The Title VII tug-of-war: application of U.S. employment discrimination law extraterritorially.

• Author: Brown, LaToya S.

ABSTRACT

Companies around the world increasingly are engaging in cross-border business transactions. Globalization is a must if companies want to continue to be competitive in the marketplace--indeed it is an inevitable reality. However, in the midst of this reality is another reality: the legal implications of establishing operations abroad. Transnational expansion introduces companies to an interesting game of tug-of-war in which companies may find themselves torn between compliance with U.S. law and compliance with the laws of the host country. This Note discusses this tug-of-war in the context of Title VII of the Civil Rights Act of 1964. Over 15 years ago, it was debatable whether Title VII applied extraterritorially, but Congress has since answered this question in the affirmative. However, one victory only created more hurdles. These hurdles, for purposes of this Note, are the "employee question" and the "law question." With respect to the former, the basic question is: What is the proper scope of Title VII's extraterritorial employee coverage? With respect to the latter, the question is: What constitutes a conflict of "law" sufficient to permit an employer to avoid compliance with Title VII? These are critical questions, the resolution of which is necessary in order to preserve Title VII's effectiveness. This Note offers suggestions as to how each question should be resolved. Each resolution starts from the basic premise that Title VII can only go so far without sacrificing its effectiveness. The challenge is recognizing Title VII's limitations and finding alternative resolutions for those situations to which Title VII realistically cannot apply, and this challenge is precisely the objective of the Note.

TABLE OF CONTENTS I. INTRODUCTION II. BACKGROUND A. The Extraterritoriality Problem: Congress's Approach to the Application of Federal Statutes Outside the United States B. Title VII of the Civil Rights Act of 1964: An Overview of the Statute C. The 1991 Act and Its Implications for the Extraterritoriality Problem III. THE DEBATES: THE PROPER SCOPE AND THE POTENTIAL TO ESCAPE--ONGOING CONCERNS REGARDING TITLE VII's EXTRATERRITORIAL APPLICATION A. Debate One: The Proper Scope of Title VII's Definition of Employee--The Employee Question B. Debate Two: The Foreign Compulsion Defense as an Escape Device--The Law Question IV. MAINTAINING TITLE VII's EFFECTIVENESS WHILE REMAINING REALISTIC ABOUT ITS REACH: SUGGESTIONS ON HOW TO ADDRESS THE "EMPLOYEE" AND "LAW" QUESTIONS A. Response to the Employee Question: Expansion of the Definition of Employee to Mimic the Scope of Title VII as Applied in the United States while Remaining Realistic About the Capabilities of Title VII B. Response to the Law Question: Congress Must Provide More Guidance to Courts and Employers as to When Employers May Legitimately Invoke the Foreign Compulsion Defense V. CONCLUSION I. INTRODUCTION

Walmart's current global operation includes locations in Argentina, Brazil, Canada, China, Germany, Japan, South Korea, Mexico, and the United Kingdom, with a total of 2,229 locations worldwide. (1) Other companies in the race for international expansion include McDonald's (which currently has almost 18,000 restaurants outside the United States); (2) Pfizer (which recently opened a $410 million epilepsy drug factory in Singapore); (3) and Johnson & Johnson (which has nearly 38% of its factory space in Europe, up from 23% a decade ago). (4) These companies reflect only a trivial percentage of companies currently engaging in cross-border business practices. The multinational enterprise (MNE)--a company owning, controlling, and managing products or providing services in more than one country--is a given feature of today's economic market. (5) Companies' rationales for globalizing their operations include, but are not limited to, the desire to keep up with the competition, inexpensive labor, host government tax breaks, and foreign government giveaways, such as selling property at discounted rates and imposing fewer restrictions on business operations. (6) For companies with sufficient capital and the desire to expand to the foreign market, these perks counter any reluctance they may have about going global.

From a business and economic perspective, going global may be an inevitable reality, a part of the natural progression for a company looking to maximize profits. However, from a legal standpoint, transnational expansion introduces companies to an interesting game of tug-of-war in which companies may find themselves torn between compliance with U.S. law and compliance with the laws of a host country. At the heart of this game of tug-of-war is the problem of jurisdiction--the jurisdiction of U.S. courts over MNEs engaging in conduct in violation of federal law versus the desire of the host government to control foreign investor business practices. (7) This Note discusses that jurisdictional war in the context of Title VII of the Civil Rights Act of 1964 (Title VII). (8) Title VII prohibits the discriminatory treatment of employees on the basis of race, color, sex, religion, or national origin. (9) The extent to which this prohibition should apply to workers employed abroad by U.S. companies is an issue that has sparked an appreciable degree of scholarly debate and judicial scrutiny. (10) Congress has definitively provided that Title VII does apply to the foreign operations of U.S.-controlled companies, (11) but despite this definitive answer, a number of questions have surfaced pertaining to the precise scope of Title VII's extraterritorial effect.

This Note focuses on two questions regarding this extraterritorial effect: (1) what is the proper scope of Title VII's definition of employee as applied to the foreign operation, and (2) to what extent should employers have the ability to invoke the foreign compulsion defense to avoid Title VII's extraterritorial application? Part II of this Note provides a brief historical overview of how Congress approaches the application of federal statutes outside the United States as a general matter. It then summarizes Title VII's evolution since its inception in 1964 and discusses the extraterritoriality problem specifically in the context of Title VII. Part III discusses the ongoing debate as to the proper scope of Title VII's definition of employee and discusses the foreign compulsion defense as a potential escape device from Title VII's extraterritorial application. Part IV offers suggestions about how the definition of employee might be expanded without sacrificing Title VII's effectiveness and how the foreign compulsion defense might be amended to provide more guidance for when an employer can properly invoke it.

2. BACKGROUND

   1. The Extraterritoriality Problem: Congress's Approach to the Application of Federal Statutes Outside the United States

      In order to appreciate the tension surrounding the application of Title VII extraterritorially, it is important to understand the evolution of Congress's general approach to the application of federal statutes beyond the borders of the United States. Courts have grappled with the question of extraterritorially applying federal law for over two centuries. (12) Although acknowledging Congress's authority to apply and enforce federal laws abroad, (13) courts historically were hesitant to rule on the basis of this authority. (14) In an effort to "protect against unintended clashes between our laws and those of other nations which could result in international discord," courts established a presumption that U.S. law applies only within U.S. boundaries. (15) This governing principle, referred to as the "presumption against extraterritoriality," (16) became and remains a longstanding principle of U.S. law (17) and, at least theoretically, continues to be the backdrop against which courts examine the application of all U.S. statutes in foreign territories. The presumption may be overcome by a clear statement from Congress that a statute was intended to apply abroad. (18)

      Justifications for the presumption include international law limitations, the desire to maintain consistency with domestic conflict of law rules, the need to protect against international discord, the need to maintain separation of judicial and legislative powers, and the predictability value of the presumption. (19) However, despite the justifications for and the longstanding nature of the presumption, courts have applied it in a variety of ways. From its inception through the early part of the twentieth century, courts applied the presumption reflexively to almost all federal statutes. (20) In the early twentieth century, courts began recognizing exceptions to the rule. (21) The earliest exception was on the basis of the effect that the foreign conduct was having in the United States--the "effects exception." (22) Under this exception, federal law could be applied abroad where one could demonstrate that the extraterritorial conduct had substantial domestic effects. (23) The "effects exception" had the practical effect of providing employers with a legitimate way to escape the presumption against extraterritoriality. (24) Indeed, it may be partially responsible for the presumption's decline in significance by the 1980s. (25)

      By the early 1990s, courts were applying the presumption inconsistently and subjecting it to many exceptions. (26) It was not until the 1990s that the presumption resurfaced as a strict bar to extraterritorial application. Since then, it has continued to arise across legal disciplines including securities law, (27) environmental law, (28) antitrust law, (29) bankruptcy law, (30) copyright law, (31) and employment law. (32) In certain of these disciplines, courts have found the requisite clear statement from Congress that the applicable statute was intended to apply abroad; in other instances, courts have refused to do so. (33) Fortunately, with respect to Title VII...