Disparate Impact is a legal doctrine under the Fair Housing Act which states that a policy may be considered discriminatory if it has a disproportionate “adverse impact” against any group based on race, national origin, color, religion, sex, familial status, or disability when there is no legitimate, non-discriminatory business need for the policy. LeadingAge is concerned that HUD’s proposal would make it nearly impossible for residents and applicants to prove that they have been discriminated against. Similarly, this rule would make it harder for developers meeting resistance for local construction efforts supported by zoning rules that, under the existing standard, might ore successfully be challenged. “Not in my backyard” (or NIMBY) cases which depend heavily on statistical differences in population demographics would likely not succeed under the proposed changes.

As proposed, the current three-part “burden-shifting” standard, to show disparate impact would be changed to a five-component set of tests placing virtually all the burden on people who are in “protected classes” as defined by the Fair Housing Act.

In effect since March 18, 2013, this is the 3-part burden-shifting test for determining when policies or practices resulting in a discriminatory effect violate the Fair Housing Act:

1. The charging party or plaintiff first bears the burden of proving that a certain policy or practice results in, or would predictably result in, a discriminatory effect on persons of a particular race, color, religion, sex, disability, familial status, and/or national origin.
2. If the charging party or plaintiff proves this, then the burden of proof shifts to the respondent or defendant to provide a “legally sufficient justification” proving that the challenged practice is necessary to achieve one or more of its substantial, legitimate, nondiscriminatory interests.
3. If the respondent or defendant satisfies this burden, then the charging party or plaintiff may still establish liability by proving that the substantial, legitimate, nondiscriminatory interest could be served by a practice that has a less discriminatory effect.

HUD’s rationale for the proposed revision is to reduce liability for practices having solely a numerical discriminatory effect and suggests pathways for defendants to assert their justified business practices not motivated by discriminatory intent.

According to the proposed change, a new standard for establishing a prima facie case would be established which, if the plaintiff fails to meet it, could cause the case to be dismissed. Essentially, the plaintiff must prove not just that there is a discriminatory effect, but that the defendant’s policy is the cause of the discriminatory effect.

To allege a prima facie case based on an allegation that a specific, identifiable policy or practice has a discriminatory effect, the draft proposal would require a plaintiff or the charging party to state facts plausibly alleging each of the following elements:

1. That the challenged policy or practice is arbitrary, artificial, and unnecessary to achieve a valid interest or legitimate objectives such as a practical business, profit, policy consideration, or requirement of law.
2. That there is a robust causal link between the challenged policy or practice and a disparate impact on members of a protected class which shows the specific practice is the direct cause of the discriminatory effect;
3. That the alleged disparity cause by the policy or practice has an adverse effect on members of a protected class;
4. That the alleged disparity caused by the policy or practice is significant; and,
5. That there is a direct link between the disparate impact and the complaining party’s alleged injury

The draft proposal suggests ways that a defendant could refute the prima facie claim where the allegations largely depend on numeric algorithms, or where the defendant’s discretion in establishing the policy is materially limited by a third party such as through a Federal, state, or local law; or a binding or controlling court, arbitral, regulatory, administrative order, or administrative requirement.

If a case is not resolved at the pleading stage, the burden of proof to establish that a specific, identifiable policy or practice has a discriminatory effect would be increased, requiring the plaintiff to provide a “preponderance of evidence” which the defendant could then also refute.

LeadingAge will be preparing a comment letter on the proposal. Please reach out with any questions or comments you have on the proposed rule.