The Small Business Administration (“SBA”) has a business development program known as the 8(a) program under which qualifying small businesses can receive additional assistance, including set-aside contracts. To participate in the 8(a) program, a small business must meet certain eligibility requirements and be certified by SBA. One of the main eligibility requirements is that the small business be at least 51% owned and controlled by a socially disadvantaged individual.

Under SBA’s regulations, a socially disadvantaged individual is an individual that has been subjected to racial or ethnic prejudice or cultural bias within American society because of the individual’s identity as a member of a group without regard to the individual’s qualities. 13 CFR § 124.103(a). There is a rebuttable presumption that individuals who fall within certain racial and ethnic groups are socially disadvantaged. Individuals who are not members of one of those groups still can qualify for the 8(a) program if they can demonstrate:

1. At least one objective distinguishing feature that has contributed to social disadvantage, such as race, ethnic origin, gender, physical handicap, long-term residence in an environment isolated from the mainstream of American society, or other similar causes not common to individuals who are not socially disadvantaged;

2. The individual’s social disadvantage is rooted in treatment which he or she has experienced in American society;

3. The individual’s social disadvantage is chronic and substantial, not fleeting or insignificant; and

4. The individual’s social disadvantage has negatively impacted on his or her entry into or advancement in the business world.

13 CFR § 124.103(c).

In Hruckus, LLC, SBA No. BDPE-572, 2018 WL 4921497 (Sept. 26, 2018), a small business challenged SBA’s decision that its service-disabled veteran owner was not socially disadvantaged. The owner claimed that he was socially disadvantaged due to his disability, which occurred as a result of his military service, as well as his veteran status. The owner had attempted to demonstrate that he was socially disadvantaged by describing instances in which he allegedly experienced bias, such as not being promoted, being targeted for job layoffs, and not being hired for other positions.

SBA denied the 8(a) application, finding that the company failed to submit sufficient evidence showing bias, prejudice, and/or discrimination directed to the owner by others as a result of his status as a veteran with a service-related disability. Specifically, SBA concluded that the examples submitted id not establish a pattern of chronic and substantial bias treatment directed at the owner and did not demonstrate how the owner’s ability to compete in the marketplace was impaired due to chronic discriminatory treatment. The company appealed to SBA’s Office of Hearings and Appeals (“OHA”), which affirmed the SBA ruling.

According to OHA, the requirement that there be chronic and substantial bias usually is met if the applicant describes more than one or two specific, significant events, although one incident is sufficient if it is so substantial and far-reaching that there can be no doubt that the applicant suffered social disadvantage. The applicant must prove social disadvantage by a preponderance of the evidence that it is more likely than not that bias was a factor. SBA then must determine whether the totality of the described events shows the requisite negative impact.

OHA concluded that SBA’s determination that the owner was not socially disadvantaged was reasonable. OHA found that SBA considered all of evidence, based its conclusion on the facts presented in the administrative record, and the conclusion provides a clear rationale based on those facts.

Although SBA had argued that OHA had never recognized an individual’s claim of social disadvantage based on veteran status, OHA did not address the question of whether veteran status itself could be a basis for finding social disadvantage. Thus, it is possible that a veteran could establish that he or she is socially disadvantaged due to veteran status could if the veteran can demonstrate that he or she was subjected to bias because of that status.

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