The evolving conflict between employment discrimination laws and immunity under Title VII of the Civil Rights Act and Article VII of the FCN Treaty between the United States and Japan - the Papaila case.

• Author: Isenberg, Beth Ann
• Position: Case Note

An escalating problem exists in the area of cross-border investment between the United States and Japan. Such investment brings with it cultural and managerial preferences for persons of Japanese descent, males, and non-blacks when hiring personnel. While Japanese society and culture support and reinforce these preferences, conflict occurs when these preferences are carried over into the United States. This conflict results when these preferences collide with the protections of Title VII of the Civil Rights Act of 1964 against discrimination. As global investment is ever increasing, this problem will only escalate, particularly as there are potential defenses for domestic subsidiaries of foreign corporations in bilateral treaties of Friendship, Commerce and Navigation between the United States and foreign countries. In resolving this conflict, an analysis of culture and its implications is essential as it is a driving force behind the continuation of such hiring practices. Furthermore, to reach a thorough understanding, this analysis must be made in conjunction with an analysis of illustrative case law. As a result of such analyses, it is clear that promotion of foreign investment is contingent upon both domestic and foreign laws and cultures.

1. Introduction

   "Recent decades have witnessed a rapid increase in the number of multinational corporations ... [and] their importance as promoters of economic prosperity."(1) Such corporations, which can be either foreign branch organizations or domestic subsidiaries, provide jobs and profits for "both the host nation and the guest nation."(2) The growth of multinational corporations is also important to the growth of a global economy.(3) However, as the world becomes a commercially and technologically smaller entity, the potential for violation of domestic laws by foreign corporations grows exponentially.(4) This is particularly evident when considered in light of the tremendous and unacknowledged cultural differences involved in international transactions.(5) These issues are further complicated by treaties and litigious interpretations of specific provisions generally intended to facilitate international investment.

   In an effort to promote this cross-border prosperity, the United States has entered into a number of bilateral treaties known as the Friendship, Commerce and Navigation Treaties [FCN Treaties].(6) These treaties are self-executing and come into force as binding domestic law of their own accord upon ratification without the requirement of additional independent legislation by Congress.(7) One such FCN Treaty exists between the United States and Japan.(8) Specifically, "[t]he purpose of the FCN Treaty is to encourage mutually beneficial trade and investment opportunities between the United States and Japan.... [T]he FCN Treaty assures Japanese corporations conducting business in the United States that they will receive the same treatment as U.S. companies."(9) However, these treaties do not foreclose the application of the laws of the host country to the corporation entirely.(10) Rather, the treaty "merely prohibits the host government from applying more restrictive provisions to foreign companies than it applies to similar domestic interests."(11)

   While these treaties have successfully allowed the growth of foreign branches and subsidiaries in the United States, they have also produced a substantial amount of litigation. This litigation generally focuses upon employment discrimination where the hiring practices of the foreign subsidiary run contrary to domestic protections under Title VII of the Civil Rights Act. The Friendship, Commerce and Navigation Treaty with Japan has been a particular source of such litigation involving conflicts between Article VIII(1) of the FCN Treaty, the "of their choice" provision, and Title VII of the Civil Rights Act of 1964.(12)

   The conflict between the protections of Article VIII and Title VII is evolving in such a way that employment discrimination litigation has been increasing over the last three years with at least a dozen suits being filed.(13) "One source contends that `[a]lmost every major Japanese company in the U.S. has a lawsuit against it.'"(14) In fact, the Japanese Labor Ministry reported that 57% of the 331 Japanese corporations in the United States are concerned about being the target of an employment discrimination suit.(15)

   This prominent concern of becoming involved in litigation is further aggravated by the inconsistencies among the federal courts' handling of employment discrimination suits against Japanese employers.(16) While the decision in Sumitomo Shoji America, Inc. v. Avagliano(17) indicates that the freedom of choice provision embodied in Article VIII of the FCN Treaty does not permit domestic labor laws from being discarded, the Court left unanswered questions as to whether a wholly-owned domestic subsidiary can invoke the rights of its parent corporation under the FCN Treaty.(18) Furthermore, several circuit courts have subsequently handed down decisions that afford Japanese employers immunity from employment discrimination under the FCN Treaty.(19) Additionally, the United States Supreme Court's refusal to hear Papaila v. Uniden America Corp.,(20) the most recent case of employment discrimination falling under the FCN Treaty, allows the confusion and conflict in this area to continue and worsen.(21)

   Through an analysis of previous litigation and culture, this Note will delineate the sources of confusion and how this growing conflict might be addressed in the future. In so doing, this Note will analyze the influence of Japanese culture on employment decisions, including a preference for homogeneity, males, and non-blacks, and the resulting interrelationships between Article VIII and Title VII. This Note will also analyze whether Title VII supersedes Article VIII of the Treaty or if the two sections can be read consistently with each other. Furthermore, this Note will address the evolution of litigation under the FCN Treaty with Japan from Spiess v. C. Itoh. & Co. (America),(22) through Papaila v. Uniden America Corp.(23) including the inconsistent decisions of the Second, Fifth, Sixth, and Seventh Circuit Courts and the Supreme Court's decision in Sumitomo. Thereafter, this Note will address where the law stands today following the Papaila case and how the law is likely to develop in this area. In so doing, the analysis will consider future implications for cases of employment discrimination of both race and gender, the differentiation between national origin and citizenship discrimination, and the bona fide occupational qualification defense (BFOQ). Finally, this Note will conclude by suggesting several questions that remain unanswered under the present FCN Treaty analysis.

2. The Influences of Culture on Employment Practices and Treaty Negotiations

   One of the most important factors often overlooked in the analysis of FCN Treaty relations is culture. Culture is defined as "the sum total ways of living built up by a group of human beings and transmitted from one generation to another."(24) As such, culture is a crucial variable that influences numerous decisions and is an underlying aspect of all negotiations and employment decisions.(25) In evaluating the potential interpretation, scope, and implementation of Article VIII, it is paramount that one look to the underlying influences of Japanese culture. This is especially significant as there are a number of cultural factors that help to explain the behavior and employment decisions by Japanese multinational corporations against American applicants and employees.(26) Specifically, these factors include an inherent distrust of the in-group versus the out-group, business practices, and conceptions of law and their applications.(27)

   Unity and homogeneity are essential concepts to Japanese corporations. In fact, "[t]he concept of ethnic homogeneity is deeply rooted in the national psyche, and it is deliberately fostered by the nation's leaders as the force behind the nation's social cohesion and sense of shared purpose."(28) As the Japanese culture is relatively homogenous, the in-group/out-group distinctions are easily made. Those who are members of the ethnic and social majority are part of the in-group while the members of the non-homogeneous minority comprise the out-group. This distinction becomes important in the context of a multinational corporation as the employees will be comprised of members of both groups as some of the employees will be from the host nation, while others will be from the guest nation. Such a context may not only permit the in-group/out-group distinction, but also serve to foster it(29) as American employees who tend to be "individualistic, aggressive, and straight-forward" are likely to be seen as trouble to be repressed or discharged.(30) As a result, unity and cohesion in a multinational corporation "may be more difficult than usual if individuals within the group are unfamiliar with each other, giving rise to a greater likelihood of clashing views and anxiety within the group."(31)

   This in-group/out-group distinction is further complicated by business practices of Japanese corporations that may serve to create additional conflict. Specifically, the management philosophy generally exercised in Japanese business systems, which focuses upon unity, emphasizes this problem.(32) This system is "based on consensus-building"(33) and is designed on the basis of cultural systems and traditions that promote order and group cohesion.(34) Group cohesion and consensus are so integral to the functioning of a Japanese business that no one person makes a decision or stands alone.(35) As a result, the Japanese put forth the position that foreign citizens cannot hold managerial positions in their subsidiaries because foreigners are unfamiliar with the "ringi system of decision making,"(36) which emphasizes group...