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Proposed Changes to Disparate Impact Standard Increase Plaintiffs’ Burdens in Discrimination Cases

Published on August 16, 2019 by Jennifer Schwartz
Proposed Changes to Disparate Impact Standard Increase Plaintiffs’ Burdens in Discrimination Cases

On August 16, HUD released a proposed revision of its Disparate Impact Rule, which implements HUD’s interpretation of the Fair Housing Act’s Discriminatory Effects Standard, to better reflect the Supreme Court’s 2015 ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. (Texas DHCA v. ICP). The proposal would substantially modify the Disparate Impact Rule HUD adopted in 2013, which set forth a three-step burden-shifting framework for determining when a practice with a discriminatory effect violates the Fair Housing Act, making it harder for plaintiffs to establish a prima facie case and setting forth means by which a defendant may rebut a disparate impact claim.

Background

The 2013 Disparate Impact Rule established the following burden-shifting framework:

  1. First, the plaintiff must prove that the challenged practice caused, or predictably will cause, a discriminatory effect.
  2. If the plaintiff is able to make the case in step one, the defendant must then prove that the challenged practice is necessary to achieve one or more substantial, legitimate, nondiscriminatory interests of the defendant.
  3. If the defendant is able to make the case in step two, the plaintiff than has the opportunity to show that the substantial, legitimate, nondiscriminatory interests supporting the challenged practice could be served by another practice that has a less discriminatory effect.

In Texas DHCA v. ICP, the Supreme Court found disparate impact claims to be cognizable under the Fair Housing Act. However, the majority opinion added further nuance to the standard for proving a prima facie case in step one of the burden-shifting framework and clarification of the criteria for establishing a legally sufficient justification for a policy in step two of the burden-shifting framework.

Specifically, the majority opinion stated:

“A disparate-impact claim relying on statistical disparity must fail if the plaintiff cannot point to a defendant’s policy or policies causing that disparity. A robust causality requirement is important in ensuring that defendants do not resort to the use of racial quotas. Courts must therefore examine with care whether a plaintiff has made out a prima facie showing of disparate impact, and prompt resolution of these cases is important.”

Further:

“Policies, whether governmental or private, are not contrary to the disparate-impact requirement unless they are artificial, arbitrary and unnecessary barriers…Courts should avoid interpreting disparate-impact liability to be so expansive as to inject racial considerations into every housing decision.”

2019 Proposed Disparate Impact Rule

HUD’s proposal would establish a new burden-shifting framework that requires plaintiffs to identify a specific policy or practice that has a discriminatory effect — as opposed to a single event, unless the plaintiff can show that the single decision is the equivalent of a policy or practice.

The plaintiff must also establish the following five elements in their prima facie case:

  1. The challenged policy or practice is arbitrary, artificial, and unnecessary to achieve a valid interest or legitimate objective.
  2. There is a robust causal link between the challenged policy or practice and a disparate impact on members of a protected class.
  3. The challenged policy or practice has an adverse effect on members of a protected class. (It is insufficient to show only that the plaintiff is a member of an adversely affected protected class or that members of a protected class are impacted, but so are other individuals.)
  4. The disparity caused by the policy or practice is significant.
  5. The complaining party’s alleged injury is directly caused by the challenged policy or practice.

The proposed rule goes on to suggest how a defendant might rebut a claim, including how to establish that the plaintiff has not met the standard set forth for a prima facie case, that the defendant’s actions are standard practice in the industry, or that the practice is not an actual cause of the disparate impact.

Public Comment

Comments on the proposed rule are due to HUD 60 days from the rule’s publication in the Federal Register. As we expect the proposed rule to be published on August 19, the anticipated due date for comments is October 18. Please send your feedback to NCSHA’s Jennifer Schwartz no later than September 30.

HUD initially published an Advance Notice of Proposed Rulemaking (ANPR) in April 2018 stating its intention to revisit the Disparate Impact Rule. NCSHA’s comments to HUD in response to the ANPR are available here.

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