A Fifth Circuit decision in the Federal Court of Appeals has sent shockwaves through employers in Louisiana, Texas, and Mississippi. The “historically conservative and employer-friendly” circuit ruled in favor of the plaintiff in a Title VII claims case, Hamilton v. Dallas County. 

Three decades of legal precedent have been overturned, making it easier for employees to bring employment discrimination claims. The decision follows the EEOC’s (Equal Employment Opportunity Commission) first lawsuit related to AI-driven hiring discrimination. In this article, we look at the significant implications for employers.  

Background to the Fifth Circuit decision

Hamilton v. Dallas County involved female corrections officers filing a complaint for sex-based employment discrimination based on weekend scheduling. In summary, male officers were allowed to have full weekends off, while female officers were not. 

Previously, plaintiffs were required to demonstrate that the “adverse employment action” forming the basis of their complaint constituted an “ultimate employment decision.”  In the past, that’s been  limited to “hiring, granting leave, discharging, promoting, and compensating.”  

Not any more.  On appeal, the three-judge panel determined:

  • Denial of preferential schedules was an employment action that could serve as a basis for discrimination claims. 
  • Title VII reaches beyond “ultimate employment decisions.”
  • The “ultimate employment decisions” rule was based on a narrow legal interpretation, and one held exclusively by the Fifth Circuit. 

How does the Fifth Circuit decision affect future Title VII claims?

Employees and job candidates must now prove only that they face employee discrimination based on race, gender, age, or other protected characteristics. These must be related to hiring, firing, compensation, or the “terms, conditions, or privileges of employment.” 

As noted, the Fifth Circuit was the only circuit to adopt this definition of an “adverse employment action.” This ruling aligns it with other circuits, including the Fourth, Sixth, Eleventh, and DC Circuits. 

States covered by Fifth Circuit jurisdiction Include Louisiana, Mississippi and Texas. Employers in those three states may now face a rise in disparate treatment claims under Title VII, as “terms, conditions, or privileges of employment” is a broad phrase. 

Title VII of the Civil Rights Act of 1964 prohibits employment discrimination on the basis of sex, race, color, religion, and national origin. 

EEOC take steps to eliminate AI-driven hiring discrimination

The Fifth Circuit decision exposes only one aspect of potential employment discrimination under Title VII. 

August has also seen the first EEOC settlement related to AI-driven hiring discrimination. Bloomberg Law reports on an agreement reached with a tutoring company that allegedly programmed its hiring software to reject older applicants. In a groundbreaking case, iTutorGroup Inc. will pay $365,000 to a group of defendants aged 40 and over. That’s according to a “Joint Notice Of Settlement Agreement And Requested Approval And Execution Of Consent Decree,” (the “Consent Decree”). 

EEOC’s commitment to eliminate AI-driven hiring discrimination is not going away.

In a comment made at the National Industry Liaison Group’s (NILG) 2023 Conference, EEOC Commissioner Charlotte Burrows raised concerns over AI’s ability to “replicate and amplify lack of diversity.”  

A further hint into what lies ahead came in a comment from OFCCP (Office of Federal Contract Compliance Programs) District Director Sam Maiden. In a telling comment, he stated that the OFCCP intends to ask federal contractors to supply the data used to “train” AI systems. 

The settlement is a cautionary tale for employers who rely on automated employment decision tools (AEDTs). EEOC Title VII guidance applies to all employment decisions, including decisions on compensation, and affects employers using AI tools, such as pay equity software. 

It is clear that the EEOC’s Artificial Intelligence and Algorithmic Fairness Initiative is now in full force. Employers who have failed to take steps to eliminate AI-driven hiring discrimination need to start now. 

How can employers avoid Title VII claims?

Companies can take several steps to reduce their risk of exposure to avoid employment discrimination claims: 

Commit to a culture of pay equity: Pay equity is the right thing to do, and offers multiple benefits for employers, including motivating employees to work harder. Start with an intersectional pay equity audit with Trusaic PayParity to identify unjustified pay disparities in your organization. 

Stay up to date with legislation across regional circuits: The Fifth Circuit decision reinforces the complexities of legislation. For instance, Korty v. Indiana in the Seventh Circuit saw the court rule in the employer’s favor. In this case, prior salary was seen as a valid reason “other than sex” to explain a compensation disparity. In contrast, the Ninth Circuit, previously confirmed that salary history could not be used to justify pay disparities. That interpretation of the Equal Pay Act is shared by the Second, Fourth, Sixth, Tenth, and Eleventh Circuits. 

Prepare for the return of EEO-1 Component 2 reporting: After months of speculation, the EEOC is “widely expected” to reinstate EEO-1 Component 2 in 2023, which expands pay data reporting requirements.

Review your liability for employment discrimination: EEOC Title VII guidance makes it clear that employers cannot delegate responsibility for discrimination to a third-party software provider. Nor can companies rely on their vendor’s assurance that its software does not lead to AI-driven hiring discrimination in the event of an employment discrimination claim. 

If your pay equity software violates Title VII guidance, you, as an employer, may be held liable.

EEOC guidance states that “in many cases”, an employer is responsible under Title VII for its use of algorithmic decision-making tools even if the tools are designed or administered by a software vendor, “if the employer has given them authority to act on the employer’s behalf.”

Title VII guidance applies to all employment decisions, including decisions on compensation, and affects employers using AI tools such as pay equity software. For additional context, read more about the potential benefits and risks of AI in salary management

Partner with a pay equity software provider you can trust: As changing legislation places companies at increasing risk of employment discrimination claims, compliance is essential. Trusaic complies fully with EEOC Title VII requirements on ethical AI. We also prioritize data security

Speak to one of our pay equity experts today.  

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