Employees typically file race discrimination lawsuits under Title VII. But 20 percent of the work force is employed by companies that are exempt from the law because of their size (fewer than 15 employees). Also, employees filing Title VII lawsuits must first file claims with the Equal Employment Opportunity Commission (EEOC) before heading to court.
That's why a growing number of employees are taking a "back door" approach to filing racial bias suits, one with the potential for a bigger windfall. They're filing suit under Section 1981 of the Civil Rights Act of 1966, which bans racial discrimination in the enforcement of contracts. The "contract," these workers claim, is that the employee agreed to work and the company agreed to pay.
Employees at any company, even the smallest, can file Section 1981 lawsuits.
Plus, unlike Title VII, Section 1981 has no EEOC requirement, allows a longer filing window and doesn't cap maximum damages.
Seven federal courts of appeals have addressed the legitimacy of Section 1981 workplace suits and six allowed them.
Bottom line: If your company is too small to be covered by Title VII, don't grow complacent about racial discrimination. Draft a company policy and stick to it. Also, since the statute of limitations under Section 1981 is the same as your state's contract law (usually longer than Title VII), make sure your record-retention practices cover the longer time limit.