Companies 'throwing up hands' as DEI risks loom

Such vulnerabilities could invite lawsuits from conservative activists hoping to parlay their success eliminating affirmative action in higher education into quashing diversity programs in corporate America.

Many companies stepped-up their DEI programs in recent years after pressure from shareholders and proxy advisory firms. Some of these efforts were a good-intentioned response to racially charged events such as the murder of George Floyd by a Minneapolis police officer in 2020.

Unfortunately, DEI efforts at some companies were overzealous to the extent they could be viewed as giving a discriminatory preference for a particular minority or group, as Shawe Rosenthal lawyer Fiona Ong recalled about one particularly egregious case.

“I thought, ‘Holy cow, where was their in-house counsel on this/? Where was their outside counsel?’ Those were flagrant violations of Title VII,” Ong recalled. “It was just astonishing to me how many companies were making those kinds of statements.”

Even companies that have the deepest bench of lawyers and comply with employment law can find themselves under scrutiny.

Nearly three years ago Microsoft was contacted by the U.S. Department of Labor’s Office of Federal Contract Compliance Programs over its commitment to double its number of Black managers and senior leaders. The government said the effort “appears to imply that employment action may be taken on the basis of race.”

Microsoft countered that it knows “full well how to appropriately create opportunities for people without taking away opportunities from others.” It also assured regulators that it hires and promotes the most-qualified person for a position. The DOL closed the investigation.

Indeed, Ong said in a recent client advisory that “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.”

A number of lawyers in this space say that companies should be careful to establish “aspirational” goals rather than anything that appears to be a quota, the latter of which is forbidden under Title VII.

Generally, employers should focus on recruiting a broad base of candidates in a “neutral and nondiscriminatory” manner, said Cara Yates Crotty, a partner at Constangy Brooks Smith & Prophete.

“DEI programs not race- or gender-conscious should not be problematic,” she said.

Even if a company is careful to implement a legally defensible DEI program at the highest level, some of the vulnerabilities manifest further down in the ranks, Vicky Slade, an attorney with Davis Wright Tremaine’s employment services group, said.

Many of these employees don’t understand the objectives of DEI programs, and may think the company doesn’t want white men, for example. So Slade has been busy conducting training for companies on topics such as the meaning of hiring for diversity, which includes reducing barriers that prevent opportunity for advancement.

“We are getting interest from companies that want a legal set of eyes on their programs to see if they have any undue risk,” Slade added.

Lawyers say another area of concern in the wake of the U.S. Supreme Court’s Students for Fair Admissions v. Harvard ruling this year, which ended affirmative action in college admissions, is minority internships.

Ong said there’s a potential argument to be made that such internships violate Section 1981, which prohibits discrimination on the basis of race, color and ethnicity in making and enforcing contracts.

Sure enough, earlier this month Atlanta venture capital company Fearless Fund was sued for racial discrimination over a program that awards $20,000 grants to Black women business owners. Bringing the case is American Alliance for Equal Rights, headed by Edward Blum, who also leads Students for Fair Admissions.

Blum told Reuters that the suit was the first of many he’s planning against companies over their race-conscious policies. Ironically, perhaps, Section 1981 granted Blacks the same rights as whites after the Civil War, noted Jason Schwartz of Gibson, Dunn & Crutcher, which is representing the Fearless Fund.

“They’re kind of turning the statute on its head,” Schwartz said of the plaintiff AAER.

Schwartz said most of his firm’s clients are reviewing their DEI programs for possible changes following the Harvard case. Some of those clients even worry about recruiting Black students on campus for fear of litigation.

“I think basically every corporation in America is throwing up their hands and saying, ‘We don’t know what to do,’” Schwartz said.

Companies are being buffeted by the tempest of “mixed messages,” Schwartz noted, not only the Harvard ruling but sometimes dueling signals from the Equal Employment Opportunity Commission and state attorneys general—and conservative plaintiffs.

Related: Affirmative Action ruling could have an effect on DEI programs in the workplace

For example, last month, 13 conservative state attorneys general, led by Kansas and Tennessee, mailed letters to the CEOs of Fortune 100 companies urging them “to refrain from discriminating on the basis of race, whether under the label of [DEI] or otherwise.

“Treating people differently because of the color of their skin, even for benign purposes, is unlawful and wrong. Companies that engage in racial discrimination should and will face a series legal consequences,” the letter warned.

Conservative groups have filed a number of suits over the last year that include the diversity efforts at Target and Starbucks. And recently America First Legal, a nonprofit headed by former President Donald Trump adviser Stephen Miller, filed a complaint with the EEOC against Kellogg Co. for its race and sex-based hiring and promotion policies.