Discretionary bonus denial can equal adverse action

If employers in New York and most other states are able to treat people badly for any reason or no reason at all, does that mean an employer's discretionary judgment about employee bonuses cannot be challenged under the employment discrimination laws?

The case is Davis v. New York City Department of Education, decided on October 19. Plaintiff was a teacher in New York City. The City gave her school money to distribute to its teachers as part of a discretionary bonus program, rewarding the school for its academic achievements. Plaintiff sued for discrimination after she claimed she did not receive the same bonus as everyone else. The district court dismissed her case, reasoning that the bonus reduction was not an adverse employment action under the Americans with Disabilities Act because the school had discretion to decide on bonus amounts. The Court of Appeals (Leval, Straub and Droney) says this reasoning is incorrect.

"Adverse employment action" is a clunky phrase. I wish the courts had a better way of describing when an employer's ill-treatment of the plaintiff is worth suing over. But here we are. The Second Circuit says that it does not matter that the school had discretionary authority to decide on bonuses. The fact that this decisionmaking is otherwise nonreviewable under the "at-will" employment rule (another clunky legal phrase that really means management can do what it wants without fear of any lawsuit unless it violates a specific statute) does not mean that plaintiffs cannot sue under the employment discrimination laws if the employer exercises its discretion in a discriminatory manner. Otherwise, half or even most of the decisions that employers make on an everyday basis would not qualify as an adverse employment action. As the Court of Appeals puts it:

We do not agree that an employer’s discretion to withhold or reduce a bonus entitles the employer to allocate the bonus on the basis of prohibited discrimination. It seems unlikely, to say the least, that employers covered by the discrimination statutes could freely decide to award substantial discretionary bonuses to all employees except those of a disfavored race, religion, national origin or disability. As most employees work “at will,” most aspects of their conditions of employment are within the employer’s discretion. Deciding which applicant to hire, which employee-at-will to promote, which one should receive additional responsibilities or which one should be fired—all these, being the traditional fare of discrimination suits—are within the employer’s discretion. Rarely does the employee who sues for illegal employment discrimination have a legal right to the benefit she claims (apart from the law of unlawful discrimination). (Indeed, if such an entitlement were required, the discrimination statutes would be unneeded and superfluous, as the plaintiff would have a valid claim based on  contract or some other statute.)

This rule may make sense, but the Second Circuit notes that the Seventh Circuit has gone the other way on this issue, in Hunt v. City of Markham, 219 F.3d 649 (2d Cir. 2000). So it looks like we have a Circuit split that may one day be decided by the Supreme Court.

Davis wins on the issue of adverse employment actions, which helps all plaintiffs, but she loses the war. The Court of Appeals sustains the grant of summary judgment because she cannot show she was denied the full bonus on account of her disability. The Second Circuit notes that she is not able to second-guess the employer's justification for the reduced bonus, i.e., she missed a lot of work and the school decided to share her bonus with the substitute teacher who filled in for her and contributed to the academic achievements that merited the bonuses from the City in the first instance.