Did the Supreme Court Put All DEI Programs at Risk?

It has been less than a month since the Supreme Court’s June 29 decision in Students for Fair Admissions, Inc. v. President and Fellows of Harvard College (SFFA), and the decision is already creating controversy. Conservative leaders are lining up to declare that SFFA means that all Diversity, Equity and Inclusion Programs (“DEI”) are unlawful. Not to be outdone, a number of the more liberal politicians are trying to assure employers that it is still lawful for them to promote diversity. In fact, the reality actually falls somewhere in between. But now is the time, while DEI programs at private companies are still lawful, to look at them more carefully, and with a post-SFFA lens.

In the SFFA ruling, the Court struck down affirmative action programs at Harvard and the University of North Carolina, holding that the admissions programs at both universities violated the Equal Protection Clause of the 14th Amendment. On July 13, 2023, the Attorneys General (the AGs), of thirteen states – Alabama, Arkansas, Indiana, Iowa, Kansas, Kentucky, Mississippi, Missouri, Montana, Nebraska, South Carolina, Tennessee, and West Virginia – sent a letter to the CEOs of Fortune 100 companies warning that their current race-conscious hiring and promotion preferences violate the law, and citing the SFFA decision as authority. The AGs’ letter threatens that hiring and promotion quotas favoring minorities violate Title VII of the Civil Rights Act of 1964, and may further violate analogous state laws that the AGs have jurisdiction to enforce. Similar to the Supreme Court’s analysis of the affirmative action issue, the AGs argue that even if DEI hiring programs are benignly designed to help” members of certain minority groups, they naturally do so to the detriment of others who do not meet the same protected criteria. Senator Cotton certainly takes a similar view.

Then, on July 17th, Senator Tom Cotton (R-Arkansas) sent a letter to 51 major U.S. law firms, claiming that DEI employment initiatives violate federal law and the Supreme Court’s holding in SFFA. In his summary, the Senator broadened the threat not just to the firms themselves, but to their clients as well, warning: 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.”

To further confuse businesses, on July 19, the Attorneys General from 21 states sent their own letters to a number of large companies stating that DEI programs are lawful. They pointed out that the SFFA decision does not apply to private businesses, and that DEI programs are still a lawful goal for companies to pursue. The pro-DEI AGs go on to encourage employers to continue to advance diversity lawfully, and to recruit and retain diverse employees. Faced with these two competing viewpoints, employers are left to pull out their hair in confusion.

Who is right: Are DEI Progress Unlawful?

First, the July 19th pro-DEI AG’s are correct: the SFFA decision does not directly apply to private employers. The decision only addressed the narrow issues of whether the admissions process of two educational institutions, both of which accept federal financial assistance, violated Title VI of the Civil Rights Act of 1964 and the Fourteenth Amendment. These laws do not apply to private employers, which are covered by statutes like Title VII, and use different legal frameworks to analyze claims of discrimination. Those legal tests were not affected by the SFFA decision at all.

Additionally, even before the SFFA decision, many of the processes which universities were allowed to follow in admissions were already illegal for a private employer – which cannot favor one race over another in employment decisions. Under Title VII, private employers are prohibited from making decisions based on race and other protected characteristics. Unlike higher education, federal law has never allowed employers to take race into consideration in making employment decisions, and employers generally are not permitted to take employment actions motivated by protected characteristics, including meeting racial- or sex-based quotas.

The EEOC’s View

Following the SFFA decision, the EEOC released a statement reiterating that the decision does not address employer efforts to foster diverse and inclusive workforces. The EEOC has made it clear that it remains lawful to implement DEI programs to ensure that workers of all backgrounds are provided with an equal opportunity in the workforce. This dichotomy between the EEOC and conservative political elements in Congress, mean that employers who choose to implement DEI programs must pay attention to the swinging political pendulum, and be ready to adapt as necessary to conform with any power changes in Washington (or, alternatively, be prepared to bear the financial costs of litigating any challenges).

The opposing view as stated by the 13 AGs’ letter to the Fortune 100 CEOs, is concerned with any progress that provides a benefit to some applicants but not others in a corporate setting. Corporate DEI hiring programs that have given a plus” factor to some protected characteristics, may operate as negative” factors for others, and might not hold up under greater scrutiny in future litigation. In the wake of the SFFA decision, we may see an uptick of failure to hire” lawsuits by non‑diverse applicants, who allege that they were not fairly considered based upon an employer’s publicly-expressed DEI initiatives, which are perceived to favor minority-applicants.

Are reverse-discrimination claims on the rise?

In recent years, there has been an increase in cases where Caucasian employees have sued claiming reverse discrimination, and won. For example, in Philips v. Starbucks (Case No. 1:19-cv-19432-JHS-AMD, D.N.J. June 15, 2023), the New Jersey federal court awarded $25.6 million dollars to Philips, a White manager who was fired following an incident with a Black customer. In Philips, the jury found that the plaintiff’s termination was motivated by her race.

In another example, a conservative group filed a complaint with the EEOC against McDonald’s concerning the fast food giant’s DEI strategy. In the letter Michael Ding of America First Legal Foundation wrote, In its 2021-2022 Global DEI Report, the corporation credited its Global Diversity, Equity and Inclusion Strategy” as the primary cause for driving an increase in women at the Senior Director and above level from 37% in 2020 to 41% in 2021, and an increase of Underrepresented Groups” from 29% to 30%.5 … To further incentivize managers to hire and promote employees according to these quotas, in 2022, the corporation has, among other things, expanded its quantitative metrics to hold all Vice Presidents, Senior Vice Presidents, and Managing Directors accountable for engaging in inclusive behaviors that support talent development and building a strong diverse succession pipeline” and implemented race, sex, and national origin based preferences and quotas for hiring, promotion, and training within its legal department.”

There’s also the Netzell v. Amer. Express Co. (2:22-cv-1423-SMB, D. Az.) case, where American Express is currently being sued by a group of employees who claim that its DEI initiatives directly violate Title VII. The rise of anti-woke” activism, particularly by conservative-aligned, non-profit organizations, will only increase this trend.

What Should Employers Do?

The SFFA decision did not change the law for private sector employers. However, it certainly signals a shift in the winds,” which may have indirect implications for the continued trend of pushback against DEI initiatives. Now is the moment to act, before your company is targeted for a lawsuit. Take proactive steps to assess your diversity programs, and eliminate any adverse risks.

  • Evaluate your DEI initiatives. Review your voluntary DEI initiatives and programs carefully and make sure they are compliant with the law. There should never be a mandate or directives to favor” or target” certain groups for hiring or promotion. Avoid or eliminate direct numerical targets, such as 10% of this team must be a certain demographic”. Look closely at leadership acceleration programs or internship programs that are open only to members of underrepresented minority groups, as these may come under scrutiny under the expected wave of further litigation.
  • Review Your DEI Communications. Review internal and public facing DEI communications to avoid statements that may be mischaracterized as unlawful. Take care to be clear that your company is committed to all employees, regardless of protected class. Make sure that race or ethnicity are not explicit plus” factors in any employment decision. Also make sure that executives are careful about statements that indicate any sort of racial or ethnic preference.
  • Use Other Factors to Encourage Diversity. It is important to keep in mind that DEI programs do not exist to favor certain groups of individuals over others. These programs exist because diverse, equitable, and inclusive workplaces may be more successful, agile, and equipped to fit customer and client needs. Rather than directly relying upon an individual’s race or other protected characteristic, it may be more appropriate to consider an individual’s history of overcoming adversity or economic status when making hiring decisions.
  • Expand Your Recruiting Efforts. The SFFA decision is likely to have an effect on the diversity of graduating classes in higher education, which will result in decreased diversity in applicant pools coming from at least certain colleges and universities. Employers committed to ensuring a diverse applicant pool may want to reconsider what colleges and universities they recruit and hire from as part of this effort. Employers may also lawfully take steps to ensure the applicant or talent pipeline includes people of all backgrounds.
  • Pay Attention to State Law Requirements. A number of states and localities have enacted their own anti-discrimination laws. More recently, a small number of states have enacted anti-DEI” statutes that could affect your business. Employers in these jurisdictions should be cognizant of the applicable laws and consult with their counsel to ensure any DEI programs are compliant.

Of course, this all must be undertaken without any suggestions that diversity would be seen as a negative factor. You never want to suggest that hiring or promoting a diverse person would be a bad thing, everyone should be judged on merit.

Employers who value diversity do not need to immediately abandon their diversity initiatives, but do need to expect that they may be challenged, and ensure that they are compliant with the law and do not promote favorable treatment of one ethnic group over another.

If you have any questions concerning your business’s current DEI initiatives or the impact of the SFFA decision, please contact a member of Kelley Drye’s Labor and Employment team.