Today, in a 5-4 decision, the Supreme Court made clear that disparate impact discrimination claims are cognizable under the Federal Housing Act (“FHA”) despite the lack of explicit language authorizing such a cause of action. Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc.

In the process of justifying its ruling, the majority opinion spoke generally about disparate impact and cited to several prior rulings applying disparate impact in the employment context. The Court’s broader guidance on disparate impact liability may be helpful for employers faced with disparate impact lawsuits.

Brief Primer on Disparate Impact Law

Sometimes referred loosely as “unintentional discrimination,” disparate impact claims arise when an employer’s (usually) neutral employment practice has a disparate impact against a group protected by Title VII. For example, in the criminal background context, the EEOC asserts that failing to hire employees based on prior criminal activity has a disparate impact against racial minorities. These lawsuits are largely statistical in nature.

In a Title VII disparate impact lawsuit, the initial burden is on the plaintiff to point to a policy or practice that causes a statistical disparity. If the plaintiff establishes impact, the employer must then show that the policy or practice is job related to the position in question and consistent with business necessity. Over the years, with varying degrees of success, plaintiffs have argued that the “job related and consistent with business necessity” defense is a high hurdle. The Supreme Court itself has struggled to properly define this defense.

Welcome Words from the Supreme Court

In the Inclusive Communities majority opinion, the Supreme Court found the FHA disparate impact defense to be “analogous” to the Title VII defense. The court went on to cite to language from employment discrimination precedent indicating that the “job related and consistent with business necessity” defense should not be an impossible hurdle for employers:

• Quoting the seminal Title VII ruling Griggs v. Duke Power Co.: an employer may maintain a practice which is a “reasonable measurement of job performance.”

• Citing Griggs again: “policies are not contrary to the disparate impact requirement unless they are artificial, arbitrary, and unnecessary barriers.”

• Stressing that limitations on disparate impact claims are “necessary to protect potential defendants against abusive disparate-impact claims.”

• “Were standards for proceeding with disparate-impact suits not to incorporate at least the safeguards discussed here, then disparate-impact liability might displace valid governmental and private priorities, rather than solely removing artificial, arbitrary and unnecessary barriers.”

In short, the Court has provided support for employers to argue that an employer meets the “job related and consistent with business necessity” defense if its practice is reasonable and “necessary to achieve a valid interest.”

The majority opinion also provided explicit instructions to lower courts:

•  To be on guard for disparate impact lawsuits that might interject “racial considerations” into decision making.

• To hold plaintiff’s to sufficient pleading standards: “a plaintiff who fails to allege facts at the pleading stage or produce statistical evidence demonstrating a causal connection cannot make out a prima facie case of disparate impact.”

Time will tell if lower courts rigorously apply Inclusive Communities’ “safeguards” and “limitations” in the employment context. In the meantime, management attorneys will be doing their best to remind lower courts of the need to show restraint when evaluating disparate impact claims.