The United States Supreme Court has recognized a right to sue for retaliation under Section 1981 of the Civil Rights Act of 1866 ("Section 1981"), even though Section 1981 does not expressly prohibit retaliation. In CBOCS West, Inc. v. Humphries, the Court affirmed the consensus reached by a majority of the Courts of Appeals that the statute, as amended by Congress in 1991, encompasses retaliation claims.

In the underlying suit, a black employee claimed that his former employer terminated him because of his race and in retaliation for complaining about alleged discriminatory treatment of another black employee. He brought race discrimination and retaliation claims against CBOCS West, Inc. under both Title VII of the 1964 Civil Rights Act ("Title VII") and Section 1981. Title VII — which prohibits discrimination against any individual with respect to the individual's terms, conditions or privileges of employment because of race, color, religion, sex or national origin — contains an express prohibition on retaliation against individuals who have opposed unlawful discrimination in the workplace or who have brought or participated in a Title VII discrimination charge. Section 1981 of the Civil Rights Act, which provides that "all persons . . . shall have the same right . . . to make and enforce contracts . . . as is enjoyed by white citizens" contains no express prohibition on retaliation, although Congress amended the statute in 1991 to define "make and enforce contracts" to mean "the making, performance, modification, and termination of contracts, and the enjoyment of all benefits, privileges, terms and conditions of the contractual relationship."

The United States District Court for the Northern District of Illinois dismissed the employee's Title VII claims because of his failure to pay a filing fee, and granted summary judgment on the Section 1981 discrimination and retaliation claims. In January 2007, the United States Court of Appeals for the Seventh Circuit affirmed summary judgment on the Section 1981 race discrimination claim, but reinstated the Section 1981 retaliation claim, ruling that Section 1981 provides a right to sue for retaliation.

The United States Supreme Court affirmed the Seventh Circuit's ruling with regard to retaliation claims, reasoning that the 1991 Congressional amendments to the statute, made in direct response to an earlier Supreme Court decision restricting Section 1981, signaled Congressional intent to broaden the scope of the statute. It further reasoned that the Court had read other broadly-worded civil rights statutes to include an anti-retaliation remedy. While noting the overlap between Title VII and Section 1981, the Court pointed out that Title VII provides important administrative remedies lacking in 1981, and that Title VII, enacted after Section 1981, was intended to "supplement, rather than supplant" existing employment discrimination laws.

While the immediate impact of this ruling remains to be seen, employer representatives have voiced concern that this ruling will increase the number of Section 1981 retaliation claims, and will cause more plaintiffs to bypass the Title VII administrative procedures and directly file discrimination and retaliation suits under Section 1981. We will keep you apprised of developments resulting from this decision.

The Genetic Information Nondiscrimination Act ("GINA") becomes effective in November 2009. Among other provisions, Title II of GINA, Prohibiting Employment Discrimination on the Basis of Genetic Information, will prohibit covered employers from firing, refusing to hire, or otherwise discriminating against individuals on the basis of their genetic information, and from discriminating against employees and applicants on the basis of a family member's genetic information. The United States Equal Employment Opportunity Commission will administer Title II of GINA.

Specifically, the employment provisions of GINA will prohibit covered employers (i.e., employers who are covered under Title VII of the Civil Rights Act) from requesting, requiring or purchasing genetic information of individuals or their family members except under specific circumstances, such as for genetic services offered by the employer and for purposes of complying with the Family and Medical Leave Act (FMLA). GINA also provides an exception for employers who inadvertently request or require the information. Notably, GINA will also permit employers to monitor the biological effects of toxic substances in the workplace if (1) the employer provides express written notice of the monitoring to the employee; (2) the employee provides written consent to the monitoring; (3) the monitoring is required by law; (4) the monitoring conforms to any federal or state law, including OSHA rules; and (5) the employer receives the results of the tests in cumulative terms.

As under Title VII, individuals asserting employment discrimination based on their genetic information will have to file a charge with the Equal Employment Opportunity Commission before proceeding to court. Prevailing plaintiffs may recover the damages provided by the Civil Rights Act of 1991, which also provides for jury trials in cases of intentional discrimination. As in cases under Title VII and the Americans with Disabilities Act, compensatory and punitive damages for genetic bias will be capped at $300,000 or lower, depending on the size of the defendant employer. Plaintiffs also may recover equitable relief, including front pay.

Several states have already adopted laws similar to GINA. Importantly, where state law is more stringent in the requirements, standards, or implementations than GINA, the state law will supersede the federal law. The Equal Employment Opportunity Commission is expected to issue final regulations on GINA by May 2009.

If you would like further information regarding GINA, please contact a member of the Schiff Hardin Labor and Employment group.

Effective immediately, all federal contractors are required to use E-Verify, an Internet-based system operated by the U.S. Department of Homeland Security (DHS) and the Social Security Administration, to electronically verify the immigration status/employment eligibility of new employees. E-Verify is a free and, until recently, voluntary way to determine the employment eligibility of new hires and the validity of their Social Security Numbers. However, as of June 6, 2008, when President Bush amended Executive Order (E.O.) 12989, federal contractors' use of E-Verify is mandatory.

The original E.O. 12989, signed by President Clinton on February 13, 1996, stated that a government contractor who violated the Immigration and Naturalization Act's prohibition on hiring illegal or undocumented aliens could be "debarred," i.e. lose its current government contract and be shut out from future contracts during the debarment period. The newly amended E.O. 12989 goes a step further, requiring all federal contractors to use the E-Verify system to ensure that "all persons hired during the contract term by the contractor to perform employment duties within the United States" are authorized to work in the United States. This requirement appears to extend to all newly-hired employees of federal contractors, not just employees hired to work on the government contract. In addition, the Executive Order requires the contractor to use an electronic verification system to verify the employment eligibility of "all persons assigned by the contractor to perform work in the United States."

As currently designed, the DHS E-Verify system may be used only for newly-hired employees; however, pending legislation would expand the program to cover current employees.

It is important to note that federal contractors must still take care to avoid discriminating against applicants and employees whom they suspect might be undocumented workers — various laws prohibit discrimination based on citizenship status and national origin. Accordingly, contractors may not single out or otherwise treat individuals differently because they are foreign born, are "foreign-looking," are "foreign-sounding," or have "foreign sounding names." All individuals must be treated in the same way during the part of the hiring process in which work authorization documentation is produced and inspected.

Not yet clear is how the amended E.O. 12989 will impact state efforts to prohibit use of E-Verify until the system has been proven accurate. We will continue to monitor this evolving area of the law. If you have any questions regarding E-Verify, please contact any member of the Labor and Employment Group.

The California Supreme Court has agreed to review an appellate ruling in a class action brought by employee participants in an incentive compensation plan maintained by Salomon Smith Barney ("Smith Barney," a subsidiary of Citigroup). The case has broad implications for employers who maintain employee stock purchase plans that include forfeiture provisions requiring departing employees to forfeit any or all shares they have purchased under the terms of the plan.

In Schachter v. Citigroup, the California Court of Appeal rejected an employee's contention that a stock purchase plan maintained by Salomon Smith Barney violated California's Labor Code by requiring employees to, in effect, forfeit earned wages. The California Supreme Court ruling is expected to clarify the scope of California's wage payment statute, and resolve the question of whether the statute prohibits the forfeiture of stock purchased with employee earnings under the terms of an employee stock purchase plan.

Under Smith Barney's plan, employees have the option of using a portion of their earnings to purchase shares in the company's stock at a price below the stock's market value. If the participating employee resigns or is terminated for cause within a two-year vesting period, the employee forfeits any stock that has been purchased. In Schachter v. Citigroup, the plaintiff, David Schachter, noted that upon forfeiture, the employee lost the purchased stock as well as the earnings used to purchase it, and claimed that as a result, Smith Barney had failed to pay him (and a class of similarly situated employees) all wages that were due at the time he left the company, in violation of Sections 201 and 202 of the California Labor Code.

A central issue that will likely be addressed by the California Supreme Court is whether or not the employee's forfeiture of purchased shares amounts to an unlawful forfeiture of wages used in making the purchase. The Court of Appeal held there was no such unlawful forfeiture. In reaching this conclusion, the court examined the "economic reality" underlying the plan's provisions, noting that, in substance, the employee's authorization designating a percentage of his earnings to be used to purchase stock under the plan was no different than a two-step process, in which the employee is paid his wages in cash, and uses the cash to purchase restricted stock. The court pointed out that Schachter had authorized, in writing, the diversion of a percentage of his earnings into the stock purchase plan, and noted that this procedure complied with California Labor Code § 224, which allows an employer to withhold or divert any portion of an employee's wages for the benefit of the employee when the deduction is expressly requested and authorized by the employee in writing. Thus, the court determined that, even if Schachter had not been directly paid the money used to purchase the restricted stock, the funds had been lawfully deducted pursuant to his authorization.

The Court of Appeal also addressed the important issue of whether, and when, the "wages" claimed by Schachter were "earned." The court concluded that Schachter had no statutory claim for unpaid wages, because neither the forfeited shares, nor the money used to purchase those shares had actually been earned at the time of his departure from the company. The court observed that the point at which wages are earned under an incentive compensation plan is determined by the parties' agreement and is generally contingent on future events, such as the employee's continued employment as of a specific target date. Here, the court determined that Schachter did not earn the disputed amounts, because he "necessarily agreed his compensation would consist of cash payments and retention-based conditional interest in shares," which would only be earned if he remained with his employer for two years. Because Schachter had not fulfilled that condition at the time of his departure, he had not earned the restricted shares, and so had no right to receive them, or the funds used to purchase them.

Whether or not the California Supreme Court agrees with the holding and/or the rationale of the Court of Appeal, we anticipate that its decision in Schachter v. Citigroup will have a significant impact on the ongoing efforts of plaintiff's attorneys to apply California's wage payment statutes (and their significant penalty provisions) to incentive compensation plans. We will continue to monitor this area, and keep you apprised of developments as they occur.

April 10, 2008
Department of Homeland Security Explains, But Does Not Revise, Final Rule on Social Security No-Match Letters And Notices of Suspect Documents
Supreme Court Sheds Light On What Constitutes A "Charge" Under The ADEA

February 27, 2008
U.S. Supreme Court Addresses Scope of Evidence Admissible to Show Discrimination
Illinois Appellate Court Rules that Old Handbooks can be Binding
Special Protection for Social Security Numbers
A Jury Waiver can be an Effective Tool for Controlling Risk