her a partnership. Here, the non-discriminatory reason for dismissal put forth by the Bank -- Moodie's alleged resume fraud -- was never a factor in the Bank's actual decision to terminate him.
The use of after-acquired evidence of employee misconduct as a defense in employment discrimination cases is an area of law that is still developing. Some courts treat after-acquired evidence of wrongdoing as a complete defense to a charge of wrongful termination. See Summers v. State Farm Mutual Automobile Insurance Co., 864 F.2d 700 (10th Cir. 1988) (plaintiff who committed resume fraud was not entitled to his job and, therefore, had no right to complain of discrimination on the job). Other courts use a two-step analysis, determining first whether a violation occurred and, second, whether given the discovered misconduct the plaintiff is entitled to any relief. See Smith v. Gen. Scanning, Inc., 876 F.2d 1315, 1319, n. 2 (7th Cir. 1989) (plaintiff who committed resume fraud not entitled to reinstatement but may be eligible for backpay based on when the fraud was discovered).
Allowing the use of after-acquired evidence as a complete defense "would have the perverse effect of providing a windfall to employers who, in the absence of their unlawful act and the ensuing litigation, would never have discovered" the wrongdoing. Wallace v. Dunn Construction Co., Inc., 968 F.2d 1174, 1182 (11th Cir. 1992). The two-step analysis -- using after-acquired evidence only for deciding damages if and when a violation by the employer is found -- appears to be the sounder approach as it balances the competing public interests of deterring discrimination while still allowing employers appropriate latitude in personnel decisions.
Accordingly, even if Moodie should ultimately be found to have committed resume fraud in applying for his job with the Bank, that finding will not bar Moodie from pressing his claim of discriminatory discharge; but it presumably would affect the determination of what damages, if any, Moodie is entitled to if he prevails on his claim of discrimination.
Applicability of State Law
The Bank contends that it is not subject to the New York State Human Rights Law because the state law conflicts with the Federal Reserve's statutory power to dismiss employees "at pleasure." 12 U.S.C. § 341.
The Bank's preemption argument relies on Ana Leon T. v. Federal Reserve Bank of Chicago, 823 F.2d 928 (6th Cir. 1987), cert. denied, 484 U.S. 945, 98 L. Ed. 2d 360, 108 S. Ct. 333 (1988). The Sixth Circuit there held that, as a Federal Reserve Bank employee, the plaintiff's rights under the Michigan employment discrimination law were preempted by § 341. Id. at 931. However, the Sixth Circuit's pronouncement gives no basis for its opinion and sets forth no policy reasons for its holding. In the case at hand, the New York State Division of Human Rights has similarly dismissed on the mere ipse dixit that the Federal Reserve Bank is a "corporate instrumentality of the United States Government." For the reasons discussed below, we disagree with Ana Leon T. and the New York State Division of Human Rights.
In determining whether a state statute is preempted by a federal act, "our task is to ascertain Congress' intent in enacting the federal statute at issue." Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 95, 77 L. Ed. 2d 490, 103 S. Ct. 2890 (1983) (determining whether ERISA preempted state disability law by first looking to ERISA's plain language and legislative history).
12 U.S.C. § 341 -- titled "General enumeration of powers" -- provides the basic framework for the organization of Federal Reserve Banks. The Fifth provision, enacted in 1935, empowers the Bank "to appoint by its board of directors a president, vice-presidents, and such officers and employees . . . and to dismiss at pleasure such officers and employees." The Bank has put nothing before us to support the view that considerations relating to employment discrimination were of concern to the Congress at that time. It is undisputed that Congress, by the express language of the Fifth provision, intended the Federal Reserve Banks to be employers at will, conferring no special tenure or contractual rights upon their employees. (Defendant's Brief at 23-24; Plaintiff's Brief at 59-60.) The more difficult question is whether Congress intended the Bank's conduct in employment matters to be exclusively governed by that provision.
Nothing in the plain language of § 341 supports the Bank's view that Congress intended that section to exempt the Federal Reserve Banks, in the area of employment discrimination, from statutes or regulations of the states in which they operate, particularly when the state statutory scheme is consistent with federal legislation.
Moreover, when Congress later enacted Title VII's provisions prohibiting employment discrimination, it took no action to exempt the Federal Reserve Banks on the basis of their status as employers at will, or on any other basis. Indeed, the Bank concedes implicitly that the "at pleasure" language of § 341 does not exempt it from Title VII's prohibition against discrimination in employment; the Bank does not challenge Moodie's Title VII cause of action on those grounds. Therefore, it follows from the Bank's own interpretation that § 341 does not govern exclusively the Bank's conduct in employment affairs.
Although as indicated above, the Bank contends that § 341 preempts state law, it does not argue that Title VII does so. The New York State Human Rights Law, with provisions analogous to Title VII, creates no additional employment rights in conflict with the Bank's status as an employer at will, nor does it place additional constraints on the Bank's exercise of its statutory powers. Furthermore, 42 U.S.C. § 2000e-7 states in relevant part: "nothing in this subchapter shall be deemed to exempt or relieve any person from any liability, duty, penalty or punishment provided by any present or future law of any State . . . ." In sum, the Bank's position that § 341 preempts the New York State Human Rights Law is not persuasive and its motion for summary judgment as to the second cause of action is denied.
* * *
Defendant's motion for summary judgment and Plaintiff's cross motion to strike the resume fraud defense are denied.
It is so ordered.
Morris E. Lasker
Dated: September 20, 1993
New York, New York
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