September 10, 2013

The sad, unsurprising end to McReynolds v. Merrill Lynch

By Joshua P. Thompson Senior Attorney

Last year, PLF was involved in a disparate impact case against Merrill Lynch.  In that case, a number of low-level brokers brought a Title VII disparate impact case against Merrill Lynch arguing that the company’s “teaming” and “account distribution” policies were causing a disparate impact on the basis of race.  The Seventh Circuit Court of Appeals certified the class despite the Supreme Court’s Wal-Mart case — decided the previous term — which held that the lack of a discriminatory corporate policy could not form the basis of a class action when individual branch managers held considerable discretion in hiring decisions.   Merrill Lynch petitioned the Supreme Court to review the Seventh Circuit’s class-certification decision, and PLF filed an amicus brief in support of Merrill Lynch.  The high court denied review.

As PLF wrote in its brief in support of review, Merrill Lynch’s “teaming” and “account distribution” policies were extremely innocuous, run-of-the-mill business practices:

Merrill Lynch made two commonplace and innocent corporate decisions—decisions identical to choices made every day in every school in the United States, from elementary to law school. The optional “teaming” policy allows individual brokers from the same office to form teams—just as students can form study groups if they choose—and the “account distribution policy” rewards brokers who perform their jobs well (even those who work independently), just as a school may have an honor roll for students who excel academically.

But just because something makes good business sense, doesn’t mean that it cannot be challenged under Title VII’s disparate impact provisions.  Disparate impact requires courts to infer discrimination where any racial disparity exists.  And where a disparity exists, the burden is on the employer to show that the business decision is necessary.  Accordingly, disparate impact results in a total inversion of typical discrimination law.  Race-neutral practices are presumed discriminatory, and can only be upheld through an extraordinary showing by the employer.  Thus, common sense business practices — credit checks, criminal background checks, written knowledge-based tests — have all succumbed to a disparate impact challenges.

When the Supreme Court denied review to Merrill Lynch last year, that did not mean that Merrill Lynch’s “teaming” and “account distribution” policies were necessarily in violation of Title VII.  It only meant that the disgruntled plaintiffs could go forward with their lawsuit.  But faced with the extraordinary burden of having to justify its common sense business practice, Merrill Lynch did what so many other companies before have done — it settled the case.  This is a sad, all-t00-common end to another ridiculous disparate impact case.

So long as the Supreme Court refuses to entertain the argument that disparate impact violates the Equal Protection Clause — which it clearly does — American employers will see many more legitimate business practices fall to disparate impact lawsuits.  While American business suffers, class action plaintiffs attorneys will continue to make killing bringing similar lawsuits.

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