In a closely watched case, the Seventh Circuit Court of Appeals recently clarified that disparate-impact claims may be based on any employment policy, as opposed to a facially-neutral policy, in Adams v. City of Indianapolis. Before Adams, many courts and companies believed that only facially neutral policies—such as testing requirements—could support a disparate-impact claim. Thus, the Seventh Circuit's decision will increase the number of disparate-impact claims employers are likely to see.

In Adams, numerous black police officers and firefighters in the City of Indianapolis alleged that the examination process the City used to rank candidates for promotion in the police and fire departments had a disparate impact on black candidates and was intentionally discriminatory. The Indianapolis police and fire departments administered similar promotion procedures. For each cycle, a "Development Committee" created and implemented the examination process, which consisted of a written test, an oral exercise and an assessment of the candidate's "personnel profile." The fire department's promotion processes also included a practical exercise. After testing was completed, each candidate's scores were tallied to create a composite score. The candidates were ranked on a promotion eligibility list in order of their scores. Generally speaking, the department chiefs promoted the highest-ranked candidates in order of their scores.

The plaintiffs filed lawsuits generally premised on the theory that the City's promotion process deprived black officers and firefighters of promotion opportunities because the testing process was racially and culturally biased and had been intentionally manipulated to achieve desired results. The district court dismissed the case on the basis that the policy the plaintiffs were challenging was not facially neutral.

In issuing its ruling, the Seventh Circuit said that the district court properly dismissed the case, but disagreed with the lower court's reasoning. Most significantly, it held that disparate-impact claims may be based on any employment policy, and not just a facially-neutral policy. Citing Supreme Court precedent, the Seventh Circuit noted that an employment policy or practice may fall short of being intentionally discriminatory, but nonetheless be tainted by bias. As such, the presence of a subjective bias should not remove the policy or practice from the domain of a disparate-impact claim.

Despite expanding the scope of what a plaintiff may plead in order to properly allege a disparate-impact claim, the Seventh Circuit ultimately found that the plaintiffs' claim failed for procedural reasons. Specifically, the court found that the complaint failed to state a plausible claim for disparate impact because they failed to plead enough factual detail showing racially discriminatory impact in the promotion process. The Seventh Circuit stated: "In a complex disparate-impact case like this one, we would expect to see some factual content in the complaint tending to show that the City's testing process, or some particular part of it, caused a relevant and statistically significant disparity between black and white candidates for promotion."

After listing a significant amount of factual detail the plaintiffs could have included in their complaint to demonstrate a link between the City's testing process and a racial disparate impact, the  Seventh Circuit found that none of the suggested requisite factual detail could be found in the plaintiffs' complaint. Ultimately, the Seventh Circuit dismissed these claims because the complaint failed to include the factual detail that would indicate plaintiffs had a plausible claim.

Though Adams resulted in dismissal of the plaintiffs' claims, the ultimate result of the ruling is that litigants may look to challenge a greater number of employment policies because of the Seventh Circuit's clear direction that any employment policy, not just a facially neutral policy, may be subject to a disparate-impact claim.