As I have written about before, under the “disparate impact” theory of liability, landlords can unintentionally violate the Fair Housing Act if their policies or practices disproportionately and adversely impact protected class members. This theory of liability was adopted by HUD in 2013 and upheld by the Supreme Court in 2015. And, for all intents and purposes, it still remains a viable theory of liability that HUD will continue to pursue—however, a recent proposed rule amendment by HUD has weakened the familiar burden shifting framework typically associated with a disparate impact claim, putting more of the burden on the plaintiff to make a successful claim.
Under the prior rule, once the plaintiff made a threshold showing that a practice or policy had a discriminatory impact on him or her, the burden shifted to the defendant to prove that the practice or policy at issue was necessary to achieve a substantial, legitimate, non-discriminatory interest. If the defendant was able to show such an interest, then the burden shifted back to the plaintiff to prove that the interest offered by the defendant could be achieved by another practice or policy with a less discriminatory effect. Picture it like a game of ping pong—the plaintiff must get the serve over the net, then the defendant must successfully hit a return shot, and finally the burden is back to the plaintiff to try to put away the point.
So what has changed under the new rule? Well, put simply, the new rule makes it more difficult for a plaintiff to reach the initial threshold to make a cognizable claim. Or, to carry forward with our ping pong analogy, HUD just made the net a lot higher on the plaintiff’s serve. The new rule requires a plaintiff to identify with particularity the policy or practice at issue, and to explain why this policy or practice is arbitrary, artificial, or unnecessary. Only if the plaintiff is able to allege facts to support the assertion that the policy or practice is arbitrary does the burden shift to the defendant to identify a valid interest that the challenged practice or policy serves. The new rule also provides several specific defenses available to defendants, including, most notably, that the offending policy or practice relies on an objective algorithmic model created or maintained by a third party (a safe harbor that seems principally aimed at protecting credit checks).
So what is the bottom line? Not to confuse our sports analogies, but this ruling makes establishing a prima facie case for a disparate impact claim less of a “slam dunk” for the plaintiff. Essentially, this new rule will require a greater initial effort on the plaintiff’s part 1) to explain with particularity the practice or policy at issue, and 2) to further substantiate/ back the assertion that the policy or practice is arbitrary, artificial or unnecessary, before the defendant is called upon to respond. The second bottom line here is to not diminish the significance of disparate impact claims. While this proposed rule amendment does seem to raise the initial burden of proof, it does nothing to weaken the importance of disparate claims and the liability for landlords associated with these claims. Therefore, it is imperative that landlords are periodically re-evaluating their policies and practices to ensure they do not have a disparate impact on any protected classes.