ROSA CARMINA RODRIGUEZ; ALEXIS E. AGOSTINI; RAYMOND U. ARROYO; CARL C. CHRISTENSEN; ERNESTO L. CRUZ; MANUEL Q. CRUZ; SHIRLEY Y.M. CUMMINS; LINDA T. KUAILANI; ROY LYNCH; RAFAEL A. MARTINEZ; ALBERT E. MILLER; JULIA Q. NORMAN; HILDAMAR ORTIZ; REGINALD KENALIO PUANA; IVAN O. PUIG; CYNTHIA JEAN ROMNEY; VICTOR L. ROSARIO; CELIA A. RUIZ; JOEL A. TUTEIN, Plaintiffs, Appellants,
UNITED STATES OF AMERICA; THE UNITED STATES OFFICE OF PERSONNEL MANAGEMENT; BETH F. COBERT, Acting Director of the United States Office of Personnel Management, Defendants, Appellees.
FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
PUERTO RICO Hon. Nancy Torresen, [*] Chief U.S. District Judge.
H. Charnes, with whom Christin J. Jones, Thurston H. Webb,
and Kilpatrick Townsend & Stockton LLP were on brief, for
Stephanie R. Marcus, Attorney, Appellate Staff, Civil
Division, United States Department of Justice, with whom
Benjamin C. Mizer, Principal Deputy Assistant Attorney
General, Rosa E. Rodríguez-Vélez, United States
Attorney, and Marleigh D. Dover, Attorney, Appellate Staff,
Civil Division, United States Department of Justice, were on
brief, for appellees.
Howard, Chief Judge, Dyk, [**] and Thompson, Circuit Judges.
challenge the Office of Personnel Management's
("OPM") regulations that exclude cost-of-living
allowances ("COLAs") from the calculation of
retirement and other benefits. These COLAs are received by
federal employees working in non-foreign areas located
outside the contiguous United States. Plaintiffs allege that
these regulations are unlawfully discriminatory under Title
VII of the Civil Rights Act of 1964, Pub L. No. 88-352, 78
Stat. 241, 253-66, and are arbitrary, capricious, and
contrary to law under the Administrative Procedure Act
("APA"). The district court dismissed
plaintiffs' complaint. We affirm.
we conclude that in many respects the merits of
plaintiffs' claims are not before us, we briefly outline
the issues underlying the dispute. This case concerns the
calculation of retirement and other benefits for federal
employees working in non-foreign areas located outside the
contiguous United States. These areas include at least Puerto
Rico, the U.S. Virgin Islands, Guam, the Northern Mariana
Islands, Hawaii, and Alaska. In addition to their normal
salaries, federal employees working in these areas receive
cost-of-living allowances, or COLAs, calculated based on
"living costs substantially higher than in the District
of Columbia." 5 U.S.C. § 5941(a)(1). Congress first
provided for such payments (then called "additional
compensation") in 1948, and Congress provided the
President with authority to issue regulations governing the
to that congressional authority, on September 16, 1948,
President Truman issued Executive Order 10, 000, 13 Fed. Reg.
5453. In the order, President Truman delegated authority to
the United States Civil Service Commission ("CSC")
(predecessor of OPM) to prescribe regulations. 13 Fed. Reg.
at 5455. On December 30, 1948, the CSC promulgated the
regulations at issue in this case. See Territorial
Post Differentials and Territorial Cost-of-Living Allowances,
13 Fed. Reg. 8725 (1948).
1948 CSC regulations provided for COLA payments, but they
stated that COLAs are not part of the "base used in
computing" entitlements such as retirement benefits. 13
Fed. Reg. at 8727, § 350.6(f). This rule excluding COLA
payments from basic pay for retirement purposes persists in
OPM's regulations today. 5 C.F.R. § 591.239(b). The
consequence, under the regulations, is that employees
receiving COLA payments earn lower retirement annuities than
they would earn were the COLA payments included in their
basic pay. We refer to this exclusion of COLA from base pay
as the "exclusionary rule."
complain that the exclusionary rule is contrary to law
because, plaintiffs assert, there is no basis for the
exclusionary rule in either the statute or Executive Order
10, 000. The government contends that the exclusionary rule
is mandated by statute. The government explains that the
statutory definition of "basic pay" for federal
employees in the retirement laws explicitly excludes
"allowances." See 5 U.S.C. § 8331(3)
("'basic pay' . . . does not include . . .
allowances" under the Civil Service Retirement System
("CSRS")); see also id. § 8401(4)
(incorporating the CSRS definition of "basic pay"
into the Federal Employees' Retirement System
("FERS")). The current statute governing COLA
payments refers to those payments as "allowances."
Id. § 5941(a)(1). Therefore, the government
reasons, COLAs are allowances and must be excluded from basic
pay. The government also notes that COLAs are exempt from
federal income tax. See 26 U.S.C. § 912(2).
do not agree that COLAs are "allowances" within the
meaning of the retirement laws. Plaintiffs argue that when
COLAs were established in 1948, Congress referred to them as
"additional compensation" rather than
"allowances." See 5 U.S.C. § 118h
(1952). Plaintiffs contend that no interpretive significance
should be attributed to the United States Code's 1966
recodification,  when Congress in the COLA statute replaced
the terminology "additional compensation" with the
"allowances" terminology. See H.R. Rep.
No. 89-901, at 117 (1965) ("The word
'allowances' is substituted for 'additional
compensation' as a more apt term and for
consistency."). Plaintiffs argue that the 1966
recodification was not intended to introduce substantive
changes and, thus, the COLA statute's mere change in
terminology introducing the label "allowances" in
1966 cannot justify the exclusionary rule.
further complain that the rule also unlawfully discriminates
against COLA payment recipients, many of whom are minorities
that make up significant populations in COLA areas.
Plaintiffs contend that "today, federal employees in
COLA areas are the only class of federal employees
in the United States whose regular compensation for normal
working hours in their place of permanent residence is not
included in their retirement base." Plaintiffs' Br.
are a group of 19 current and former federal employees
working in the non-foreign COLA areas. Plaintiffs filed a
class action complaint in the United States District Court
for the District of Puerto Rico challenging the exclusionary
rule on behalf of a putative class of similarly situated
current and former employees and surviving spouses of such
employees. Plaintiffs named the United States, OPM, and the
Director of OPM (collectively, "the government") as
defendants. The complaint, as later amended, seeks a
declaratory judgment that the exclusionary rule is arbitrary,
capricious, and contrary to law under the APA and that the
rule unlawfully discriminates against protected minorities in
COLA areas in violation of Title VII, 42 U.S.C. §
2000e-16. With respect to the discrimination claims, the
complaint alleges both that the rule is the product of
discriminatory intent ("disparate treatment" claim)
and that it improperly and adversely impacts minorities
("disparate impact" claim).
August 20, 2015, upon the government's motion, the
district court dismissed plaintiffs' amended complaint
pursuant to Fed.R.Civ.P. 12(b)(1) and 12(b)(6). The court
first held that the disparate impact claim was barred by the
safe harbor provision of Title VII, which provides that
"it shall not be an unlawful employment practice for an
employer to apply different standards of compensation . . .
to employees who work in different locations" absent an
intention to discriminate because of protected status. 42
U.S.C. § 2000e-2(h). The court next determined that
plaintiffs had failed to administratively exhaust their
disparate treatment claim before OPM. Finally, the court held
that the nondiscrimination claims were precluded by the Civil
Service Reform Act of 1978 ("CSRA"), which required
plaintiffs to pursue their claims at the Merit Systems
Protection Board ("MSPB"), with appeal to the
appeal. We have jurisdiction pursuant to 28 U.S.C. §
review a district court's dismissal for lack of subject
matter jurisdiction and for failure to state a claim de novo.
McCloskey v. Mueller, 446 F.3d
262, 266 (1st Cir. 2006). We "accept the
plaintiffs' well-pleaded facts as true and indulg[e] all
reasonable inferences to their behoof." Id.
is no contention that plaintiffs have failed to
administratively exhaust their disparate impact claim, as
opposed to their other claims. The question is whether the
district court correctly held that this claim is barred by
the safe harbor provision of 42 U.S.C. § 2000e-2(h).
Answering this question requires first determining whether
§ 2000e-2(h) is a definitional provision that
encompasses disparate impact for both private employers and
the federal government, or-as plaintiffs argue-an affirmative
defense that only applies to private employers.
thus, necessary to an understanding of the Title VII
provisions applicable to the federal government to understand
the provisions applicable to private employers-provisions
that pre-date the federal employment provisions. The Supreme
Court interpreted the Title VII provisions applicable to
private employers to prohibit employment policies creating a
disparate impact in Griggs v. Duke
Power Co., 401 U.S. 424 (1971). In Griggs, the
Court explained that "[t]he Act proscribes not only
overt discrimination but also practices that are fair in
form, but discriminatory in operation." Id. at
431. Under Title VII, a claim for disparate impact covers
"practices that are not intended to discriminate but in
fact have a disproportionately adverse effect on
minorities." Ricci v.
DeStefano, 557 U.S. 557, 577 (2009).
not all employer actions that have a disparate impact are
unlawful. Section 2000e-2(h) provides a safe harbor for
employers that compensate their employees differently
depending on the location of employment. It provides, in
Notwithstanding any other provision of this subchapter, it
shall not be an unlawful employment practice for an employer
to apply different standards of compensation, or
different terms, conditions, or privileges of employment . .
. to employees who work in different locations,
provided that such differences are not the result of an
intention to discriminate because of race, color, religion,
sex, or national origin.
Id. (emphasis added). This section does not preclude
claims of intentional discrimination, but it does preclude
claims of disparate impact. Candelario Ramos
v. Baxter Healthcare Corp. of Puerto
Rico, 360 F.3d 53, 62 (1st Cir. 2004). In Candelario
Ramos, this court explained that "different
treatment in different locations is permissible absent an
intent to discriminate." Id. at 61. The court
also explained that § 2000e-2(h) does not merely provide
a defense to disparate impact claims, but it instead serves
to define unlawful discrimination. See id. at 62.
Differences in compensation depending on location of
employment, by itself, is not unlawful discrimination. The
The subsection itself is not surprising. Location is often a
proxy for differences in cost and other competitive
circumstances; and while Congress could have made those
circumstances a separate defense, the difficulties of showing
that a difference in pay precisely correlated with a
difference in cost would be formidable. In effect, different
locations are simply a safe harbor in cases where there is no
Id. (citation omitted).
Supreme Court has also made clear that, as to seniority
plans, § 2000e-2(h) is "a provision that itself
'delineates which employment practices are illegal and
thereby prohibited and which are
not.'" Lorance v. AT &
T Techs., Inc., 490 U.S. 900, 908 (1989), superseded
on other grounds by statute, Civil Rights Act of 1991,
Pub. L. No. 102-166, sec. 112, 105 Stat. 1071, 1078-79
(quoting Franks v. Bowman Transp.
Co., 424 U.S. 747, 758 (1976)); see also NAACP,
Detroit Branch v. Detroit Police Officers
Ass'n, 900 F.2d 903, 908 (6th Cir. 1990) (explaining
that under Lorance, § 2000e-2(h) "has been
regarded as a definitional provision"). Plaintiffs argue
that the key language of Lorance (quoted above) is
inapposite because that case addressed only the seniority
plan provision of § 2000e-2(h) and not the
location-based safe harbor provision, and that the
location-based safe harbor is an affirmative defense.
we see no reason to read these two portions of §
2000e-2(h) differently or to regard the location-based safe
harbor as an affirmative defense. To the extent that circuit
cases before Lorance treated § 2000e-2(h)
generally as an affirmative defense,  we think they are no longer
good law after Lorance. Nor is it significant that
certain provisions of the Equal Pay Act, which bear some
resemblance to several provisions in § 2000e-2(h), have
been characterized as affirmative defenses. See
Washington Cty. v. Gunther, 452 U.S.
161, 168-69 (1981); Rodriguez v.
Smithkline Beecham, 224 F.3d 1, 6 (1st Cir.
relevant legislative history of the 1964 Act also shows that
Congress intended § 2000e-2(h) to explain what is
not unlawful discrimination. See 110 Cong.
Rec. 12, 723 (June 4, 1964) (Statement of Sen. Humphrey)
(explaining that the provision "makes clear that it is
only discrimination on account of race, color, religion, sex,
or national origin, that is forbidden by the title. The
[provision] does not narrow application of the title, but
merely clarifies its present intent and effect.");
see also Am. Tobacco Co. v.
Patterson, 456 U.S. 63, 73 n.11 (1982).
distinction between defining the scope of liability and
providing an affirmative defense is pertinent to whether the
provision applies to the federal government. Plaintiffs'
central argument is that, even if the location-based safe
harbor provision limits liability in the private sector, it
is inapplicable to the federal government. Plaintiffs reason
that the section applies to "employers, " and Title
VII excludes the federal government from the definition of
"employer." See 42 U.S.C. § 2000e(b)
("The term 'employer' . . . does not include . .
. the United States . . . ."). This court previously
assumed, without explanation, that § 2000e-2(h) applies
to the federal government. Cartagena v.
Sec'y of Navy, 618 F.2d 130, 134-35 (1st Cir.
1980) (per curiam). We now confirm that this is so and
provide further explanation.
originally enacted in 1964, Title VII did not apply to the
federal government. See Civil Rights Act of 1964,
Pub. L. No. 88-352, § 701(b), 78 Stat. 241, 253;
Brownv.Gen. Servs. Admin., 425
U.S. 820, 825 (1976). This was accomplished by excluding the
federal government from the definition of
"employer." As a result, each of the substantive
provisions of Title VII prohibiting employment
discrimination-as well as the safe ...