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Second Circuit Concludes That At-Will Employees Can Sue for Race Discrimination Under 42 U.S.C. Section 1981

July 7, 2000

The U.S. Court of Appeals for the Second Circuit in New York has recently concluded that at-will employees can sue for racially discriminatory discharge under 42 U.S.C. § 1981. Lauture v. Int'l. Business Machines Corp., Docket No. 99-7732 (2d Cir. June 20, 2000). In so doing, the Second Circuit joins the ranks of numerous other federal circuits (including, most recently, the Fourth, Fifth and Tenth Circuits), that have reached the same conclusion.

Section 1981 provides, in relevant part, "[a]ll persons … shall have the same right … to make and enforce contracts … as is enjoyed by white citizens…." The statute covers only claims of race discrimination, although it has been interpreted to encompass claims of discrimination based on alienage (i.e., non-citizenship), as well as claims of national original discrimination if couched as discrimination against a "non-white" person.

In 1989, the U.S. Supreme Court held that Section 1981 did not apply to an employer's conduct after an employment contract was entered into. In other words, according to the Supreme Court, claims for breach of the employment contract or discrimination in terms and conditions of employment were not cognizable under Section 1981. Patterson v. McLean Credit Union, 491 U.S. 164 (1989). In the wake of this controversial Supreme Court decision, Congress passed the Civil Rights Act of 1991, which, among other things, effectively overruled Patterson by adding the following provision to Section 1981: "For purposes of this section, the term 'make and enforce contracts' includes the making, performance, modification, and termination of contracts, and the enjoyment of all benefits, privileges, terms, and conditions of the contractual relationship." 42 U.S.C. § 1981(b).

Since the passage of the Civil Rights Act of 1991, federal courts have been divided on the issue of whether Section 1981 applies to at-will employees (i.e., those who are not hired pursuant to an agreement establishing a fixed term of employment). In Lauture, the Second Circuit concluded that the statute does apply to at-will employees, reasoning that "[i]n drafting § 1981, Congress did not seek to promulgate some specialized federal definition of contract law, but merely intended the term 'contract' to have its ordinary meaning." The Court found that at-will employment is a contractual relationship, whereby "the employee covenants to perform services for the employer and the employer covenants to compensate the employee, in each case unless and until one of them terminates the relationship."

Now that the Second Circuit has, in Lauture, given at-will employees the green light to file Section 1981 claims, the number of race discrimination suits filed against employers in the states within that Circuit (namely, New York, Connecticut and Vermont) is likely to increase. Despite its limited substantive scope (applying as it does only to race discrimination claims), Section 1981 is often viewed as the statute of choice by employees seeking to file race discrimination complaints under federal law. First, Section 1981 covers all employers, while Title VII of the Civil Rights Act of 1964 (another federal statute prohibiting race discrimination by private sector employers) covers only those employers with at least fifteen employees. Thus, Section 1981 allows employees of small firms to seek judicial redress for discrimination claims. Second, while Title VII claims are subject to a 180 day or 300 day statute of limitations (depending on the state in which the allegedly discriminatory acts occurred), Section 1981 claims generally enjoy a longer statute of limitations drawn from the most analogous state statute. In New York, for example, Section 1981 claims are subject to a three-year statute of limitations. As a consequence, Section 1981 provides a cause of action for many employees whose discrimination claims would otherwise be time-barred. Third, while Title VII claims may not be filed in federal court until the plaintiff exhausts his or her administrative remedies by filing a charge of discrimination with the Equal Employment Opportunity Commission ("EEOC") or equivalent state or local agency and receives a Notice of Right to Sue from the EEOC, Section 1981 claims may be filed in federal court without any prior administrative proceedings. Fourth, unlike Title VII claims, there is no cap on the amount of compensatory or punitive damages a successful plaintiff can recover for claims filed under Section 1981. Finally, while the Second Circuit has concluded that individuals may not be sued under Title VII (see Tomka v. Seiler Corp., 66 F.3d 1295 (2d Cir. 1995)), it has not yet addressed this issue under Section 1981 (and several other federal circuits, including the Ninth Circuit, have concluded that a plaintiff may bring a Section 1981 claim against an individual). Accordingly, plaintiffs in the Second Circuit may be able to sue individuals as well as corporate entities under Section 1981, at least until the Court of Appeals says otherwise.

The Second Circuit seems to have embraced the inevitable increase in employment discrimination litigation which will result from its decision in Lauture. Noting that more than forty states recognize at-will employment, the Court concluded that "[t]o prevent at-will employees from suing under § 1981 would deny protection from workplace discrimination to a significant number of people."