U. S. Supreme Court Upholds Disparate Impact … With Limitations
On June 25, the United States Supreme Court issued a major ruling affecting the rental housing industry. In a 5-4 decision, the Court upheld the validity of disparate impact liability under the Fair Housing Act (FHA). Disparate impact is a legal theory, formalized by a 2013 Department of Housing and Urban Development (HUD) rule, which prohibits neutrally-applied practices with a disproportionate impact on protected classes under the FHA, even without proving intent to discriminate. The case, Inclusive Communities Project v. Texas Department of Housing, centered on the allegation that Texas’ allocation of Low-Income Housing Tax Credits in predominately minority communities reinforced housing segregation and thus violated the FHA. The National Apartment Association (NAA), National Association of Home Builders (NAHB), and numerous other trade associations filed amicus briefs in the case.
This decision by the Court has a significant impact on apartment owners because disparate impact theory could call into question the legality of some common industry practices, such as criminal background screening. However, in the opinion the majority highlighted limitations to disparate impact liability. For example, the Court stated that “practical business choices and profit-related decisions that sustain the free-enterprise system” should be allowed, and disparate impact claims should be limited to laws or policies which raise “artificial, arbitrary, and unnecessary barriers.” Further, disparate impact claims cannot be demonstrated by statistical evidence alone, but must show the practice actually caused an impact on a protected group and that there was “an available alternative … practice that has less disparate impact and serves the [entity’s] legitimate needs.” Even with the limitations outlined in the opinion, the Court’s validation of disparate impact liability will open the door to more claims – and ultimately more litigation – involving rental property owners.