Hey CEOs – Be Careful with Those Diversity Initiatives!

By Fiona Ong - Shawe Rosental LLP

July 21, 2023

A few years back, during the initial surge of corporate diversity, equity and inclusion initiatives in response to the killing of George Floyd and the #BlackLivesMatter movement, I wrote a blog post that applauded corporations for focusing on the issue – but also cautioned them to avoid inadvertently violating anti-discrimination laws in their eagerness. Well, following the Supreme Court’s recent decision prohibiting the use of race in college admissions, my (somewhat prescient?) warnings have taken on new urgency.

As Liz Torphy-Donzella and I noted in our E-lert on the Supreme Court’s Harvard and UNC decision, the Supreme Court’s ruling rejecting affirmative action was specific to college admissions. And the legal issues around affirmative action in college admissions is quite different from the legal framework for affirmative action (and diversity) in the workplace. Nonetheless, we predicted that this decision would lead to more challenges to affirmative action and DEI initiatives in the workplace, and these predictions are already coming to pass.

So what do the federal non-discrimination laws actually say? With regard to affirmative action, federal contractors and subcontractors are required to implement affirmative action programs (AAPs) for women and minorities (but preferences or quotas are specifically not permitted!). As for private employers, AAPs may be mandated by a court or agency where an employer has engaged in discrimination against a group on the basis of a protected characteristic. Private employers may also implement voluntary affirmative actions programs, but according to the Supreme Court and the Equal Employment Opportunity Commission, such programs must meet very specific and rigorous requirements:

-  the plan must be designed to eliminate a conspicuous racial imbalance in traditionally segregated job categories;
-  the plan may not trammel the interests of the non-minority employees; and (3) the plan is temporary in nature, intended to eliminate a manifest imbalance and not to maintain balance.

Over the years, courts have found a number of voluntary AAPs to be unlawful – perhaps the employer did not properly establish a racial imbalance (such as through the use of historical data), or the rights of non-minority employees were negatively impacted by the program, or the program was designed to be ongoing rather than temporary. And we can certainly expect the scrutiny of such programs to increase in the coming years.

But most private employers have not chosen to engage in the challenging process of implementing a (legally compliant) voluntary AAP. Rather, they are focusing on DEI initiatives – which are supposed to promote non-discrimination and equal employment opportunity in the workplace. Such efforts are covered by Title VII and state/local non-discrimination laws.

Now, under Title VII, employers are prohibited from exhibiting a “discriminatory preference for any group, minority or majority.” This means that all individuals are protected from discrimination based on any legally protected personal characteristic – and this includes White employees as well as minorities. Under the law, employers should be making decisions based only on an employee’s job-related qualifications. And this is true, even in the context of DEI initiatives. And this is where the arrows are pointed.

Within the past week or so, the Attorneys General for 13 States (let’s just say they’re seeing RED) sent letters to the CEOs of the Fortune 100 companies to “remind” them of their non-discrimination obligations under federal law in light of the Supreme Court’s opinion. More specifically, they accuse these companies of engaging in illegal race-based initiatives favoring Black individuals in employment and in vendor/customer/contractor relations. The AGs assert that “Well-intentioned racial discrimination is just as illegal as invidious discrimination” in warning the CEOs against the use of racial quotas and race-based preferences.

Closer to home for us (as a management-side employment law boutique firm), Senator Tom Cotton from Arkansas is apparently sending letters to major law firms, citing the Supreme Court opinion and warning that “Congress will increasingly use its oversight powers – and private individuals and organizations will increasing use the courts – to scrutinize the proliferation of race-based employment practices.” Rather threateningly, he finishes by stating, “To the extent that your firm continues to advise clients regarding DEI programs or operate one of your own, both you and those clients should take care to preserve relevant documents in anticipation of investigations and litigation.”

In this current environment, it is critically important for employers to ensure that their DEI practices fall on the right side of the law. Several years ago, I had a conversation with a high-ranking HR official at a major corporation that was taking aggressive, race-based actions to increase diversity. When I gently questioned them on the potential Title VII violations, they said that they understood the concern, but were willing to take the risk because they thought it was the right thing to do. And many companies shared that view. But in this current environment, that view may leave such companies open to liability for reverse race discrimination.

Nonetheless, there are many actions that employers can take to expand equal opportunity for all and to increase the diversity of the pool of applicants without running afoul of the law. But the real lesson here is to work closely with employment counsel to ensure that such initiatives do not cross the line and set the company up as a target for a reverse race-discrimination charge.

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