Be Aware of Little-Known Contract-Bias Law … and Its Limits — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily

Be Aware of Little-Known Contract-Bias Law … and Its Limits

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If your organization signs contracts for goods or services, it's important to educate yourself on a little-known federal law that can easily trip you up. The "Section 1981" law, which has been on the books since 1866, gives people the right to "make and enforce" contracts without regard to race.

Over the years, courts have interpreted this to mean that employers can be sued in federal court if they refuse to enter into independent contractor, supplier or even franchise contracts because of a person's race. However, as the following case shows, the law has important limits.

Supreme Court case: John McDonald, an African-American male who was the president of his company, contracted with Domino's Pizza to construct restaurants in Las Vegas. The relationship became strained, and eventually Domino's refused to deal with McDonald's company. A Domino's rep allegedly told McDonald that the deal was off and that "I don't like dealing with you people anyway." McDonald sued, alleging Domino's violated the contract-bias law.

The Supreme Court, in a unanimous decision, threw out the case. It concluded that because McDonald did business as a corporation, the 1866 law didn't protect him. Only individuals can sue, said the court. (Domino's Pizza v. McDonald, No. 04-593, 2006)

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