A woman does not need to provide the SBA with “smoking gun” evidence of bias in order to be considered socially disadvantaged for purposes of her company’s application to the 8(a) program.

In a recent decision, the SBA Office of Hearings and Appeals sharply criticized the SBA’s evaluation of a woman-owned small business’s 8(a) application, holding that the SBA had improperly discounted evidence of bias, needlessly demanded that the woman provide irrelevant details, and made several other errors.

SBA OHA’s decision in Matter of Bartkowski Life Safety Corp., SBA No. BDPE-516 (2014) involved Bartkowski Life Safety Corporation’s 8(a) application.  Bartkowski initially applied to the program in January 2012.  Bartkowski asserted that its owner, Lauren Sustek, was socially disadvantaged on the basis of gender.

More than a year later, on February 15, 2013, the SBA issued a determination letter denying the application.  Among other bases of denial, the SBA found that Ms. Sustek was not socially disadvantaged.  Bartkowski filed a request for reconsideration.  On April 1, the SBA issued a final decision denying the application.  Although the SBA found that Bartkowski had overcome the other initial reasons for denial, the SBA again determined that Bartkowski had not adequately demonstrated Ms. Sustak’s social disadvantage.  Bartkowski then filed an appeal with SBA OHA.

SBA OHA held that the SBA had committed several errors in its evaluation of Bartkowski’s 8(a) application.

First, SBA OHA found that the SBA had improperly relied on an “ultimate success” rationale.  The “ultimate success” rationale, which had been rejected by SBA OHA in earlier cases, means that the SBA discredits an incident of bias when the woman ultimately achieves her goal (e.g., where a woman ultimately obtains a desired promotion, but only after waiting much longer than a less-deserving man).  SBA OHA employed a sports analogy to explain why it is improper for the SBA to rely upon an ultimate success rationale:

An applicant owner whose path to entrepreneurship has been made more difficult because of her social disadvantage has experienced a negative impact. She is akin to a hurdler racing a sprinter. Even if the hurdler eventually passes the finish line, she has traveled a more daunting course and expended far more energy than her rival. The “ultimate success” rationale would recognize the unfairness of the race if she tripped on the final hurdle and quit, but not if she got up and completed the race. In essence, then, the SBA punishes the applicant for having the will to persevere. This is nonsensical. Rather than simply looking to the end result, the SBA must consider whether Ms. Sustek’s lack of career guidance was the result of gender bias, and if so whether it inhibited her opportunity to pursue her academic goals.

Second, SBA OHA found that the SBA had improperly discounted Ms. Sustak’s evidence of negative social patterns or practices that had discouraged her from seeking a professional or business-focused education.  SBA OHA noted that such a consideration is expressly called for under the SBA’s 8(a) program regulations.

Third, SBA OHA found that, in a number of instances, the SBA improperly “chooses to disbelieve [Ms. Sustak’s] testimony without offering any cogent reason for its skepticism.”  SBA OHA continued, “the Agency is not free to arbitrarily disbelieve credible evidence.  Rather, it must articulate a valid, evidence-based reason to discount or disregard it.”

SBA OHA wrote that in the course of unreasonably disregarding Ms. Sustak’s testimony, the SBA improperly required Ms. Sustak to provide irrelevant details.  For example, Ms. Sustak alleged that a former female co-worker had received better projects and workplace benefits because she was having an affair with a supervisor.  The SBA dismissed this claim, stating that there was insufficient evidence that the affair was the reason for the co-worker’s better treatment.  The SBA also faulted Ms. Sustak for not explaining what the projects or perks were, and why they were better.

This denial led to one of the all-time great passages in SBA OHA history:

The SBA fails to explain how additional information about the perks and projects would serve as proof that they were awarded to the co-worker in exchange for sexual attention. Nor does it offer any suggestion as to what kind of evidence would prove this claim. The Agency cannot reasonably expect Petitioner to obtain admissions, on the record, from either of the amorous parties. How then is it to acquire the smoking gun evidence the SBA demands, other than engaging in a clandestine information-gathering mission worthy of the National Security Administration? The SBA cannot justify its disbelief by citing the omission of unobtainable or irrelevant evidence.

SBA OHA pointed out that Ms. Sustak’s claim “is not inherently improbable,” and noted that Ms.  Sustak alleged that two mangers at the same employer had attempted to initiate relationships with her.  SBA OHA continued:

Given that two managers at the company have attempted to initiate romantic relationships with Ms. Sustek, it seems entirely plausible that a different manager would attempt to do the same with a different female employee, albeit with more success. There is thus ample evidence in the record to support Petitioner’s assertion. The SBA disregards this evidence by simply noting that other evidence is missing. This is not enough. It must explain why the omitted evidence is more persuasive than the evidence in the record. There is no such explanation present here.

Finally, SBA OHA wrote that the SBA had failed to examine all of the evidence of bias presented by Bartkowski.  For instance, the SBA failed to examine allegations of gender bias in Ms. Sustak’s education, sexual harassment at the workplace, and other incidents alleged by Ms. Sustak.  In response to a suggestion that Ms. Sustak had not experienced direct harm as a result of sexual harassment, SBA OHA wrote:

In this incident, the first three criteria are expressly laid out, but there is no distinct statement about how the incident affected Ms. Sustek. The Court presumes that this is the reason the SBA disregarded the claim. If so, the SBA implies that unwanted physical advances don’t — in and of themselves — have an adverse impact on their victims. In other words, the SBA appears to say, sexual harassment is not inherently harmful, even if it persists for years. The Court could not disagree more. By demanding some additional damage in excess of the harassment itself, the SBA gives a potent signal to employers that such conduct is acceptable.  The Court refuses to believe that the SBA actually intends to condone workplace sexual harassment.

SBA OHA granted Bartkowski’s appeal and remanded the matter to the SBA with instructions to re-evaluate Bartkowski’s 8(a) application by May 14.

In a string of 8(a) appeal decisions in late 2012 and early 2013, SBA OHA repeatedly upheld challenges to the SBA’s evaluation of social disadvantage.  Few such opinions have been issued since.  Hopefully, the Bartkowski case is an outlier and not a signal that the SBA has yet to correct the problems previously identified by SBA OHA.