Employers May Not "Take Adverse Employment Actions … Based on [Employees'] Race or Gender to Implement" "Diversity and Inclusion" Programs

From Tuesday's Fourth Circuit decision in Duvall v. Novant Health, Inc., written by Judge Agee and joined by Judges Quattlebaum and Floyd (upholding a damages award of "about $4 million"):

After a week-long trial, a North Carolina jury found that Novant Health, Inc. terminated David Duvall because of his race, sex, or both, in violation of Title VII of the Civil Rights Act of 1964. In addition to the finding of liability, the jury awarded Duvall $10 million in punitive damages [reduced to the statutory maximum of $300,000].

The court summarized the facts, as usual in this situation, in light most favorable to the verdict:

Duvall, a white man, began working for Novant Health in 2013, when Executive Vice President and Chief Consumer Officer Jesse Cureton, a black man, hired him as Senior Vice President of Marketing and Communications. Based in North Carolina, Duvall reported directly to Cureton and held the same position throughout his employment with Novant Health. Evidence presented at trial demonstrated that Duvall performed exceptionally in his role, receiving strong performance reviews and gaining national recognition for himself and the marketing program he developed for Novant Health.

Despite all that, Cureton fired Duvall in July 2018, a decision that came as a shock to both Duvall and his colleagues. Moreover, Novant Health—a multibillion-dollar company with tens of thousands of employees and an extensive human resources department—had no record of any documented criticism of Duvall's performance or reasons for his termination.

Immediately after firing Duvall, Novant Health elevated two of Duvall's deputies, a white woman and a black woman, to take over his duties. It then later hired another black woman to permanently replace Duvall.

Believing Novant Health fired him merely to achieve racial and gender diversity—or more specifically, to hit certain diversity "targets"—within its leadership, Duvall sued his former employer under Title VII and North Carolina state law in federal district court….

The court concluded there was sufficient evidence to support the jury verdict:

To begin, Duvall presented evidence about the context surrounding his termination. The jury heard that Duvall was fired in the middle of a widescale D&I initiative at Novant Health, which sought to "embed diversity and inclusion throughout" the company, and to ensure that its overall workforce, including its leadership, "reflect[ed] the communities [it] serve[d]." There was evidence presented that Novant Health endeavored to accomplish this goal by, among other things, benchmarking its then-current D&I levels and developing and employing D&I metrics; committing to "adding additional dimensions of diversity to the executive and senior leadership teams" and incorporating "a system wide decision making process that includes a diversity and inclusion lens"; and evaluating the success of its efforts and identifying and closing any remaining diversity gaps.

The jury also heard about the demographic data from 2015 and 2017 that Novant Health collected. From a factual standpoint, the data revealed a decline in female leaders and an overrepresentation of male and white leadership in comparison to the total workforce. It also showed an increase in white male representation "with each level of management," compared to a decrease in "African-American representation … at each level [of management] with the exception of the executive team." By 2019, however, Novant Health saw a dramatic increase in female leaders just from the year prior (the period in which Duvall was fired). It also reflected a decrease of white workers and leaders and an increase in black workers and leaders over the life of the D&I Plan. Additionally, after remaining gaps in the Hispanic and Asian workforce were identified, Novant Health adopted a long-term financial incentive plan that tied executive bonuses to closing those gaps by achieving a specific percentage of each group.

Against that backdrop, we consider the evidence specific to Duvall and his termination.

As noted above, there was substantial evidence at trial that Duvall performed superbly in his role at Novant Health…. But despite this evidence of his exceptional performance, the jury heard that Duvall was abruptly fired, having been told only that Novant Health was "going in a different direction." … Finally, the jury heard Cureton offer shifting, conflicting, and unsubstantiated explanations for Duvall's termination. [Details omitted, but can be seen in the full opinion. -EV] …

{To be clear, employers may, if they so choose, utilize D&I-type programs. What they cannot do is take adverse employment actions against employees based on their race or gender to implement such a program. And as recounted above, the evidence presented at trial in this case was more than sufficient for a reasonable jury to conclude that is precisely what Novant Health did to Duvall.}

But the court set aside the award of punitive damages, because such damages were available "only in limited circumstances:"

Title VII authorizes punitive damages only when a plaintiff makes two showings. First, the plaintiff must show that the employer engaged in unlawful intentional discrimination (not an employment practice that is unlawful because of its disparate impact). Second, the plaintiff must show that the employer engaged in the discriminatory practice with malice or with reckless indifference to the federally protected rights of an aggrieved individual. That is, an employer must at least discriminate in the face of a perceived risk that its actions will violate federal law.

And, the court held, plaintiff introduced no "affirmative evidence" that the employer actually "perceived [the] risk" that its actions were illegal: Duvall "offered no evidence as to the training or qualification that Novant Health offered to or required of Cureton, or a comparable executive, to establish the requisite knowledge of federal anti-discrimination law. Duvall even cross-examined Cureton yet never elicited from him testimony establishing his personal knowledge of federal anti-discrimination law, let alone that he perceived a risk that his decision to fire Duvall would violate it." And the "inference that Cureton had the requisite knowledge given his career as a corporate executive" was insufficient.