Market Power and Inequality: A Competitive Conduct Standard for Assessing When Disparate Impacts are Justified

Abstract

Policies that exploit a firm's market power to extract supra-competitive profits from employees or consumers should not fall within the limits of the business necessity defense in disparate impact litigation. Even though such policies can substantially enhance a firm's profitability, profits that are the byproduct of market failure are less justified than those that are a byproduct of competition. By enjoining employment and consumer policies that extract supra-competitive profits disproportionately from racial minorities and other protected classes, disparate impact law can help make markets both more competitive and less racially discriminatory. Imagine that an employer's promotion criteria have been shown to disparately exclude African American employees from higher-paying jobs within a company. What standard should a court apply to assess whether the promotion criteria are justified despite their racially discriminatory impact? In other words, what should be the scope of the business justification defense in disparate impact litigation? A persuasive answer has eluded both scholars and judges. On the one hand, civil rights advocates have tended to answer this question by focusing on the term "business necessity," suggesting that any policy that is not strictly necessary to prevent a firm's bankruptcy is not justified. Opponents, on the other hand, have tended to focus on the term "job related" in arguing that any policy that increases a firm's profitability (even infinitesimally) is justified.