Normally discrimination and harassment claims are asserted by employees against their employers under statutes, such as Title VII, that prohibit employment discrimination. However, there is another federal statute, known as "Section 1981," that prohibits race and national origin discrimination in all "contractual relations." Section 1981 bars race and national origin discrimination in "the making, performance, modification, and termination of contracts, and the enjoyment of all benefits, privileges, terms, and conditions of the contractual relationship." Because of the broad language of Section 1981, it prohibits hostile environment harassment as well as other forms of discrimination.
Section 1981 has long been applied to the employment setting because employment relationships are matters of contract, whether oral or written. Recently, a federal appeals court ruled that Section 1981 applies to independent contractors as well as to employees, and that independent contractors can assert race-based or national origin-based hostile environment harassment claims.
In Denco, Inc. v. Wal-Mart Stores, Inc., a Hispanic independent contractor was hired to clean the parking lot of a Wal-Mart store. Over a period of months, the independent contractor was subjected to "white supremacy" graffiti and racial slurs, and was told by a manager, "I don't like your kind." After he was terminated, the independent contractor sued, claiming that he was forced to work in a racially hostile environment in violation of Section 1981. The jury awarded him $650,000, which the judge reduced to $300,000. The verdict was affirmed on appeal.
The Denco decision significantly expands the potential liability of companies for racial and national origin discrimination and harassment. Employers should now be aware that the conduct of their employees toward contractors (as well as toward other employees) can create costly legal problems. Minority employees and independent contractors can use Section 1981 to sue for discrimination and harassment against any company with which they have a contractual relationship. Finally, unlike Title VII, Section 1981 does not limit the amount of damages that can be recovered for harassment or discrimination.