Conducting commercial operations on tribal lands can pose significant challenges for non-Indian companies. Demonstrating sensitivity to the cultural nuances of Native American society and navigating the complex web of federal and tribal regulations applicable to Indian Country requires expertise and invariably adds time and costs to projects. Among the more difficult aspects of operating on tribal lands is managing compliance with applicable tribal preference requirements.  These requirements, often expressed through a Tribal Employment Rights Ordinance (“TERO”), require commercial entities doing business in Indian Country to give preference to tribal members and member-owned businesses when making employment and contracting decisions in association with projects conducted on Indian lands.

Although TERO laws are common on Indian reservations around the country, some commentators have questioned the enforceability of TERO provisions, arguing that the preference requirements represent impermissible discrimination on the basis of national origin, a practice that Title VII of the Civil Rights Act of 1964[1] prohibits. On September 26, 2014, the United States Court of Appeals for the Ninth Circuit became the first federal appellate court to address the merits of this question. In EEOC v. Peabody Western Coal Co.,[2] the Ninth Circuit upheld the validity of Navajo hiring preferences in coal leases issued to private companies on the Navajo Nation’s Reservation. In reaching its result, the Ninth Circuit concluded that the Navajo hiring preference in the leases represented a political classification, rather than a classification based on national origin, and therefore did not violate Title VII. While the question remains open in other circuits, most notably in the Eighth and Tenth Circuits (where significant private mineral development is occurring on tribal lands), the decision in Peabody Western is likely to be influential in how tribes apply, and courts interpret, tribal TERO requirements in the future.

  1. BACKGROUND.

Those not familiar with federal Indian law might be surprised to learn that common constitutional prohibitions against discrimination either do not apply, or apply in modified form in the context of Indian Country. Most notably, neither the Bill of Rights nor the Fourteenth Amendment apply to tribal governments.[3] Accordingly, the concepts of equal protection and due process lack constitutional force in limiting tribal power.

Tribes are subject, however, to “certain restrictions . . . similar, but not identical, to those contained in the Bill of Rights and the Fourteenth Amendment.”[4] In 1968, Congress passed the Indian Civil Rights Act (“ICRA”).[5] Among other protections, ICRA provides that “[n]o Indian tribe in exercising powers of self-government shall . . . deny to any person within its jurisdiction the equal protection of its laws.”[6]

Whether a TERO Ordinance would violate ICRA’s equal protection clause is an open question.  The federal courts have acknowledged that “the standards of analysis developed under the Fourteenth Amendment’s Equal Protection Clause [are] not necessarily controlling in the interpretation of the [ICRA],” recognizing that interpretation of ICRA must account for the unique cultural, historical, and socio-political circumstances of individual tribes.[7] Equally important, the statute itself is not enforceable in federal court; the Supreme Court has held expressly “that suits against the tribe under the ICRA are barred by [the tribe’s] sovereign immunity from suit.”[8]

Nor is it clear that generally applicable statutory limitations on discriminatory business practices apply to Indian tribes or tribal members. “Since 1834, Congress has incorporated employment preferences for Indians into legislation governing Indian programs and services.”[9] Qualified Indians enjoy “the preference to appointment to vacancies” in the Bureau of Indian Affairs and the Indian Health Service.[10] Federal law requires Indian preference — in hiring, training, and subcontracting — on all government contracts “to Indian organizations or for the benefit of Indians.”[11] Title VII itself includes an exception, allowing employers “on or near a reservation” to grant Indians “preferential treatment,” provided the preferential treatment policy has been publicly announced.[12] And in Morton v. Mancari,[13] the United States Supreme Court upheld the constitutionality of Indian preference holding that such preference is premised on a political, rather than racial, distinction and that this distinction was “reasonably designed to further the cause of Indian self-government[,] . . . a legitimate, nonracially based goal.”[14]

  1. PEABODY WESTERN

Notwithstanding the exceptions referenced above, the federal Equal Employment Opportunity Commission (“EEOC”) has adopted the position that a preference for members of a particular tribe — as opposed to a preference for “Indians” generally — falls outside the exemption of Title VII and constitutes unlawful national origin discrimination.[15] In Dawavendewa v. Salt River Project Agricultural Improvement & Power District,[16] the Ninth Circuit adopted a version of EEOC’s position in a case in which members of the Hopi tribe contended that the Navajo Nation’s tribal preference policy resulted in impermissible discrimination against members of other tribes who wished to work on the Navajo Reservation. The Ninth Circuit acknowledged the possibility, holding that “differential employment treatment based on tribal affiliation is actionable as ‘national origin’ discrimination under Title VII.”[17] The Ninth Circuit distinguished Dawavendewa from the Supreme Court’s holding in Morton, explaining that Morton did not involve a challenge under Title VII, and characterized the holding in Morton as limited– in the Ninth Circuit’s view, the Supreme Court in Morton held only that “the employment preference at issue, though based on a racial classification, did not violate the Due Process clause because there was a legitimate non-racial purpose underlying the preference.”[18]

The Peabody Western suit followed DawavendewaPeabody Western involves a similar contest to the validity of hiring and contracting preference requirements applicable to Peabody’s operations on coal leases Peabody owns on the Navajo Reservation.  Unlike Dawavendewa, where the plaintiffs were Hopi workers who felt that they had been discriminated against, the EEOC is the plaintiff in Peabody Western; the EEOC contends that Peabody’s compliance with the Navajo’s tribal preference requirements violates Title VII.[19]

On October 18, 2012, the United States District Court for the District of Arizona dismissed the EEOC’s claim in Peabody Western, upholding the validity of the Navajo’s tribal preference statute.  The district court first explained that Dawavendewa was not controlling, observing that, while the Ninth Circuit had ruled in Dawavendewa that discrimination on the basis of tribal membership represented actionable national origin discrimination under the terms of Title VII, the Ninth Circuit had not actually decided the case on the merits and determined that the application of a tribal preference violated Title VII.[20] The district court went on to conclude that while discriminatory, the Navajo’s tribal preference statute was reasonably tailored to “benefit the members of the tribe — a political entity — and to foster tribal self-government and self-sufficiency.”[21] The district court reasoned that, because it is “tribal membership, not status as an Indian, that is the touchstone” of the tribal preference, “[l]ike the general Indian preference in Mancari, the tribe-specific preference . . . is a political classification.”[22]

On September 26, 2014, the Ninth Circuit affirmed the district court. The Ninth Circuit observed that the coal leases at issue in Peabody Western – like virtually all mineral leases executed with tribal entities – were issued under the Indian Mineral Leasing Act of 1938 (“IMLA”),[23] a statute designed “to foster tribal self-determination by giving Indians a greater say in the use and disposition of the resources found on Indian lands.”[24] The Ninth Circuit acknowledged that the Department of the Interior has a long history of approving mineral leases that require the tribe’s lessee to give preference in hiring to tribal members and reasoned that “[t]his long-established practice serves to ensure that the economic value of the mineral leases on tribal lands inures to the benefit of the tribe and its members, consistent with the purpose of the IMLA.”[25]

With the IMLA providing the contextual background, the Ninth Circuit explained that, although discrimination based on tribal membership could implicate rules against national origin discrimination, “[i]n appropriate situations, federal law yields out of respect for treaty rights or the federal policy fostering tribal self-governance.”[26] The Ninth Circuit concluded that the Navajo mineral leasing program was such a situation— the Navajo preference rules advanced the federal policy of promoting Indian self-government and affording the tribe the maximum amount of control over its own natural resources.

That the Navajo preference statute discriminated against members of other Indian tribes was not dispositive, because “[w]here the exploitation of mineral resources on a particular tribe’s reservation is concerned, the federal government’s responsibility necessarily runs to that tribe, not to all Indians.”[27] The Ninth Circuit characterized the preferential hiring provisions in Peabody’s leases as “useful in ensuring that the economic benefits flowing from the ‘most important resource’ on the Navajo reservation accrued to the tribe and its members” and summarized that “[m]easures intended to preserve for the Nation and its members the fruits of the resources found on the tribe’s own land are “rationally designed” to fulfill the federal government’s trust obligations to the tribe.”[28]

  1. CONCLUSION.

Although the Ninth Circuit’s opinion in Peabody Western appears to grant broad support for the enforceability of TERO statutes, several essential questions still remain to be resolved. First, although all mineral leases executed on tribal lands are granted under the IMLA, leases executed with individual allottees are not.  Those leases are typically executed under the authority of 25 U.S.C. § 396, a statute that courts may not interpret to reflect the same underlying objectives related to tribal self-determination and sovereignty that the IMLA advances. Whether the Ninth Circuit’s rationale in Peabody Western can be applied to allottee lands therefore remains to be decided.

It is also unclear what influence that the Ninth Circuit’s decision will have on courts that might address similar questions in the next few years. While coal continues to dominate on the Navajo Reservation, significant oil and gas activity continues to proliferate on tribal lands in, among other places, North Dakota, Utah, Colorado, New Mexico, and Oklahoma.  The Peabody Western decision is not controlling in any of those locations. In the end, prudent companies will continue to comply with all federal and tribal preference restrictions, but important questions about the long term enforceability of TERO programs remain.