diligence, Maritime had provided position statements regarding the EEOC charge. And, although Mister argued that the APA should shield it from liability, the court found that the APA might allow Mister to seek recourse against Maritime (or Phase 2) but it did not protect it against the EEOC. In addition, Mister had the opportunity to protect itself through the indemnification agreement. Therefore, its situation differed from that of a buyer who had no such opportunity. The court also found that Phase 2 did not have the ability to provide relief, and that the continuity of business factor favored holding Mister liable as a successor because it was using the same facility and much of the same workforce as Maritime.

Statute of limitations. Mister and Phase 2 disputed the relevant date for the statute of limitations, arguing that the date should be February 4, 2014 (the date formal charges were filed). But the court found that the operative date for filing charges was July 30, 2013, the day that the employees submitted intake questionnaires with the EEOC, and it could therefore consider discrete action that occurred after October 3, 2012. In addition, the court found that the continuing violation doctrine applied and that it could look back before October 2012.

Title VII and undocumented aliens. Finally, the court addressed the issue of whether discrimination against an undocumented alien is an unlawful employment practice under Title VII. The court concluded that while an undocumented alien might not be able to make a prima facie case for failure to hire because he could not show he was qualified for the position, the same is not true for a hostile work environment case. Just as an employer may not harass an employee with racial epithets on the ground that the employee was not very good at her job, an employer cannot harass an employee and escape liability under Title VII because of the employee’s immigration status. The court did find that the immigration status could limit the relief the EEOC could seek. For example, it could not require rehiring or back pay (although it could seek another monetary penalty).

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