Court Says Staffing Company Can Sue Their Customer for Race Discrimination

A federal appeals court recently affirmed the right of a staffing company to sue for race discrimination if they are harmed by their customer’s discriminatory placement requests.

Officials of White Glove Staffing (“White Glove”) met with catering managers of Methodist Hospitals of Dallas (“Methodist”) to see if they could garner a contract to provide Methodist with temporary kitchen staff.  Methodist’s Catering Coordinator Jeff Jennings informed White Glove that they got the contract but allegedly explained that their chef, Juan Soto, “preferred Hispanics” and only wanted to work with Hispanic staff.

Employer Doesn’t Want “Other People”

In their first opportunity to provide staff to Methodist, White Glove referred Carolyn Clay, an African-American woman, to work as a prep cook.  After a few days, Jennings allegedly called White Glove manager Shawn White to tell him they were unhappy, that Chef Soto wanted Hispanics and that he did not know why White Glove was sending “other people.”  White responded that this request was “messed up” but if Methodist wanted someone other than Clay, he would see what he could do.  He cautioned Jennings, however, that since it was late in the day, he might not be able to find someone for the following day.

Sure enough, Clay was sent back to work at Methodist the next day but was told after a few hours to go home because they did not need her there any longer.  Jennings then called White Glove to inform them that “the whole deal was off.”  Despite requests to reconsider, Jennings said that they were going to “go with what [Soto] wanted.”

When employees are denied work due to race discrimination, they have recourse through Title VII and state employment discrimination laws.  However, when a business is harmed by racially motivated decisions, those laws typically do not apply.  Is there an avenue for them to pursue?

Civil War Era Law Rules the Day

Yes, and White Glove pursued it when they sued Methodist for race discrimination under Section 1981 of the Civil Rights Act of 1866, a statute enacted to protect the rights of newly freed slaves.  This statute prohibits discrimination on the basis of race and declares that everyone in the United States shall have the same rights to “make and enforce contracts” and receive the “full and equal benefit of all laws and proceedings…as is enjoyed by white citizens.”

Since Section 1981’s enactment, businesses and other legal entities have sued under it when they believe that their interests have been harmed as a result of race or national orig1n discrimination. Franchisees often invoke this law if they feel that the franchisor is impeding their business or imposing more burdensome obligations because of the franchisee’s race.  Minority-owned subcontractors similarly sue under Section 1981 if they believe that they are not getting the same opportunities for work as White-owned businesses.

Some federal courts have restricted the right to sue under Section 1981 only to those entities that can prove a racial identity, e.g. those with minority ownership or a business purpose of advancing the interests of minority people. The Minnesota Human Rights Act seems to adhere to this restriction by making it unlawful to refuse to do business with someone “because of a person’s race, national origin, color, sex, sexual orientation, or disability.”

In this case, however, the Fifth Circuit Court of Appeals ruled that corporations do not have to have a distinct racial identity in order be protected under Section 1981. The Court explained that the injury to White Glove fell within the “zone of interests” that Section 1981 protects because Methodist allegedly interfered with White Glove’s right to contract with Black people to serve their business needs. This is a form of race discrimination that Section 1981 was designed to prohibit regardless of the race or national origin of the person or entity being harmed.  The Court therefore affirmed White Glove’s right to seek damages from Methodist arising out of what they claim was a racially discriminatory rationale for terminating the contract between them.

The Fifth Circuit’s decision not to require that a business have a racial identity in order to invoke Section 1981 falls in line with decisions from four other federal circuit courts while three circuits still require a racial identity.  Four circuit courts (including the Eighth Circuit in which Minnesota sits) have not yet weighed in.  It will be interesting to see where the Eighth Circuit lands if and when they have an opportunity to consider the issue.

Bottom Line

It has long been illegal under the Minnesota Human Rights Act for a staffing company to comply with a request to provide workers of a particular race (or other protected classification).  This case demonstrates that Section 1981 offers staffing companies a viable means of redress if they are harmed by discriminatory decisions by their customers.