Section 1981 Race Discrimination: No Damages Cap for Employers
Section 1981 race discrimination claims pose a significant risk to Texas employers because they carry no cap on damages. Unlike Title VII claims, which have a statutory damages limit, Section 1981 allows juries to award uncapped compensatory and punitive damages. Employers must understand the risks of these claims and how contract provisions—like shortened filing deadlines—can reduce their exposure.
Section 1981 race discrimination claims pose unlimited liability risk for TX employers
Author: Jacob M. Monty
Race discrimination and retaliation claims under Section 1981 of the Civil Rights Act of 1866 have no cap on the damages that can be awarded. In a recent case from the U.S. 5th Circuit Court of Appeals (whose rulings apply to all Texas employers), an employee was awarded $366 million in damages made possible by Section 1981. On appeal, however, the court determined the Section 1981 claims were barred by a six-month limitations provision in the employment contract. This reduced the employer’s damages to no more than the $300,000 cap on the alternative claims filed under Title VII of the Civil Rights Act of 1964.
No cap on damages for claims under Section 1981
The employment-related claims that subject employers to the most potential exposure are those that carry prolonged limitation periods and no damages caps. Section 1981, which prohibits race discrimination and retaliation, poses a risk of double exposure to employers. You should be aware that, unlike discrimination claims filed under Title VII, Section 1981 claims have no cap on compensatory or punitive damages.
Jennifer Harris, an African American woman, worked as a sales executive for FedEx. She was fired in 2020 and filed race discrimination and retaliation claims under Section 1981 in May 2021—16 months later. FedEx asked the court for summary judgment (dismissal without a trial) in its favor because Harris’ employment contract contained a six-month limitations provision, and thus her claims were time-barred. She responded by amending her complaint with discrimination and retaliation claims under Title VII.
The trial court denied the employer’s summary judgment request, determining the limitations provision was contrary to public policy. It allowed her amended claims to proceed to trial. At trial, the jury awarded Harris $120,000 for past pain and suffering and $1,040,000 for future pain and suffering. It awarded an additional $365,000,000 in punitive damages. Importantly, the size of the award was only possible because of the inclusion of the Section 1981 claims. Title VII claims are subject to a statutory cap of $300,000 (including punitive damages). Juries cannot award an employee more than the statutory maximum under Title VII. However, Section 1981 claims have no such limits on exposure, resulting in the jury’s ability to award substantial damages.
Statute of limitations for Section 1981 claims
Section 1981 lacks an express statute of limitations, so courts have adopted the most similar state-law limitations period. In Texas, an employee generally has four years from the date of the alleged discriminatory act to file a claim under Section 1981. Courts in the past have ruled that “the limitations period for [Section] 1981 . . . employment discrimination cases commences when the [employee] knows or reasonably should know that the [challenged] discriminatory act has occurred.”
Fortunately, the 5th Circuit in Harris recognized the validity of waivers of the statute of limitations within an employment contract provision and enforced a six-month contractual limitations period to bar Section 1981 claims. FedEx included a provision in its employment contract that limited all actions against it to six months from the date of the event forming the basis of the lawsuit. The 5th Circuit found this provision wasn’t contrary to public policy, dismissing Harris’ contention that she hadn’t read the provision and thus it shouldn’t apply. Harris v. Fed Ex Corporate Services.
Takeaways
The main takeaway from the Harris decision for employers is that you can limit overall liability exposure under discrimination claims such as Section 1981 by reducing the period within which the claims must be filed and have employees waive any statute of limitations to the contrary. You are wise to consult with employment law counsel when preparing employment agreements, offer letters, job applications, and arbitration agreements to include limitation provisions that will stand up to legal attacks in court. This strategic move significantly reduces the number of timely filed claims and, consequently, your potential exposure.
Jacob M. Monty is the managing partner at Monty & Ramirez LLP in Houston and can be reached at 281-493-5529 or jmonty@montyramirezlaw.com.
This article was originally written by Jacob M. Monty for the Texas Employment Law Letter.