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Supreme Court Update

By Sarah Manthey Smith | Categories: Articles, Creditor Rights & Bankruptcy, Labor & EmploymentPrint PDF June 2015

On June 1, 2015, the U.S. Supreme Court decided two cases that address issues that attorneys practicing in the areas of labor and employment and bankruptcy deal with almost daily.

The first is Equal Employment Opportunity Commission (EEOC) v. Abercrombie & Fitch Stores, Inc., 135 S.Ct. 2028 (2015).  Abercrombie & Fitch is a popular clothing retailer located nationwide and no stranger to controversy.  The store is known for a certain aesthetic and consistent with this the store has a “Look Policy” governing employee dress.  Samantha Elauf, a practicing Muslim, applied for a job at an Abercrombie & Fitch store.  Elauf wears a headscarf.  Abercrombie interviewed Elauf and she scored sufficient marks from the interview to be hired for a position.  The assistant store manager was concerned, however, about Elauf’s headscarf and whether the headscarf was consistent with the store’s Look Policy.  The Look Policy prohibits employees from wearing caps.

Unsure about the requirements of the Look Policy, the assistant store manager first consulted the store manager for guidance, but got no answer.  Next, the assistant store manager consulted her district manager who instructed her that the headscarf would violate the Look Policy and not to hire Elauf.  The assistant store manager told the district manager that she believed Elauf wore the headscarf for religious reasons.

The EEOC sued Abercrombie & Fitch on Elauf’s behalf and won on the issue of liability and was awarded damages.  On appeal to the United States Court of Appeal for the Tenth Circuit, the court reversed the judgment in Elauf’s favor.  The appellate court held that an employer cannot be liable under Title VII of the Civil Rights Act of 1964 (“Title VII”) for failing to accommodate a religious practice until the applicant (or employee) provides the employer with actual knowledge of his need for an accommodation.

Title VII is a federal law that prohibits employers from refusing to hire, terminating, or discriminating against any person because of race, color, religion, sex, or national origin.  An employer violates Title VII if it makes employment decisions where a prospective employee or employee’s race, color, religion, sex, or national origin was a “motivating factor” in the decision.  Abercrombie & Fitch argued that it could not have discriminated against Elauf because it did not have actual knowledge that she wore the headscarf for religious reasons and that she needed an accommodation.

The Court held that there is no need for actual knowledge.  An employee must only prove that the need for an accommodation from the employer’s policy was a motivating factor in the employer’s decision.  The Court reiterated that Title VII does not impose any knowledge requirements on an employer unlike the Americans with Disabilities Act of 1990 which requires an employer to make an accommodation for “known physical or mental limitations.”

The Court ruled that an employer may not make an applicant’s religious practice, confirmed or otherwise, a factor in employment decisions.  Clearly, an employer who has knowledge, or even a suspicion, that an employee, prospective or otherwise, requires an accommodation must consider an accommodation regardless of whether the employee requests it.  Not addressed by the majority decision is the issue of whether the accommodation would cause an undue burden for the employer, an exception to the requirement of providing accommodations.

Employers are cautioned to pay attention to its motivations in making hiring and other employment decisions.  This ruling confirms that suspicions about a prospective employee or employee’s need for a religious accommodation at work should not be ignored.

The second decision is Bank of America, N.A. v. Caulkett and Bank of America, N.A. v. Edelmiro Todleo-Cardona, 135 S.Ct. 1995 (2015).  These consolidated cases both address the issue of whether a debtor in a Chapter 7 bankruptcy proceeding can void a junior mortgage under the Bankruptcy Code when the debt of the senior mortgage exceeds the present value of the property and the junior mortgage is completely underwater.  The Court held that the debtor cannot void the junior mortgage in such instances.  Rather than consider whether the value of the collateral is sufficient to cover the debt, the Court considered only whether the debt is a secured claim, meaning a claim that is secured by a lien.  Because the bankruptcy debtors’ junior mortgages were secured claims within the meaning of the Bankruptcy Code, the Court concluded that the junior mortgage could not be stripped.

If you have questions about how these cases impact you or your business, you are encouraged to consult with an attorney.

Sarah J. Manthey is an associate attorney with Johnson Pope Bokor Ruppel & Burns LLP in the Tampa office practicing general commercial litigation.

Joan M. Vecchioli and Colleen M. Flynn are partners with Johnson Pope Bokor Ruppel & Burns LLP in the Clearwater office practicing labor and employment Law.

Alberto F. Gomez, Jr. is a partner with Johnson Pope Bokor Ruppel & Burns LLP in the Tampa office practicing in the area of debtor and creditor law, including all aspects of bankruptcy law.

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