Justices’ New Bias Test Puts Performance Reviews in Legal Bind

Lawsuits from workers challenging the legality of performance improvement plans or negative reviews are testing the bounds of a new worker-friendly US Supreme Court standard for assessing workplace discrimination claims.

A rising number of cases—some supported by the US Equal Employment Opportunity Commission—against companies like Amazon.com Inc. and United Airlines are pushing courts to clarify when a PIP placement or an unfavorable performance review constitutes an adverse employment action that can be brought to trial.

The US Courts of Appeal for the Tenth and Seventh circuits are both soon set to rule on the issue in disputes filed under the Americans with Disabilities Act, the Age Discrimination in Employment Act, and Title VII of the 1964 Civil Rights Act. Federal district courts have already been sketching out the boundaries of the Supreme Court’s unanimous April 2024 Muldrow v. City of St. Louis decision.

Under Muldrow, workers need only demonstrate they’ve experienced “some harm” regarding the terms and conditions of their employment that left them “worse off.” The justices left it to lower courts to determine the threshold to substantiate a bias claim, however.

“I think you have a lot of employees who are now using this decision to say well, ‘Wait a minute. Me being placed on a performance improvement plan is at least ‘some harm’ to support my discrimination claim,’” said Marissa Mastroianni, an employment attorney at management-side firm Cole Schotz PC.

Some allegations from plaintiffs in these lawsuits include unreasonable performance demands, being unfairly placed on a performance management plan after making internal complaints about protected activities like harassment, or that their placement reflects a broader pattern of bias and unrealistic expectations from their supervisor. They also claimed it harmed their reputations as quality employees and caused them to lose benefits like bonuses and pay raises.

Performance reviews and PIPs have long been a cornerstone of employee management, allowing business leaders to discuss workplace performance issues, set goals, and outline expectations for the calendar year. They can also inform business decisions, like who should get a raise, be promoted, or let go.

Actions less formal than PIPs, like weekly coaching or support plans that were traditionally used as a benefit to improve performance, “are now being kind of turned on their head and used as adverse employment actions to support” broader discrimination claims, said Stephanie L. Adler-Paindiris, a principal at Jackson Lewis PC who’s been tracking post-Muldrow litigation.

Evolving Landscape

Pre-Muldrow, circuit courts were divided on whether performance improvement plans and negative reviews had to cause a materially significant injury to sustain a bias claim, said Valdi Licul, a partner at worker-side firm Wigdor LLP. This injury required economic losses like a loss or reduction in pay or a bonus, he said.

Muldrow “puts to bed whether PIPs or bad performance reviews are adverse actions. It’s pretty clear to me” they’re connected to the terms or conditions of employment, he said. “People’s career progressions are dictated by performance reviews.”

Shortly after Muldrow was issued, a New York federal judge rejected Amazon’s bid to dismiss claims that it discriminated against a Black employee by reducing her responsibilities and putting her on a PIP in violation of federal and state anti-bias laws.

Meanwhile, the Seventh Circuit is considering whether to revive an ex-United Airlines worker’s age bias suit, which accused the company of unlawfully placing her on PIP and retaliating after she made sexual harassment complaints about her supervisor.

A pending Tenth Circuit case could also clarify whether a referral to an employee assistance program for performance improvement can be an adverse action under the ADA if it’s mandatory or otherwise carries negative consequences.

Opening Floodgate?

Employers arguing against PIPs and negative reviews being classified as adverse actions have a key defense that the argument could embolden workers to challenge virtually every unfavorable workplace decision, leading to a flood of lawsuits and disrupting companies’ ability to make operational decisions.

“Congress has spoken and said we don’t want discrimination in any aspect of employment,” Licul said. “You can make whatever decision you want about somebody’s employment—put them on a path of fire, cut their pay, or refuse to promote them—as long as you don’t do it for an improper reason.”

While cases with claims involving performance issues have increased, Mastroianni said she’s not convinced that workers will file facial challenges unless they’ve been terminated or demoted. And if courts agree that PIPs are adverse actions, they must determine the appropriate damages for a plaintiff who didn’t suffer injuries like loss of employment or benefits, she said.

Meanwhile, workers bringing lawsuits also need to meet high legal standards to prevail, particularly when relying on indirect evidence of bias, Licul said. They must show that the alleged discrimination was based on a protected characteristic and that the employer’s reasons were just a pretext for bias.

The Fifth Circuit last year upheld a Texas school district’s summary judgment win after a teacher failed to show that age bias—rather than poor performance— led his employer to place him on a support plan.

Separately, retaliation claims require a higher showing than the discrimination standard, as plaintiffs must demonstrate they’ve experienced a materially adverse injury. However, the harm doesn’t have to be tied to the terms of their employment.

Employers must ensure their employee management plans serve a legitimate, nondiscriminatory business purpose, as liability risks can be costly and substantial, Adler-Paindiris said.

Oftentimes, employers “wait too long to put someone on a PIP or use the process to exit an employee without giving them a fair opportunity” to improve, she said. “That’s going to be really problematic.”

Managers should also maintain confidentiality to protect workers’ reputations, as it could otherwise trigger a potential bias claim, Mastroianni said.

Muldrow is “setting the stage” for more litigation, she said. It’s “still relatively new. It’s going to be interesting to see how these arguments shake out.”