By Matthew Bolstad, Association of Corporate Counsel

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Overview

It is not uncommon for a company to hire a relative of a current employee or for an office relationship to turn into a marriage. At Southwest Airlines, for example, seven percent of the workforce consists of employees married to other employees. Furthermore, it is also common for friends of current employees to be hired through “word-of-mouth” hiring.

There may be practical reasons to hire family and friends. They may be well qualified and current employees know they put their credibility on the line when recommending someone. Conversely, there are practical reasons to not hire family and friends, particularly the inherent conflict of interest. Additionally, hiring family and friends can carry legal risks. It is important to note that the risks discussed in this QuickCounsel are not confined to the hiring context — the risks arise in many other areas of employment, such as assignment, compensation, evaluation, and promotion decisions.

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Title VII

The central legal problem with nepotism, or acts showing favoritism to relatives, is that it can create a homogenous workforce that excludes members of protected classes under Title VII of the Civil Rights Act of 1964. Title VII prohibits discrimination by covered employers on the basis of race, color, religion, sex, national origin, gender identity, or transgender status. See 42 U.S.C. § 2000e-2; Macy v. Holder, EEOC.No. 0120120821 (2012). Title VII applies to an employer “who has fifteen (15) or more employees for each working day in each of twenty or more calendar weeks in the current or preceding calendar year.” 42 U.S.C. § 2000e(b).

Nepotism may implicate Title VII’s bar on race and national origin discrimination. This is because families tend to share race and national origin. Title VII claims may be based on disparate “impact” or “treatment.”

Disparate impact arises when an employment practice or policy has a disproportionately adverse effect on members of the protected class as compared with non-members of the protected class. EEOC v. Sambo's of Georgia, Inc., 530 F. Supp. 86, 92 (N.D. Ga. 1981). Disparate treatment arises when an individual of a protected group is singled out and treated less favorably than others similarly situated on the basis of an impermissible criterion under Title VII. The issue is whether the employer's actions were motivated by discriminatory intent. See McDonnell Douglas Corp. v. Green, 411 U.S. 792 (1973). These types of claims are discussed below in the context of nepotism.

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Disparate Impact

The general legal standard whereby nepotism rises to the level of disparate impact is outlined in the oft-cited case Thomas v. Washington County School Bd.: “Nepotism is not per se violative of Title VII. Given an already integrated work force, nepotism might have no impact on the racial composition of that work force. … However, when the work force is predominately white, nepotism and similar practices which operate to exclude outsiders may discriminate against minorities as effectively as an intentionally discriminatory policy.” 915 F.2d 922, 925 (4th Cir. 1990).

In making a disparate impact claim, a plaintiff is required to trace a significant statistical disparity to the practice of preference for relatives. The proof focuses on how many relatives were hired over a recent period and whether that practice reproduced a segregated workforce. This is measured by the racial makeup of qualified candidates in the region compared to the racial makeup of the organization, and whether instances of nepotism were a contributing factor. See Hazelwood School Dist. v. U.S., 433 U.S. 299, 308 (1977).

Courts will accept other evidence if the statistics are inadequate. In Thomas, for example, plaintiff school teacher was not made aware of openings in the school district, despite her application being on file with the district, because of the district’s practice of “word-of-mouth” hiring. Although the plaintiff could demonstrate that only .5% of the teachers were black in a locale with a 1.8% black population, the court found the statistics inadequate due to lack of proof of the number of qualified applicants living in the district. However, plaintiff produced evidence of 46 cases of nepotism from 1981 to 1988. This, along with the practice of posting vacancies in schools without public notice and testimony from black applicants who were unaware of particular openings because of nepotism and word-of-mouth hiring, was sufficient for the court to grant an injunction against the school district. 915 F.2d at 925.

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Disparate Treatment

In a case of disparate treatment, “[t]he employer simply treats some people less favorably than others because of their race, color, religion, sex, or national origin. Proof of discriminatory motive is critical, although it can in some cases be inferred from the mere fact of differences of treatment.” International Broth. of Teamsters v. U.S., 431 U.S. 324, 335 (1989). The fact that an employer hired a relative is not itself evidence of discriminatory treatment, but it may serve as a piece of circumstantial evidence. In conjunction with other evidence, there may be a reasonable inference of discriminatory intent. See Holder v. City of Raleigh, 867 F.2d 823, 824 (4thCir. 1989).

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Anti-nepotism Policies

Employers avoid the risks associated with nepotism by instituting policies against the hiring of relatives in all or limited circumstances. In order to be effective and avoid legal liabilities, an anti-nepotism policy must be uniformly followed. An anti-nepotism policy that is selectively enforced may give rise to claims of discrimination. For example, in Wagher v. Guy’s Foods, Inc., 256 Kan. 300 (1994), the uneven application of an anti-nepotism policy that favored male over female applicants supported a jury finding of sex discrimination. In Waghner, the company’s policy stated: "It is the general policy of the Company not to employ close relatives in the same department.... For purposes of this policy, `close relative' is defined as ... spouse." 256 Kan. at 312. Defendant company used this policy to justify not hiring the plaintiff, but the plaintiff successfully put on evidence that the policy had not been enforced in the hiring of other applicants.

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No-spouse Policies

There may be concern that “no-spouse” policies implicate state laws against marital status discrimination. However, most courts recognize that discrimination from a no-spouse policy is based on relational, not marital status, and is thus permissible. For example, the court in Boaden v. Department of Law Enforcement, 267 Ill. App. 3d 645, 648, 652 (4th Dist. 1994) distinguished “acts based upon status, i.e., whether one is married or not,” from “acts based upon the identity of one’s spouse, i.e., to whom one is married.” The court concluded, “no-spouse policies precluding employment on the basis of spousal identity do not constitute unlawful discrimination based upon marital status.”

Even in cases where a no-spouse policy is deemed discriminatory of marital status, often an exception is made if the couple would work closely together. For example, Wis Stat § 111.345 expressly exempts direct supervisory positions from the bar on marital status discrimination. In Minnesota, a defense may be recognized: “[A]bsent a compelling and overriding bona fide occupational qualification, an anti-nepotism employment rule denying full-time employment to individuals married to persons already employed full time by the employer constitutes a discriminatory practice based on marital status within the meaning of the Minnesota Human Rights Act.” Kraft, Inc. v. State, 284 N.W.2d 386 (Minn. 1979). State equal opportunity statutes should be checked for compliance.

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Office Relationships that Turn into Marriages

Assuming that a company does not prohibit inner-office dating, it is possible for an office romance to lead to a marriage and thereby implicate the no-spouse policy. This is one area where a narrow exception to a no-spouse policy may be warranted. Policies may contain an “incumbent exception” to permit such marriages. The exception should include restrictions on both assignments and communications about job performance (including evaluations and discipline). Additionally, when a company first institutes an anti-nepotism policy, it is common for current relatives to be “grandfathered in” to avoid terminating experienced employees through retroactive application of the policy.

Sample Policies

• Sample Nepotism Policy
• Sample Nepotism Policy #2
• Sample Nepotism and Dating Policy
• Sample Nepotism and Dating Policy #2

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Conclusion

Many companies institute anti-nepotism policies out of concern for potential conflicts of interest. The companies that choose to not have such a policy should note the racial and ethnic makeup of their workforce and be mindful whether nepotism and word-of-mouth hiring is inhibiting diversity.

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Additional Resources

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