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A New Jersey school district should not have laid off a white teacher over an equally qualified black teacher for the sake of racial diversity, a divided federal court ruled.

The court Thursday said the district's affirmative action policy was not designed to remedy past discrimination and violated the rights of non-minority employees.The ruling was a blow to the Clinton administration, which has backed affirmative action programs designed to increase diversity.

Under the Bush administration, the Justice Department had backed the white teacher, but the Clinton administration Justice Department switched to support the school board.

Lawyers for both sides say the decision could limit the circumstances in which an employer can use race in hiring, promotion and firing decisions.

"If this decision stands," said David B. Rubin, the school board's attorney, "I would certainly be required to advise the districts I represent that they should completely ignore race in any employment decision."

Rubin didn't know whether the district would appeal.

An eight-judge majority of the 3rd U.S. Circuit Court of Appeals ruled that the Piscataway, N.J., policy failed to meet the criteria set by the U.S. Supreme Court for race-based preferences in employment decisions: that they address past discrimination without impinging on the rights on non-minorities.

The Piscataway Board of Education argued that it wanted to preserve diversity in its business education department.

The court rejected that justification, with four judges dissenting.

In a majority opinion, Judge Carol Los Mansmann wrote that the policy "trammels the interests of non-minority employees." Because the board set no "benchmarks," it could grant racial preferences on a whim.

In 1989, Piscataway laid off Sharon Taxman, a white teacher, instead of Debra Williams, a black teacher with similar qualifications who had been hired on the same day in 1980. Williams was the only black teacher in the district's business education department.

Blacks were not underrepresented in the district as a whole, however, and the board acknowledged that it wasn't trying to increase diversity overall.

Chief Judge Dolores K. Sloviter wrote in dissent that the ruling means a school district would have to decide whom to dismiss by flipping a coin - "a solution that could be expected of the state's gaming tables" - rather than considering its students' need for diversity.