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Employment and Labor

Recent U.S. Supreme Court Decision Alters the Scope of Recoverable Damages Under Anti-Discrimination Statutes Enacted under the Spending Clause

Recent U.S. Supreme Court Decision Alters the Scope of Recoverable Damages Under Anti-Discrimination Statutes Enacted under the Spending Clause

The Supreme Court of the United States recently held in Cummings v. Premier Rehab Keller, P.L.L.C., 142 S. Ct. 1562 (2022), that damages for emotional distress are not recoverable in actions seeking to enforce the Rehabilitation Act of 1973 or the Patient Protection and Affordable Care Act.  These statutes were enacted pursuant to the Spending Clause of the Constitution and prohibit recipients of federal funds from discriminating based on various protected characteristics.  This is unique compared to statutes enacted under the Commerce Clause of the Constitution, where congressional policy is imposed on regulated parties without mutual agreement.  Comparatively, Spending Clause legislation only imposes duties on the party which agrees to receive federal funding.  Like a contract, the recipient must voluntarily and knowingly accept the terms prior to receiving the funding.  However, the recipient cannot knowingly accept unless it clearly understands the obligations which come along with doing so.  Thus, the Supreme Court has held Congress must unambiguously impose a condition on the grant of federal money if Congress intends for such a condition to exist.  The same reasoning limits the scope of remedies in Spending Clause cases.  When considering whether to accept federal funding, a recipient would also need to know of the penalties for non-compliance.  If the recipient is not on notice that accepting the funding will expose itself to liability in the form of a particular remedy, then the remedy is not appropriate. 

The Spending Clause statutes referenced above are silent as to the available remedies.  Therefore, the Supreme Court devised a test, in the form of one question, to determine whether emotional distress damages are available in these kinds of actions.  The question is “would a prospective funding recipient, at the time it engaged in the process of deciding whether to accept federal dollars, have been aware that it would face such liability.”  If the answer is yes, then emotional distress damages are available as a remedy.  If the answer is no, then emotional distress damages are not available.

Following the contract analysis, the Supreme Court noted a federal funding recipient considered on notice is subject to remedies traditionally available in suits for breach of contract. The Supreme Court previously identified compensatory damages and injunctions as two such remedies, but found punitive damages were not generally available for breach of contract.  While there may be instances where punitive damages are recoverable when the conduct constituting the breach is a tort, the general rule remains that punitive damages are not available for breach of contract.  Accordingly, punitive damages are not an available remedy under the Spending Clause statutes.  Similarly, emotional distress damages are generally not compensable in contract.  Therefore, federal funding recipients cannot be considered to have consented to be subject to damages for emotional distress under the framework established by the Supreme Court.

In Cummings, the petitioner argued discrimination under the Rehabilitation Act and Affordable Care Act frequently gives rise to mental anguish so emotional damages should be recoverable.  Petitioner noted several contract treatises recognized the special rule such recovery is allowed where the contract or breach is of such a kind that serious emotional disturbance was the particularly likely result.  The Supreme Court disagreed, stating the petitioner’s position would treat funding recipients as on notice that they will face the usual remedies in contract actions, as well as rare remedies not typically available for breaches of the type of contractual commitments at issue.  The Supreme Court stated its cases do not treat suits under Spending Clause legislation as literal suits in contract, but instead that the Court uses the contract analogy as a potential limitation on liability compared to that which would exist under non-Spending Clause statutes.  This is done in order to ensure funding recipients exercised their choice to take federal funding knowingly, cognizant of the consequences of doing so.  Since the statutes are silent as to the consequences, it is fair to consider the recipients aware if they violate their promise to the government that they will be subject to either damages or an injunction because those are the usual forms of relief for breaching a legally enforceable commitment.

Even if it were appropriate to treat federal funding recipients as being aware they may be subject to rare contract-law rules, the recipients would still lack the requisite notice that emotional distress damages are available under the statutes at issue.  The Supreme Court further provided that the closest the American judicial system comes to a universal rule regarding the availability of emotional distress damages in contract actions is that such damages are for highly unusual contracts which do not fit into the core of contract law, and that there is no agreement as to which contracts qualify as highly unusual.  The Supreme Court concluded there is no basis in contract law to maintain emotional distress damages as traditionally available in suits for breach of contract, and thus no ground exists to conclude federal funding recipients are on notice they may face such a remedy in private actions brought to enforce the Rehabilitation Act of 1973 or the Patient Protection and Affordable Care Act. 

Given the Supreme Court’s holding as to the Rehabilitation Act and Affordable Care Act, federal funding recipients may anticipate the same rationale being extended to other Spending Clause statutes like Title VI of the Civil Rights Act of 1964 and Title IX of the Education Amendments of 1972.  In fact, the dissent specifically stated that “the Court’s decision today will affect the remedies available under all four of these [Spending Clause] statutes, impacting victims of race, sex, disability and age discrimination alike.”  Applying this contract rationale to Title VI and Title IX would ultimately result in significantly less potential exposure for federal funding recipients since emotional distress damages would not be available as a remedy under those claims.  Of course, the further argument could be made that the limitation of damages to contract only type damages should limit the availability of damages based on a tort theory entirely.